On January 15, 2025, police detained South Korea’s President Yoon Suk Yeol for questioning with the intent of charging him with insurrection. This ended nearly two weeks of a tense stand-off with Yoon’s presidential security detail but marked the beginning of another bizarre and concerning chapter to a political crisis that began on December 3, 2024, when the head of Asia’s fourth-largest economy (and one of its most free and robust democracies) declared martial law.
Yoon’s ruling was quickly withdrawn and so began a frenzied series of unprecedented actions: Yoon was impeached, stripped of his powers and effectively confined to house arrest, then more recently indicted for insurrection. An interim president was appointed, impeached and replaced with yet another all within two weeks. All of this impacts the South Korean export economy challenges.
South Korea’s political turmoil has deepened its retail woes, but the domestic market was in trouble for months before then. Just weeks before Yoon’s brief experiment with authoritarianism, Statistics Korea published data that suggested that retail sales first 11 months of 2024 were at their lowest levels in a quarter-century and that the retail sales index had lost 2.1 percent over the year earlier.
Persistent Disruption
Unsurprisingly, this chaos has rattled the country and its consumers. An estimated half a million Koreans took to the streets to protest either Yoon’s dictatorial actions or the muddled response by opposition politicians — or both. The Won and the stock market have plunged, and the Bank of Korea reported that consumer confidence dropped a staggering 12.3 points to 88.4, the steepest slide since the depths of consumer pessimism during the pandemic nearly two years ago.
Korea’s political turmoil hall it as deepened its retail woes, but the domestic market was in trouble for months before then. Just weeks before Yoon’s brief experiment with authoritarianism, Statistics Korea published data that suggested that retail sales the first 11 months of 2024 were at their lowest levels in a quarter century and that the retail sales index had lost 2.1 percent over the year earlier.
Yoon’s presidential crisis may not be the cause of Korea’s consumer gloom, but it certainly has deepened it. The future antics of another country’s president will deepen it further still. “The ongoing political crisis is certainly hitting consumption, but it is also part of a perfect storm that includes Trump 2.0,” explains Gina Lee, a Korean business journalist.
The U.S. is its second biggest trading partner and arguably its closest military ally, so South Korea’s is often caught up in the wake of American politics (which are even eerily echoed: when a court extended Yoon’s detention a few days after his arrest, a mob of his supporters stormed the courthouse in a what is being referred to as Korea’s January 6th).
In this case, however, Lee explains that Trump’s immediate actions could be particularly painful for Koreans: “The tariffs Trump is unfortunately expected to implement will have a further negative impact on the economy.” Korea’s economy is hugely dependent on exports (44 percent of GDP, second only to Germany among the G7), largely produced and sold by the country’s chaebol (large diversified industrial conglomerates). Korean consumers are thus incredibly attuned to the health of their country’s export economy and tend to spend less when Korea, Inc. sells less abroad.
Broadly, Korean exports have now been faltering for more than a year, and the fear is that they will drop further if Trump makes good on his plan. This will be true even for new export sectors where Korean brands—using their unique blend of global cultural cool-making and digital technology—are proving successful. While the value of traditional Korean exports like automobiles was stagnant in 2024, sales of Korean cosmetics to U.S. customers through digital channels surged 122 percent in the third quarter of last year, outperforming the sector as a whole by a factor of four. The additional 15 percent ‘universal tariffs’ Trump is threatening will definitely slow the roll of K-cosmetic innovators.
Mind the Tourism Gap
Retail sales have also suffered from a withering tourism economy. While neighboring Japan continues to invent new ways of combatting overtourism, Korea—for all the popularity of K-Pop, K-horror and other cultural exports—ironically suffers from an international tourism drought. The country had plans to host 20 million tourists in 2024, but by the end of the third quarter had only welcomed half that number, making its 2027 target of 30 million arrivals increasingly unlikely.
Korea’s Ministry for Culture, Sports and Tourism spent 20 percent of its entire budget last year—nearly $1 billion—on subsidies, tax concessions and other promotional activities for tourism businesses, which does not seem to be achieving the desired ROI. For 15 years, the country has suffered from a ‘tourism deficit,’ meaning that Korean tourists abroad spend far more overseas than travelers to Korea spend in the country: $6.5 billion dollars more in the first half of 2024 alone.
