Why are luxury brands investing more in South Korea despite economic headwinds?
The expert shared that the Polene flagship was packed even though she visited the store just a few days after its opening.
The post Why are luxury brands investing more in South Korea despite economic headwinds? appeared first on Inside Retail Australia.
Less than a year after making its Asia debut in Tokyo, the Paris-based luxury leather goods label Polene has recently expanded its international presence with a flagship store in South Korea, aiming to capture the burgeoning affluent demographic in the country.
The move comes at a time when South Korea is experiencing an influx of international luxury brands establishing a presence in the market.
Last month, American fashion label Kith expanded into the country, opening its largest flagship store in Seoul’s Seongsu neighbourhood with dedicated retail space, Sadelle’s restaurant and a sophisticated lounge area. Another noteworthy addition to the South Korean luxury market was the Olsen twins’ luxury label The Row. The brand entered the South Korean market with the opening of its first store at the high-end Shinsegae Department Store located in the bustling area of Gangnam.
CDG by Comme des Garçons also opened its first standalone store in South Korea under a partnership with Samsung C&T Fashion earlier this year.
“Between 2021 and 2023, more than 30 fashion maisons, including Celine, Chloe, and Givenchy, have established subsidiaries in South Korea,” Dominika Kustosz-Lee, co-founder and CEO of Dkl & Company, told Inside Retail. “This used to be one of those markets with a big reliance on domestic distributors, but luxury brands are switching to directly operated stores.”
The expert shared that the Polene flagship was packed even though she visited the store just a few days after its opening.
The conundrum of slow growth
While the pace of luxury brand store openings paints a picture of a booming industry, the country’s luxury sector’s growth trajectory seems to tell a different story. Compared to the previous year, growth in the sector has slowed down, with some luxury brands reporting a decline in sales due to stalling demand.
French fashion house Chanel posted a 7 per cent increase in sales to US$1.2 billion last year, a modest growth compared to more than 30 per cent in 2021 and 2022. Meanwhile, Louis Vuitton’s sales dropped 2.4 per cent last year to 1.65 trillion won with operating profit falling 31.3 per cent.
Luxury accessories brands, including Rolex, Omega and Bulgari, also reported significant sales and profit drops last year.
LVMH-owned beauty giant Sephora withdrew from South Korea last month after more than four years in the market, falling to compete with local beauty giant CJ Olive Young.
“The reason Sephora wasn’t able to secure its foothold in the market is because it came here with a formula that worked elsewhere and did little to localise, including consideration for sales channels such as Kakao Gift,” said Lee.
“This is a very dynamic market, with its own rules, and unless you want to fail, don’t ignore them. I’ve been doing business development for overseas companies in South Korea for the past seven years, and that’s the primary reason why many companies have to exit the market. I believe doing business here requires a certain level of humility and thorough research about the preferences of the South Korean audience.”
A market with resilient spending power
However, the slow growth, expected to be in line with the world’s current economic uncertain climate, does erode the country’s attractiveness as a luxury hub.
“This year, Dior joined the 1 trillion won in revenue club – alongside Chanel and Louis Vuitton – with sales reaching US$752.5 million, a 12.48 per cent year on year increase despite the downward market trend,” said Lee.
In 2022, South Koreans were the world’s biggest spenders on personal luxury goods with US$325 per capita, far outpacing the US$55 and $289 per capita spent by consumers in China and the United States, respectively, according to Morgan Stanley.
Morgan Stanley analysts attribute South Korean luxury goods demand to the rising purchasing power and a cultural trend to display social status. Meanwhile, Euromonitor estimated the luxury market in South Korea to grow to US$20.53 billion by 2027.
“The demand for European brands, especially in terms of luxury, is enormous,” Lee said.
“South Koreans are well-travelled and well-versed in Western culture, and they enjoy wearing globally recognized brands. Over the years, Korean consumers have become more sophisticated. Currently, the ‘quiet luxury’ trend, as many call it, is very prominent, with a clear preference for subdued colours and designs.”
The impact of K-entertainment and culture
The rise of K-entertainment has also played a pivotal role in shaping the luxury market in South Korea. Luxury brands are increasingly leveraging the popularity of K-pop and K-drama celebrities to reach out to their fanbase. The past few years have seen a wave of luxury brands appointing K-stars as their brand ambassadors to increase brand visibility and demand.
Luxury items worn by actors in popular K-dramas often become highly sought after. The clothes, accessories, and even cosmetics used by characters in these shows are quickly identified by fans, often leading to a surge in demand for these products.
“[Dior] organised the Lady Dior Celebration exhibition, featuring 24 South Korean artists with 42 works on display. The show also coincided with the Korea International Art Fair [Kiaf] 2023 and the Frieze Seoul Art Fair in September,” Lee said.
“The opening was joined by their brand ambassadors such as Jisoo from BlackPink, Jimin from BTS, Haerin from NewJeans, and the actress Han So Hee. This was a way to show tribute to South Korean soft power, and they did it the best way possible – with visible results. Showing respect for art and culture, and mixing it up with the right ambassadors is a great recipe for success.”
Meanwhile, luxury brands are also investing in strategic moves that link Korea’s cultural heritage. For example, last year, Gucci presented its Gucci Cruise 2024 Collection on the sacred grounds of Gyeongbok Palace in central Seoul.
“One thing that Western luxury brands have been doing over the past few years is putting a lot of effort into localising their presence here by showing respect to the local culture. Which is paying off as, like in other markets, the South Korean consumer is becoming more discerning,” Lee concluded.
The post Why are luxury brands investing more in South Korea despite economic headwinds? appeared first on Inside Retail Australia.