Clothing And Footwear in South Korea (Nov. 2009)

Executive summary

Stagnant Fashion Market Following Global Financial Crisis

Economic stagnation has increased since the second half of 2008 as the negative effects of the global financial crisis extended to South Korea. The economic growth rate fell to -8.9% in the third quarter from 2% in the second quarter, which resulted in a drop of consumer confidence. A sharp decrease in consumption of durable consumer goods, especially clothing and footwear, led to an overall decline of the market despite initial growth in 2008.

Polarisation of Consumption Patterns

The recession has changed consumer behaviour in that people generally turn to a more rational purchasing pattern while the rich maintain their purchasing habits. Moreover, consumers are more inclined to choose the number one brand if they do not buy low-priced goods because the number of purchases has decreased. As consumption patterns become more extreme, the mass low-end market and bargain sales expanded while the market for luxury goods maintained its share leading to a decline of mid- and high-end market.

Boom in Outdoor Fashion Zone Continues

Most outdoor clothing brands enjoyed prosperous days regardless of the economic depression. The market kept growing by about 20% per year and it is estimated that the total market value was around Won1.8 trillion. During the past Asian financial crisis period, the South Korean outdoor market began to grow from the mountain-climbing goods to outdoor fashion, reflecting changes in consumers’ lifestyles. As the five-day work week settled down and population increasingly enjoyed outdoor activities, outdoor goods have enjoyed a sustainable growth.

Expansion of Large Enterprises

A number of small companies have been operating in the Korean fashion industry, which resulted in intense competition as the industry keeps growing. This kind of market structure began to change especially in the recession period since lots of small uncompetitive companies could not keep their business. Fashion companies which are affiliated to large enterprise groups are growing as a result of their strengths in finance, distribution channels and relationships with related companies. Cheil Industries by Samsung Group, LG Fashion by LG Group, FnC Kolon, Kolon Fashion and Cambridge Members by Kolon Group, E Land and E Land World by E Land Group, and SK Networks by SK Group extended their market shares in 2008.

Stagnation Will Continue Due to Depressed Domestic Consumption

It will be difficult for the clothing and footwear market to grow until the first half of 2010 because of the decline in private consumption, the intensification of competition following the introduction of more imported brands and decrease of national brands power due to consumption polarisation. It is forecast that the private consumption growth rate will be around -3% and both the Business Survey Index and the Consumer Survey Index on clothing expenditure supports this dull forecast by recording a historical low. However, the Korean economy is expected to recover from 2010 and the clothing and footwear markets will begin to grow accordingly.