As a result, duty-free shopping emporiums—an important cornerstone of Korea’s retail landscape—are suffering. Korean department store chain Shinesegae recently announced that poor tourism numbers and an exodus of brands have triggered the closure of its duty-free operations in Busan’s Shinesagae Centum City, recognized as the world’s largest department store. Korea’s duty-free retailers have also been outsmarted by so-called daigou resellers—bulk buyers, largely from China, who bring volumes of branded cosmetics, accessories and other duty-free items back home for resale. This has put such a crimp on in-store tourism footfall traffic that it prompted Lotte Duty Free in January to take the drastic step of banning daigou buyers outright.
Commerce Crisis
Weaning themselves off their duty-free channels is only one transformation Korea’s giant department store chains are undergoing. Another enduring contradiction of Korea’s retail landscape is that the country has been served both by ecommerce marketplace platforms and traditional multi-category department stores. Digital channels are far from new; Korea is a global online shopping pioneer, thanks to the high-speed broadband infrastructure Korean telecom and mobile operators have been plowing into its densely-populated cities for decades.
Online marketplaces have been steadily chipping away at department store market share for years, and since the pandemic, the chips have gotten larger still. Coupang (often thought of as Korea’s Amazon) has been beating its revenue forecasts for several quarters, earning $7.8 billion in the third quarter of 2024, more than 27 percent higher than the year before.
By comparison, Lotte Department Store’s revenue in 2023 was roughly $2.3 billion. In addition to competition from digital channels, Korea’s department stores are facing cannibalization from more experience-oriented physical retail spaces. As a result, Lotte and other department store retailers are diversifying into shopping malls; Lotte plans to invest some $5 billion over the next five years to double its portfolio of malls to 13.
The South Korean Export Conundrum
While Korea’s digital retailers continue to take share from their physical counterparts, they are not addressing the underpinning consumer malaise. Total retail sales in 2024 were an estimated 174 trillion won ($120 billion), which while 8 percent higher than the year before, were still only equal to 2020’s sales. Domestic brands are suffering in their home market, and in some cases, even more so than foreign brands, as Made in Korea often signals premium products, which cost-conscious shoppers are increasingly avoiding. “Hanwoo beef sales have been suffering,” says an importer of meat from Australia and New Zealand, referring to the Korean breed of cattle that, like Japan’s Wagyu, produces a culturally important, albeit expensive, delicacy.
Hanwoo’s sagging domestic sales are a scary portent for Korean brands more broadly. For homegrown brands to succeed, they need local support. As we’ve reported, a key success factor of Australia’s chic-casual beachwear brands is a loyal Ozzie customer that supports locally made fashion. The habits and preferences of customers in their backyard provide brands with a learning laboratory from which they can capitalize on new trends.
However, many of Korea’s leading national champions—such as streetwear innovators thisisneverthat or cosmetic brands like Laneige — are intensely youth-oriented. This creates a problem in a country where there are more people aged 70 and older (20 percent of the population) than those 20 and under (17.5 percent). Korea’s population is aging and shrinking like so many across Asia, despite the fact that there was a surprising upward blip in births last November. This means that for K-Pop, K-Cosmetics and K-fashion to grow, these brands will need to export more. The government should worry less about subsidizing its tourism industry and find more ways to support Korean brands abroad.
Korean Icarus?
Ironically, Korea’s political woes may help boost exports for all the wrong reasons: lack of confidence in an economy tends to depress its currency, which of course makes its exports cheaper, particularly in a global economy dominated by the greenback. The broader worry, however, is that the ongoing Korean presidential crisis will continue to draw attention away from the political and policy reform needed to stimulate growth in the creative economy and instead scare the government into continuing to throw good money after bad on subsidies to retailers and tourism businesses that have been ineffective for decades.
Yet, it is also true that moments of political and social turmoil often create excellent cauldrons that brew great music, art and other forms of cultural expression; think of what the 1960s did for rock music and fashion on both sides of the Atlantic. It is a stretch to say Korea’s political crisis should be welcomed as a catalyst for a new wave of K-culture innovation, but we may see this yield new forms of entertainment and fashion that will reinvigorate the K-wave.
