The South Korea is country to the 13th biggest economy in the world and home to household names such as Samsung, LG, Hyundai and Kia. With this new found wealth, international retail brands have become a necessity for the consumer. Today, Seoul is considered a leading and rising global city, resulting from an economic boom called the Miracle on the Han River which transformed it from the damage of the Korean War to the world’s 4th largest metropolitan economy with a GDP of US$846 billion in 2014 after Tokyo, New York City and Los Angeles.
The birthplace of K-pop and the Korean Wave, Seoul received over 12 million international visitors in 2013, making it the world’s 10th most visited city and 6th largest earner in tourism.
Traditionally the retail market has been heavily concentrated in the Lotte and Shinsegae department stores which although very advanced in their development have slightly slowed the ability of many retailers to grow. With the recent introduction of a number of quality shopping malls into the market, consumer’s habits and wishes are changing and the number of mall developments and the quality of them is improving quickly leading to a new more advanced retail experience in Korea.
|Unemployment rate (%)||3.5||3.6||3.6||3.7||3.7|
|Interest rates Short Term (%)||2.5||1.9||2.4||3.4||3.8|
|Interest rates 10-year (%)||2.6||2.8||3.8||4.4||4.3|
NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast
Source: Bank of Korea
|Population||50.6 MILLION (2015)|
|GDP||US$ 1.341 billion (2015)|
|Public sector balance||NA|
|Parliament||New World Party|
|Head of State||Park Geun-hye|
|Election date||April 2016 and December 2017|
|RETAIL SALES GROWTH: % CHANGE ON PREVIOUS YEAR|
MAJOR DOMESTIC FOOD RETAILERS
Homeplus, Emart, Shinsegae, Lotte Mart
MAJOR DOMESTIC non-FOOD RETAILERS
Samsung, LG, Shinsegae, Lotte, Galleria, ELand
INTERNATIONAL RETAILERS IN KOREA(a selection)
Louis Vuitton, Cartier, Burberry, Gucci, Zara, H&M, Uniqlo, Gap, Abercrombie & Fitch, Ted Baker, Diesel, Tiffany. Carolina Herrera, Moncler
FOOD & BEVERAGE OPERATORS
Coffee Bean, Starbucks, Cafe Bene, Ediya Coffee, Vapiano, Jonny Rocket, Burger King, McDonalds, Dean & Deluca
|DEPARTMENT STORES||HIGH STREET|
|10:30 - 20:30||11 - 22:00|
The Korean market is still in its infancy compared to those of Europe and the United States. The markets have only been open to foreign retailers in the last twenty years and the large department stores of Lotte, Shinsegae and Hyundai dominate the market place. High street retailing although changing is still very much focused around ‘mom & pop’ stores and there are only a few pockets of good quality high street retailing.
Shopping malls are a new addition to the retail scene in Korea and these in the most part are centred around Seoul and the surrounding Gyeonggido province. The high price of land and low amount of FDI in the retail market has meant that those shopping malls that were built tended to be small vertical malls with a poor tenant mix.
As the power of departments stores in the Japan market has dwindled, Korean department store owners have pre-empted this potential loss in revenue by buying up strategic pieces of prime real estate that they are able to develop their stores on as an anchor with a more western style shopping mall adding to the experience. An example of this is the Lotte Gimpo Mall which has a large Lotte department store centred around a mall with the likes of Zara, H&M, Uniqlo etc.
Historically the most prominent and most expensive high street retail area in Korea has been Myeongdong. The area is surrounded by a large office core with good transportation links and is the number one tourist destination in Korea. The area has always been the launching ground for new retail brands entering the market whether through high street stand alone stores or the giant department stores in the area.
E-commerce is becoming increasingly popular in what is the worlds most connected country and grew by just under 20% in the last year to almost $6bn USD.
There are two main ways in which retailers enter the Korean market. Although there are no restrictions allowing 100% owned foreign brands to enter the market place, historically local partner franchises / joint ventures have been the preferred method.
A handful of companies control the market with big conglomerates such as LG and Samsung both having large retail fashion arms operating domestic and foreign brands. In recent years though the trend has changed and many of the Luxury and SPA brands such as Louis Vuitton, Gucci, Burberry, H&M, Ralph Lauren, Coach, Mango and A&F have decided to open up their own direct operations.
Many luxury retailers have purchased their own high street stores in order to take advantage of a rising property market and avoid quickly increasing rental levels. There is no restrictions on foreign ownership of land .
Finding the suitable locations to open up stores can be challenging. Demand from both local and international retailers is very strong and supply is limited. Generally it takes between 6-12 months to secure a suitable property.
|TOP SHOPPING CENTERS BY SIZE|
|NAME||CITY||SIZE (GLA SQM)||YEAR OPENED|
|Lotte World Mall||Jamsil||383,470||2014|
|I park Mall||Seoul||272,157||2004|
|D cube City||Seoul||180,000||2011|
|One Mount Mall||Il san||151,471||2013|
NEW ENTRANTS TO THE MARKET
|cos||Joe Fresh||Laduree||Lululemon||Tiger copenhagen|
|KEY FEATURES OF LEASE|
|Lease Terms||Traditionally leases in Korea have been between 3-5 years. The trend has been for both the landlords and tenants to have flexibility. As MNCs such as H&M, Zara, Nike etc all started to open up their own run stores, this short term lease arrangement was insufficient for the investment put into the fit outs and therefore longer leases have been started to be granted. Generally now in the high streets 7-10 years is achievable and the shopping centres granting in excess of 10 years.|
|Rental Payment||Rents are paid monthly in advance on the high streets and are normally fixed. In the shopping malls generally top up turnover rents are paid and in very rare cases turnover only is paid. In the department stores only a percentage of turnover is paid. Rental deposits here are high compared to global standards. Often deposits of 15-24 months are required. The deposit is entirely refundable at the end of the lease and as a rule of thumb, the higher rental deposit you pay, the less monthly rent is due.|
|Rent Review||Generally the first two years are fixed and then the yearly increase is linked to CPI plus a negotiated percentage.|
|Service Charges, Repairs and Insurance||A service charge is usually payable in multi tenanted buildings and covers management fees, security and cleaning of common parts. The tenant is responsible for their own repairs and insurance of their premises.|
|Property Taxes and other costs||10% VAT is added to the rent|
|Disposal of a Lease||Generally landlords do not allow this and all negotiations for a surrender must go through them. There is generally no automatic right to renew the lease at its termination|
|Valuation Methods||Due to the high deposit level which vary from building to building there is no industry standard to perform exact valuations. In order to standardise rents and to fully appreciate the real costs of the rental, C&W take a yearly 12% of the deposit rate and add that to the monthly rental to create parity between deals.|
|Legislation||Each landlord tends to have their own standard lease format and there is no regulated body which provides advice on creating these|