South Korean Department Sales Drop by Most in 2 Years

By William Sim

Jan. 16 (Bloomberg) -- South Korea’s department-store sales fell by the most in almost two years in December as consumers reduced spending on clothes and household goods amid a deepening economic slump.

Sales at the nation’s three biggest department stores, including Lotte Shopping Co., declined 4.5 percent from a year earlier, after gaining 7.5 percent in November, the Ministry of Knowledge Economy said in Gwacheon today. Sales at discount stores dropped 5.8 percent following November’s 2.3 percent rise.

Consumers across the region have pared expenditure as a deepening global recession prompts Asian companies from Toyota Motor Corp. to Hynix Semiconductor Inc. to slash production, close factories and fire workers. Singapore’s retail sales fell for a second month in November and spending in Japan dropped for nine consecutive months.

“Falling global demand for exports is expected to bring a recession in Korea,” Daniel Melser, a Sydney-based senior economist at Moody’s Economy.com, wrote in a report this week. “Trade woes have infected much of the economy, with investment spending drying up and private consumption also slumping.”

The economy’s 10-year expansion has largely been driven by increased sales of ships, consumer electronics and cars to China, Europe, the U.S. and the Middle East. Overseas shipments, which are equivalent to about 50 percent of gross domestic product, slumped 17 percent in December.

Local Fallout

The drop in global demand is flowing through the domestic economy as it erodes confidence and leads to factory closures.

South Korea lost jobs for the first time in more than five years in December, with the number of employed people falling 12,000 from a year earlier.

Hynix Semiconductor, the world’s second-biggest maker of memory chips, said last month it would eliminate 30 percent of its executives and cut labor costs by more than 15 percent. Hyundai Motor Co. and Kia Motors Corp. have reduced their employees’ working hours as demand slows.

Samsung Group, South Korea’s biggest industrial group, is considering cutting 20 percent to 30 percent of its executives, according to the Maeil Business Newspaper yesterday.

Hana Bank, South Korea’s fourth-biggest lender, said last week it will offer staff early retirement for the first time in five years to reduce costs in a weakening economy. Kookmin Bank South Korea’s biggest, received requests for early retirement from 400 employees in December.

Sales of household goods plunged 11.4 percent in December from a year earlier and spending on men’s clothing dropped 17.8 percent, today’s report showed.

Shares of Lotte Shopping, the nation’s largest department store operator, lost 51 percent over the past year. Shinsegae Co., which owns department stores and E-Mart, fell 34 percent. The benchmark Kospi stock index dropped 29 percent in that time.

Korea’s won gained 0.9 percent to 1,380 against the U.S. dollar at 9:30 a.m. in Seoul after slumping 26 percent in 2008, Asia’s worst-performing currency. The Kospi rose 0.1 percent to 1,112.53 as share markets around the region climbed.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net