South Korean department stores are elevating their VIP shopping experience by refurbishing their outlets, expanding their VIP concierge services and arranging tailored cultural events in an apparent push to shore up their profitability amid a sluggish economy.
Multiple retail statistics have shown that a mere 1 per cent of high spenders account for approximately 25 per cent of sales at department stores, with the top 20 per cent of spenders accounting for 80 per cent of the stores’ sales.
Earlier this month, Lotte Department Store opened a branch of high-end lifestyle retailer The Conran Shop at its Gangnam outlet in affluent southern Seoul.
The new shop is its 12th global location, adding Seoul to a list of cities that includes London, Paris and Kyoto.
“The Conran Shop will be the country’s most expensive lifestyle retailer,” said Jeong Hae-mi, a Lotte Department Store official, expressing hope that the British luxury retailer can grab the attention of picky top-spending customers in the region.
The store is located on the first and second floors of the annex building, an unusual move, as the first floor of local department stores has traditionally been occupied by cosmetics and low- to mid-range accessories brands.
Occupying a 3305sqm space, the shop brings together more than 300 designer brands, ranging from Fritz Hansen to Tom Dixon, with products such as a sofa priced at 10 million won (US$8480) and a dining table for 30 million won.
Galleria Department Store opened an exclusive VIP clubhouse for its highest-spending customers in the central city of Daejeon last month. Only those who spend more than 40 million won a year at the department store are allowed to enter the building.
“Maison Galleria,” located in a five-story building in downtown Daejeon, separate from its main building in the city, offers a cafe and a space that hosts regular cultural and entertainment-themed shopping events on a reservation basis for loyal customers.
It is the first time a local department store has opened a VIP space outside of a main building.
Galleria Department Store’s first VIP clubhouse, in the central South Korean city of Daejeon. (Image: Galleria Department Store)
Department stores are also revamping their luxury brand stores by, for instance, opening pop-up stores to offer a more exclusive and personalised shopping experience, like a hotel concierge service.
Hyundai Department Store, another major player, is undergoing major renovations of its luxury brands, including French luxury house Hermes, at its Apgujeong outlet in southern Seoul.
Hermes’ two-story store, which is scheduled to open early next year, will target a luxury clientele who prefer personal styling appointments and meet-the-designer events, the company said.
Shinsegae Department Store has also changed its VIP rating system to include more potential spenders, mostly in their 20s, by offering special benefits that include valet parking, discounts on all purchases and access to VIP lounges where they can get free coffee.
In 2017, Shinsegae added another VIP customer group for people spending more than 4 million won a year, a decision it hopes will attract younger customers with high purchasing power.
“Acquiring luxury clientele in their 20s and 30s means we can secure revenues from both the present and the future, as young customers are most likely to shop at the same store even when they reach their 40s and 50s,” said Lee Sung-hwan, an official at Shinsegae Department Store.
The number of customers in this spending category increased 79 per cent on-year in 2018, with 66 per cent of them in their 20s and 30s, the company said.
Combined sales at Lotte, Shinsegae and Hyundai department stores decreased 5.6 per cent in September compared to a year earlier, while sales of luxury brands jumped 14.7 per cent on-year, according to data from the Ministry of Trade, Industry and Energy.
South Koreans in their 20s are rising as a new consumer group in pursuit of luxurious goods thanks to the popular ‘flex’ culture.
Lotte Members, operator of membership reward service L.Point reported that consumption of luxury goods among the 20s age group rose more than seven-fold in the last two years, gaining presence as the new consumption tier of the luxury market.
Experts argue that the new trend is driven by the popular flex culture formed among young South Koreans born in the 1990s.
The term flex, defined as to bend or to tighten a muscle, symbolises the fame and wealth boasted by rappers and hip-hop artists.
While South Koreans in their 30s and 40s still compose the majority of the luxury market, retailers and luxury brands are eyeing the new trend.
Most of these young luxury consumers have been acquiring information on luxury goods via influencers from various social network platforms including YouTube and Instagram (26.7 per cent).
They picked offline stores of luxury brands as the preferred route of purchasing a luxury product (12.8 per cent).
When buying luxury goods, they first looked at the design (59.2 per cent), followed by practicability (32.5 per cent) and price (32.3 per cent).
Young consumers spending 1.5 million won (US$1270) or less to buy luxury goods rose by 6.9 percentage points, while those spending 3 million won or less rose by 6.7 percentage points.
Those spending more than 3 million won, however, increased by 3.4 percentage points, showing that young consumers prefer more affordable goods in relative terms.
Most young consumers bought sneakers or running shoes from luxury brands (27.7 per cent) thanks to the recent trend among South Korean businesses allowing employees to freely choose their attire for work.
Young consumers also enjoyed shopping at specialist private-label apparel (SPA) brands, well-known for their casual design and affordable price, to pair with luxury brand clothes.
- Original reporting by M H Lee of Korea Bizwire.