What: Korean department stores adopt divergent strategies with Lotte prioritising operational efficiency while competitors invest in store upgrades and AI technology.

Why it is important: The varied strategies highlight a critical moment in retail transformation, where success depends on either maximising operational efficiency or investing in future-focused store experiences.

In a challenging period for South Korea's offline retail sector, the country's three major department store chains are pursuing distinctly different strategies. Lotte Department Store has emerged as the sole chain recording operating profit growth in the first half of 2025, with profits jumping 29.9% year-on-year to 191.1 billion won. This success is attributed to enhanced operational efficiency and reduced administrative expenses, despite a 2.7% decline in sales to 786.2 billion won. Meanwhile, Shinsegae and Hyundai Department Store are focusing on substantial store renovations and technological innovations. Shinsegae is transforming key spaces, including the 'Hyper Ground' in Centum City and 'The Heritage' at their main store, whilst planning the launch of 'The Reserve'. Hyundai is leveraging AI technology through 'Heydi', the industry's first AI shopping assistant, offering personalised experiences for in-store visitors. These strategic investments have temporarily impacted profits, with Shinsegae's operating profit falling 13.3% and Hyundai's declining 2.3% in the second quarter. However, both companies remain confident that their investments in store upgrades and customer experience will drive future growth as consumer sentiment improves.

IADS Notes:

The latest performance figures from Korea's major department stores reflect broader transformative trends in the retail sector. As reported by Inside Retail in May 2025, Lotte's impressive 44.3% profit growth through cost-efficiency measures aligns with their current positive results, while competitors focus on renovation strategies. This divergence follows Maeil Business Newspaper's January 2025 report showing industry-wide growth slowdown to below 1%, which prompted retailers to enhance their competitive edge through various initiatives. Shinsegae's successful "House of Shinsegae" concept, which achieved 149.9% sales growth according to Maeil Business Newspaper in February 2025, demonstrates the potential of luxury-focused renovations similar to their planned "The Reserve" project. Meanwhile, Hyundai's introduction of "Heydi" builds on the sector's growing embrace of AI technology, following Maeil Business Newspaper's October 2024 coverage of Shinsegae's implementation of multilingual AI services. These developments align with Inside Retail's June 2025 report on Lotte's strategic shift towards deeper customer engagement, suggesting that Korean department stores are successfully balancing physical retail enhancement with technological innovation to revitalize the sector.

Lotte Department Store sees profit growth while Shinsegae, Hyundai focus on renovations