South Korea's Store Sales Rise By Least in 5 Months

By Seyoon Kim

Aug. 18 (Bloomberg) -- South Korea's department store sales increased at the slowest pace in five months in July, adding to evidence that economic growth is cooling.

Sales at the nation's three biggest chains rose 5.9 percent from a year earlier, easing from June's 11.2 percent gain, the Ministry of Knowledge Economy said in Gwacheon today.

Households, struggling with surging living costs, have reined in purchases of non-essential goods, which may erode earnings at retailers such as Lotte Shopping Co. Moderating spending will further cool an economy that grew at the slowest annual pace in more than a year last quarter.

``Consumer spending will likely remain weak for a while on the weak labor market and higher fuel and borrowing costs,'' said Go You Sun, an economist at Daewoo Securities Co. in Seoul. ``Sentiment may start to improve as oil prices are falling.''

The Kospi stock index has dropped 17 percent this year as Asia's fourth-largest economy shows signs of cooling. Shares in Lotte Shopping, the nation's largest department store operator, have fallen 28 percent in 2008, and those in Hyundai Department Store Co., the second biggest, have slumped 26 percent.

Consumer confidence declined to the lowest level in eight years in July. The economy expanded 4.8 percent last quarter from a year earlier, the slowest pace since the start of 2007. The jobless rate was 3.2 percent last month, up from 3 percent at the start of the year.

Prices Surge

Spiraling food and fuel prices are eating into household budgets. Consumer prices climbed 5.9 percent in July, the biggest gain since 1998.

The Bank of Korea lifted its benchmark interest rate to an eight-year high of 5.25 percent this month, the first increase in a year, to quell inflation.

Spending on men's clothes fell 6.6 percent in July from last year, today's report showed. In contrast, sales of luxury goods at department stores gained 30.7 percent.

Sales at discount stores rose 2.1 percent last month from a year earlier, reversing a 1.9 percent drop in June.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net