With semiconductor company employees expected to receive performance bonuses of hundreds of millions of won each, department stores along the "chip belt" are reaping windfall benefits. Samsung Electronics (005930.KS) and SK hynix (000660.KS) employees, buoyed by expectations of rising income, are spending on luxury goods, jewelry, and watches, driving up sales at department stores in southern Gyeonggi Province. As luxury brands continue to raise prices, demand to purchase even a day earlier is reportedly surging. The industry expects department store performance to keep improving, as the semiconductor boom is forecast to continue for the time being.
According to the retail industry on Monday, the number of new customers at Lotte Department Store's Dongtan branch, who had no purchase history through last year but made purchases between January and May this year, rose 35% from a year earlier. VIP customer sales expanded 25% during the same period. The Dongtan branch's sales growth rate of 25% over this period was also higher than the average of all Lotte Department Store branches (20%).
Shinsegae's South City branch, located in Yongin, Gyeonggi Province, also saw new customers rise 36% from a year earlier, with VIP sales increasing 17%. In particular, luxury jewelry sales at Shinsegae's South City branch jumped nearly 200% from a year earlier, while luxury watches rose 39%.
Unlike major commercial districts in Seoul, these stores are located in domestic-demand commercial areas with almost no demand from foreign tourists. The industry believes that, given the characteristics of commercial districts adjacent to semiconductor companies, expectations of rising income from performance bonuses directly affected the expansion of department store sales. "In the case of department stores in southern Gyeonggi Province, new customer and VIP sales increased even though these stores do not hold pop-up events or diverse promotions like major large stores in Seoul," an industry official said. "This appears to be because the disposable income of residents in surrounding areas has increased." Although overall spending capacity is shrinking due to high prices, analysts say the solid purchasing power of consumers who directly benefited from the semiconductor boom is serving as a firm pillar for department store sales.
Behind this expansion in spending lies the full-fledged semiconductor super cycle and the resulting striking compensation measures. According to the May export-import trends recently released by the Ministry of Trade, Industry and Energy, semiconductors, the largest export item, recorded export value of $37.16 billion, up 169.4% from the same month a year earlier. This is the highest monthly figure on record. It is attributed to the combination of expanded artificial intelligence (AI) server investment and increased demand for high-bandwidth memory (HBM).
As the semiconductor boom continues, the scale of compensation for employees has also grown. Samsung Electronics' labor and management recently agreed to pay a special management performance bonus, funded by 10.5% of operating profit, in the form of company stock. One-third of the paid volume can be sold immediately, while the rest is subject to mandatory holding periods of one and two years, respectively. The industry believes some employees in the Device Solutions (DS) division could receive compensation of up to around 600 million won. SK hynix has also abolished the cap on its profit sharing (PS) program, funded by 10% of operating profit, and decided to maintain the program for the next 10 years.
This atmosphere is also reflected in the second-quarter earnings outlook for the department store industry. According to financial information provider FnGuide, the recently compiled estimate for Lotte Shopping's second-quarter operating profit this year is 102.1 billion won. This is 18.3% higher than the estimate compiled a month earlier. Shinsegae's operating profit estimate also rose 18% from a month earlier to 131.9 billion won. Hyundai Department Store was estimated at 76 billion won, up 3.2%. As earnings expectations rise, the likelihood of an earnings surprise increases, leading to forecasts that all three department store companies will meet or exceed market expectations in the second quarter.
