Shinsegae's (004170.KS) renovation of its flagship Myeongdong store, Gangnam store and other major outlets last year is driving a sharp earnings jump in the first half of this year. At the flagship store in particular, the effect of overhauling all three top luxury brands — Hermès, Chanel and Louis Vuitton — has grown steadily, producing an unusual 60% sales increase last quarter.
Shinsegae said on the 11th that its consolidated operating profit for the second quarter came to 167.1 billion won ($121 million), up 121.9% from 75.3 billion won a year earlier. Net sales rose 5.1% to 1.78 trillion won from 1.69 trillion won a year earlier.
The steep growth of the department store business drove the earnings improvement. The department store segment posted second-quarter net sales of 738.5 billion won, up 17.5% from a year earlier, while operating profit rose 53.5% to 108.8 billion won. Growth at major stores led the overall department store results. Sales at Shinsegae's flagship store surged 60% year-on-year in the second quarter, and the Gangnam store also grew more than 20%.
Shinsegae attributes this to its early renovations. Shinsegae Department Store carried out the overhaul last year in line with a luxury shopping-town strategy. After Hermès, Louis Vuitton and Chanel completed their phased openings by the end of last year, the Louis Vuitton store at the flagship location is now the largest of the brand's stores worldwide. With Dior also set to open this month, the flagship store is gaining word-of-mouth reputation as a luxury shopping destination among foreign shoppers, according to the company. Foreign sales in the luxury category at Shinsegae Department Store rose 127% in the first half of this year, while total luxury sales climbed 41% from a year earlier.
New customers also continued to flow in. New customers accounted for 27.7% of all department store customers in the first half, and those in their 30s and younger made up 45%.
Subsidiaries improved profitability as well, extending a streak of profits across all businesses following the first quarter. Shinsegae International posted second-quarter sales of 291.6 billion won, up 15.1% from a year earlier, and swung to an operating profit of 7 billion won. Its cosmetics division recorded quarterly sales of 129.5 billion won, its highest ever for a quarter.
Shinsegae DF, which operates the Shinsegae Duty Free business, posted second-quarter sales of 542.6 billion won, down 10.3% from a year earlier, but swung to an operating profit of 33.3 billion won. The company described this as the result of restructuring its business model and improving management efficiency.
Shinsegae Casa, which took over the JAJU business, posted second-quarter sales of 119.2 billion won, up 104.5% from a year earlier, and swung to an operating profit of 2.4 billion won. Shinsegae Live Shopping saw sales rise 8.2% to 86.8 billion won, with an operating profit of 5.2 billion won.
A Shinsegae official said, "Strategic investment to create future customers and active efforts to strengthen our management fundamentals have borne fruit in profitable operations across all businesses in the first half of this year," adding, "In the second half, we will continue our efforts toward management efficiency and specialization, building the momentum for an insurmountable lead in the industry."
