'Wedding rings from department stores, not Jongno' — Korean luxury boom lifts global brands

Global luxury conglomerates posted markedly improved results in the second quarter of this year, successfully defending their earnings despite the Middle East war and volatile exchange rates. A common thread in their results: strong performance not only in key markets such as the United States and Japan, but also in South Korea. The unprecedented boom at domestic department stores appears to be translating into a higher profile for Korea within the global luxury market.

LVMH, the world's largest luxury group, posted first-half sales of 38.6 billion euros ($44.5 billion), up 2 percent from a year earlier, according to industry sources Friday. Second-quarter sales grew 3 percent year on year. While the pace has slowed from its peak, the group has consistently maintained its growth trajectory, reaffirming its position as the global leader in luxury.

Kering Group, which owns Gucci and Balenciaga, reported second-quarter sales of 3.65 billion euros, up 1 percent from a year earlier on a currency-neutral basis. It was the first time in 12 quarters that Kering's quarterly sales had returned to growth after a prolonged slump. The rebound lifted first-half sales to 7.22 billion euros, also up 1 percent year on year.

Both companies singled out Korea when discussing their Asian market performance. Cécile Cabanis, LVMH's chief financial officer, said the watches and jewelry division — which posted the highest first-half growth among all divisions at 9 percent — saw its fastest expansion in the US, Japan and Korea. During a question-and-answer session with an analyst, Cabanis added that "wherever wealth is being created, as we can see in the US and Korea, there is strong demand for luxury and our products across all customer segments."

Kering CFO Armelle Poulou also addressed the group's Asian performance, saying that "while mainland China was weak, the rest of Asia — and Korea in particular — delivered outstanding results." Bottega Veneta, Balenciaga and Boucheron were among the Kering brands cited for strong performance in Korea.

Korea's standing in the global luxury market has risen considerably, analysts say. Growth in China — long the engine of Asian luxury demand — has slowed, while Korean demand has surged. LVMH Chairman Bernard Arnault's visit to Korea in May was seen as a symbolic moment: on his first trip to the country in three years, Arnault toured stores at both Shinsegae and Lotte Department Store.

The shift coincides with an extraordinary boom for South Korea's department store industry. A cultural change has taken hold in which couples preparing for marriage now buy their wedding jewelry at department stores rather than at traditional gold shops in Jongno. A stock market rally earlier this year further stoked demand for luxury goods. Foreign tourists, arriving in record numbers, have made department stores a must-visit stop — and a won-dollar exchange rate that climbed into the mid-1,500 won range has made domestic luxury shopping even more attractive to overseas visitors.

Lotte Department Store reported that luxury sales in the first half of this year rose 35 percent from a year earlier, while watches and jewelry surged 65 percent over the same period. Shinsegae posted growth of 35 percent and 68.8 percent in the same respective categories, and Hyundai Department Store recorded increases of 35.2 percent and 60.2 percent.

Major domestic department stores, which are set to release their second-quarter earnings in early August, are widely expected to post record results. Ultra-premium luxury goods have been the single biggest driver of department store sales. According to the Ministry of Trade, Industry and Energy, department store sales in the first half of this year rose 20.1 percent from a year earlier, with double-digit monthly growth sustained throughout the entire period.

However, some analysts expect the stock market's recent instability to cool third-quarter growth. In a recent report, Lee Jin-hyeop, a researcher at Hanwha Investment Securities, noted that department store fashion category growth, which had maintained double-digit gains through May, slowed to single digits in June. "The fashion category is one where we can gauge demand from middle- and lower-income consumers," Lee said, adding that "the market suspects the cause may lie in a contraction of the wealth effect following the stock market correction."

One industry official cautioned against reading too much into the trend, saying overall category sales had maintained double-digit growth through the third week of July. Another industry official said that even if consumer sentiment weakens due to a deteriorating stock market, "the impact on department stores will likely come with a lag — the immediate effect is limited."