The author is an analyst at NH Investment & Securities. He can be reached at [email protected] — Ed.
With Chuseok dropping earlier this year, online and offline sales increased in August. By business type, department stores maintained the highest growth rate, with the apparel category showing particularly strong growth. We expect to see higher earnings visibility for fashion brands in 3Q22.
In August, online and offline sales grew in double digits
In August, sales at major retailers increased by 15.4% year-on-year, with online and offline sales increasing 14.5% year-on-year and 16.3% year-on-year, respectively. We attribute the strong results to strong gift set sales as the Chuseok holiday was brought forward this year.
It is impressive that department store sales increased 24.8% YoY. Although September trading continues, if the current trend continues, 3Q22 growth should exceed the 2Q22 level of 19.1% pa. Profitability metrics are set to improve significantly for a larger portion of high-margin apparel sales.
Convenience store (CVS) sales increased 12.8% year-on-year in August. Despite concerns about slow results due to Typoon and heavy rain in August, it is positive that sales growth has picked up mm. Unit purchase price (P) and number of purchases (Q) increased, and store additions remained flat despite controversy over CVS’s market saturation.
Online sales saw record growth in August thanks to expanded delivery services tailored to Chuseok and special holiday events. However, the relative attractiveness of online players has diminished, as the growth rate gap with offline companies has narrowed. While the reopening likely had an impact, we also note that major online retailers are concentrating on improving profits, reducing marketing costs, and undergoing business restructuring.
3Q22 Preview: Improving Earnings Visibility for Fashion Brands
In August, fashion sales in department stores increased 33.6% YoY on average. By apparel category, the year-on-year sales growth outlook broke down as: Women’s Casual +41.9%; children/sports +33.8%; menswear +31.2%; women’s suits +27.5%; and the main foreign brands +26.4%.
We note that Q3 is usually a low season for the fashion industry due to changing seasons, and August weather was particularly harsh this year due to the timing of the rainy season. However, we expect branded companies to show favorable overall earnings for 3Q22, drawing attention to: 1) likely strong demand in increased outdoor activities, regular department store discount sales and the lifting of social distancing rules; 2) several launches of new brands; 3) online mall traffic better than feared; and 4) the start of the F/W (autumn/winter) sales in September. We primarily attribute the likely good earnings to strong pre-sales of seasonal products. Although the domestic fashion market will experience some baseload effects towards 2H22, the current uptrend in sales should sustain this half: we estimate domestic fashion sales growth for 3Q22 and 4Q22 to be +10% YoY