Cars and people are waiting in a line to enter a department store.
/Photography by Hwang Chae-yeon
Even before 6 A.M., we can see many people lining up in front of the department store. It is difficult to enter the store even after lunchtime due to waiting reservations from hundreds of people. It is common to see people flocking to purchase bags, wallets, and watches, some of which are worth tens of millions of won. Even though the economic recession continued due to the prolonged COVID-19 crisis, the size of the Korean domestic luxury market has grown. According to the Euromonitor, a market research firm, global luxury goods sales fell 19% last year, but the sales were about 15 trillion won, similar to 2019, the year before the pandemic took place in Korea. Recently, there were several factors that led to changes to the consumption culture of the young generation, who caused the growth of the domestic luxury market.
The consumption culture of young people has changed since the generation MZ
The generation MZ collectively refers to Millennials born in the early 1980s to early 2000s, and the generation Z born in the mid-1990s to early 2000s. Their cultures are familiar with luxury consumption as they focus more on the present rather than the future and preference rather than price. Shinsegae Department Store announced that the proportion of luxury goods purchased by people in their 20s and 30s increased from 49.3% in 2019 to 50.7% in 2020. The purchase at Hyundai Department Store and Lotte Department store increased from 48.6% to 65.8%, and 41.4% to 44.9% each. Statistics showed that a large portion of luxury goods consumption accounts for the younger generation, and it is still increasing.
The “FOR ME” people, who generously invest and consume for themselves, appeared from the late 2000s due to the economic recession. FOR ME is a new word that refers to health, single, recreation, more convenient, and expensive. It is also used to mean just for oneself. The FOR ME people invest for their present life satisfaction rather than saving money for an uncertain future, such as buying a house whose price is gradually rising. Young people consume boldly for self-satisfaction, even if it costs a lot of money. A new consumption trend has been established which considers price-to-mind satisfaction more than price-to-performance.
The generation MZ is used to sharing their daily lives since the Social Network Service (SNS) has become deeply established in their lives. They are influential consumers on the circulation market based on SNS as they are familiar with the digital environment. In particular, Instagram, which shares daily life with photos, and YouTube, which shares videos, have become popular, making it common to flaunt one’s riches. The Consumer Trend Analysis Center of Seoul National University analyzed the reason why people, living in a world where self-esteem is intertwined with reputation, check their presence by boasting their experience. To this end, they direct and perform every moment, posting it on SNS. “Flex,” which began with rappers showing off their wealth in hip-hop culture in the 1990s, has become a new culture among the generation MZ. They buy luxury goods, take pictures, and post them on SNS. Taking “Unboxing” videos is also popular. In addition, these media are highly recognized to young age groups who can easily access. No matter how high the price is, they use their saved money to buy it without hesitation.
Kwak Geum-joo, a psychology professor at Seoul National University, explained the luxury consumption of the generation MZ in terms of the “Veblen effect” and the “Panoplie effect.” The Veblen effect refers to a phenomenon in which demand does not decrease even when the price rises due to showing-off. It was frequently done by upper-class consumers in the past, but recently, even the beginners of society and students who have low income have shown this effect. The Panoplie effect is a phenomenon in which people buy a specific product and identify themselves with the main consumer group of the product. This effect can lead to the desire to be upper-class or rise in status by certain consumption. A store employee of Cartier, a jewelry and watch brand of France, said people in their 30s and 40s often decide what to buy after hearing explanations about various products. However, people in their 20s frequently choose watches just because they are worn by celebrities. In addition, professor Kwak explained that the young generation seems to have such a happy, great sense of accomplishment and enhanced self-esteem when they buy clothes or shoes worn by celebrities.
Furthermore, a new culture called “resell” has spread around the generation MZ. Resell is a form of transaction that coincides with young people. They consider the used products not as old and outdated, but as vintage and sensual, thinking that buying those products is participating in a circular economy for the environment. According to professor Kim Nan-do in “Trend Korea 2021,” the generation MZ enjoys exposure to new stimuli. They value the experience of discovering and using hip and rare items more than owning many new products.
COVID-19 increases the luxury consumption in Korea
The overall consumption market has been reduced due to COVID-19. However, sales of department stores and outlets have increased compared to before the pandemic. In 2021, sales of Hyundai Department Store rose 109.8% compared to the same period in 2020, 26.5% compared to 2019. Lotte Department Store also said that the sales increased 94%, and 14% each year. These were affected by a significant increase in luxury goods sales. In March, global luxury goods sales at Shinsegae, Hyundai, and Lotte Department Store rose 109.9%, 138.6%, and 143% each, compared to the previous year.
Louis Vuitton Moët Hennessy (LVMH), the largest luxury brand enterprise in France, announced that sales surged more than 30% in the first quarter of 2021 compared to the same period last year. They explained that consumers who cannot travel or shop are trying to get compensated by purchasing luxury goods in the unexpected prolonged COVID-19 situation. Shinsegae International also announced that they had achieved the best sales record since consumer sentiment, which had been suppressed for more than a year becuase of COVID-19, has led to the purchase. An official of Rolex, a watch brand of Switzerland, said that most of their customers are the generation 2030 such as newly married couples who cannot go on a honeymoon, or customers who want to pay for so-called revenge spending.
