Retailers Intensify Price War to Lure Customers Back to Stores
The big-box retailers have seen a turnaround in sales for the first time in five months, while convenience stores' growth rate hovers around 0.8%. Online sales now account for nearly 60% of total retail, prompting offline retailers to compete for customers with low-price goods and discount benefits.
The brick-and-mortar retailers are engaged in a fierce price war to win back consumers. With online consumption nearing 60% of the market, offline retailers are slashing prices and offering discounts to entice shoppers back to their stores. While large-scale retailers have seen a sales rebound after five months, the growth of convenience stores has slowed, indicating varying performance across retail segments.
According to the Ministry of Trade's major retail sales report, large-scale retailer sales increased by 4.5% year-over-year in August. In contrast, convenience store sales growth stagnated at 0.8%. Online retailers, meanwhile, saw a 9.3% increase in sales over the same period.
Offline retailers are focusing on lowering prices for everyday goods. Large-scale retailers are expanding their private-label (PL) offerings, driving ultra-low prices, while convenience stores are offering card and membership discounts on fresh food and household goods.
Retailers' Performance: Discounts Drive Sales, but Convenience Stores Face Challenges
#### Supermarkets Rebound After Five Months; Convenience Store Purchase Counts Decline
The August sales increase at major supermarkets marks a rebound after five consecutive months of decline. From March to July this year, supermarket sales decreased by 15.2%, 6.6%, 5.1%, 10.5%, and 11.2%, respectively.
In August, the sales of Chuseok gift sets impacted the overall increase in revenue. As this year's Chuseok holiday was earlier than last year, holiday-related purchases were concentrated from August onwards. Supermarket food sales increased by 5.4%, and electronics and toy sales also saw a boost, rising by 17.8%.
Convenience stores are experiencing a rapid decline in their sales growth rate. The increase, which stood at 5.1% in June, dropped to 1.1% in July and further to 0.8% in August. While the average purchase amount has increased, the overall sales growth has been impacted by a decrease in the number of purchases.
**Private Label Success:** Lotte Mart reported a 37% year-over-year increase in sales of private label products priced at 5,000 won or less for the period of January to September. From November 15th to the 28th, they will also be hosting an event with discounts of up to 40% on these private label items.
CU, on the other hand, is offering card discounts on select grocery items until the end of the month and is running a member-exclusive discount event.
Late-Session Selling Pressure: Convenience Stores See Declining Transaction Volumes
In July, the number of purchases at convenience stores decreased by 0.5% year-over-year, while the average purchase value increased by 1.6%. This trend continued into August, with a decline in transaction volumes and a simultaneous rise in purchase values. Consumers are spending more per visit, but the overall frequency of transactions has decreased.
During the same period, department store sales surged by 11.9%, marking the highest growth rate among offline retail channels. Overall, offline retail sales increased by 5.4%, but there were notable disparities across different retail formats.
The rebound in large-scale supermarkets was influenced by holiday demand, while convenience stores continue to experience a decline in transaction volumes. Simply looking at sales growth rates makes it challenging to conclude that offline consumption has fully recovered.
Online Dominance Nears 60%: The Burden of Price Competition for Offline Retailers
The discount wars among offline retailers are not unrelated to the shift in consumer behavior towards online channels. With price comparisons and purchases becoming commonplace online, large supermarkets and convenience stores are under pressure to enhance their price competitiveness.
Retail Sector: Online Dominance Grows, Traditional Retailers Struggle
According to the latest retail sales trends, online sales accounted for a significant 59.7% of total revenue, a notable increase from 53.0% in 2022, indicating a 6.7% point surge. In contrast, the market share of large-scale retailers decreased from 13.0% to 9.0% over the same period. These figures represent the sales composition of 26 surveyed retailers and may not reflect the overall domestic market share.
Large retailers are focusing on fresh produce and private-label products, while convenience stores are engaging in price competition, offering smaller-sized food items and ready-to-eat meals. To encourage repeat purchases, these stores are combining card discounts with membership benefits.
As the discount battle persists, profitability concerns may arise. While increased sales volume is desirable, larger discounts can reduce profit margins per item. The challenge for offline retailers lies in attracting customers with low-priced offerings while maintaining adequate profitability.
