More stock millionaires, bigger bonuses: Why department stores are the market's hottest bet

A surging Kospi, massive performance bonuses tied to a semiconductor boom, and growing foreign tourist arrivals are combining to lift expectations for South Korea's consumer market. Analysts say conditions are ripe for a full-blown "wealth effect" — the phenomenon in which rising asset values translate into greater consumer spending. Department stores, positioned to capture both high-net-worth domestic shoppers and foreign visitors, are emerging as the sector's top beneficiary.

The domestic asset market looks nothing like it did last year, according to financial investment industry sources Thursday. The Kospi, which was still hovering around the 2,000 level as recently as May last year, briefly surged past 9,000 this year before pulling back to around 7,000. Even at current levels, the index remains roughly two to three times higher than a year ago.

The rally has substantially inflated investors' paper wealth. Combined with performance bonuses flowing from improved corporate earnings, the environment now features simultaneous growth in both financial assets and labor income — a textbook setup for the wealth effect, market watchers say.

The semiconductor sector's recovery has added further momentum. Samsung Electronics and SK hynix have paid out large performance bonuses, and exports remain strong, led by chips. A weaker won, driven by the elevated exchange rate environment, has also consistently drawn more foreign tourists to South Korea. The result is a dual tailwind: expanded domestic spending capacity and rising inbound demand.

As both asset markets and the real economy improve together, the ranks of South Korea's wealthy are growing rapidly. According to a report released June 22 (local time) by wealth data analytics firm Altrata, Seoul ranked 12th among the world's top 12 cities by number of ultra-high-net-worth individuals — those with net assets of $30 million or more — with 6,220 such residents. Seoul posted the highest growth rate among all cities surveyed, with its ultra-wealthy population rising 36.3 percent year-on-year.

Customer data from domestic brokerages tells the same story. The trend goes beyond existing wealthy clients seeing their assets grow — new high-net-worth individuals are rapidly entering the ranks, propelled by unrealized gains in their stock portfolios.

Mirae Asset Securities said June 23 that the number of high-net-worth customers holding financial assets of 3 billion won or more reached approximately 9,500 as of the end of last month. That represents an increase of more than 200 percent compared with roughly 3,000 clients in May last year, and a month-on-month gain of 26 percent.

Samsung Securities is seeing an equally steep climb. The brokerage said that as of June 29, the number of individual clients with assets of 3 billion won or more stood at 10,645 — up about 81.6 percent from 5,862 at the end of last year, and the first time any firm in the industry has crossed the 10,000 mark.

Markets are increasingly confident that this accumulated financial wealth will translate into actual spending. When asset values rise, consumers tend to feel wealthier and loosen their purse strings, particularly on luxury goods, fashion and premium consumer products. With a weaker won also boosting foreign tourists' shopping appetite, expectations for a meaningful earnings recovery at department stores are building.

Brokerages see department stores as one of the biggest winners from these shifts. Their business model is well suited to capture both expanded spending by wealthy domestic customers and rising sales to foreign visitors.

Baek Jae-seung, a researcher at Samsung Securities, maintained a buy rating and a target price of 230,000 won on Lotte Shopping, saying the wealth effect and rising foreign visitor sales "are consistently showing up, centered on large stores, and profitability continues to improve as fashion sales growth stands out alongside luxury."

On Hyundai Department Store, Baek said department store sales that had been sluggish through the first half of last year "began recovering in the second half of last year, supported by the wealth effect from strong exports and rising inbound demand, and have entered a growth phase this year." He set a target price of 250,000 won with a buy rating.