Due to concerns over COVID-19 infection and social distancing policies, it has become difficult to visit offline stores in person. Therefore, online luxury goods purchases have increased rapidly. According to the Euromonitor, the size of the domestic online luxury goods market increased about 11% (total 1.6 trillion won) in 2021 compared to the previous year. Luxury shopping platforms, including the structure of parallel imports and purchasing agents, such as Matches Fashion, Farfetch, and Yoox, allow consumers to shop online easily and quickly without visiting domestic or overseas stores. Recently, there even appeared a new transaction method that allows high-end bags purchased on the previous day to be delivered on the next day. Various luxury brands continue to enter the online shopping platform. SSG announced that sales rose about 21% year-on-year from July to August by importing Piaget, the jewelry and watch brand of Switzerland. Kakao Commerce enhanced the accessibility of luxury brands by opening Tiffany & Co., CHANEL, and Dior.
Choi Young-woo, a 21-year-old university student, said that her spending pattern has changed after the pandemic. She said, “Since the COVID-19 pandemic, my friends and I put off meeting again and again, and I even cancelled my summer vacation trip twice. I became a little more generous about overspending as I saved money unexpectedly. In the past, I usually bought things that are cost-effective. However, these days, I search for ones that are more fine, expensive, and well-known.” She also mentioned that her frequency of internet shopping has increased since she should be careful about going to shopping malls. In addition, she pointed out the problems of young people overconsumption and said, “The trend is focusing and spending more on luxury and minor items than daily necessaries. Sometimes I feel it is two-faced. I believe that all people should spend according to their abilities. It would be desirable to buy nonvital things after being able to manage their life, and feel like living sufficient economic lives.
Several problems follow the expansion of luxury brands in Korea
Despite the economic recession, many companies raised prices due to the high demand and boom in luxury brands. Since last year, Hermes, a leather products brand of France, has raised prices twice. CHANEL, a fashion and accessory brand of France, has raised prices four times. Louis Vuitton, another fashion and accessory brand of France, also increased the price seven times. Accordingly, consumers expressed their opinion that the price of the products has risen too much. As prices keep increasing, luxury brands are also criticized for abusing the power by taking advantage of the psychology of consumers who want to buy those. In addition, there are also criticisms that more and more people are making money by reselling them. Some point out that these companies focus only on price hikes and do not participate in social contributions. The three major luxury brands, Hermes, Louis
Vuitton, and CHANEL, only donated 300 million won, no donation, and 600 million won respectively, even though combined sales exceeded two trillion won last year. Prada Korea also showed its sales and operating profit growing 4.7% and 45.8% year-on-year in 2020, but did not engage in any social contribution activities.
There are several problems due to excessive consumption of the generation MZ. Self-displaying with luxury items can create a relative sense of deprivation to others. The overconsumption culture of the generation MZ also affected teenagers, who do not have economic capabilities. According to the survey result of Smart, a school uniform brand, 56.4% of teenager respondents have experiences of purchasing luxury goods. The reasons were “I was usually interested in them,” “Since my friends had them,” and “I wanted to imitate celebrities.” In addition, only 14.2% of teenage respondents said they earned money from part-time jobs and purchased them. 39.1% said their parents paid for them, and 25.7% said they collected pocket money and purchased them. Lee Eun-hee, a consumer studies professor at Inha University, said that repetition of purchasing luxury goods through parents in adolescence can make them lose a sense of problem in purchasing goods beyond their abilities. After becoming an adult, there is a possibility that it may lead to the act of purchasing luxury goods in debt. She explained that cultural formation and advice of older generations are needed to teach the future generations to learn desirable consumption habits.
According to Health Essentials, an information magazine at the Cleveland Clinic in the United States (US), shopping helps people feel better. Dr. Scott Bae explained that choosing what you want to buy or going around your favorite store for a few hours can provide good psychological and emotional stimulation by allowing dopamine to be secreted. However, the release of dopamine can increase the desire to continue what makes the brain feel good. Therefore, the act of feeling happy through shopping can lead to shopping addiction and cause the side effect of overconsumption. He pointed out that shopping addiction is an obsessive behavior that requires treatment at the same level of gambling, alcohol, and drug addiction. People who shop obsessively purchase things or have a strong urge to buy something, out-of-control. These people sometimes feel helpless or worthless. That is why they should stop shopping when they feel it is hard to control spending, and make a habit of getting pleasure through exercise or healthy eating, instead.
The lifestyle and the lifelong goals of the Korean generation MZ have changed, and as a result, the age range of consumers in the domestic luxury market is gradually decreasing. In addition, it is growing significantly as the pandemic situation is prolonged. Since the generation MZ creates a new culture and trend in Korea, they have a great impact on the economy. It will be worth paying attention to these changes.
Hwang Chae-yeon firstname.lastname@example.org
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