Koreans Find Deep Online Discounts With MERS Keeping People At Home

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MERS Concerns
A couple wears face masks in Seoul on June 8. Photographer: SeongJoon Cho/Bloomberg

As Korean shoppers shun public places over the spread of Middle East respiratory syndrome, Shinsegae Co. has a proposition: Online discounts of as much as 80 percent on brands including Armani Exchange and Vivienne Westwood.

In-store sales at large department stores -- such as Shinsegae’s Centum City, the world’s largest -- fell as much as 20 percent from a year earlier two weekends ago, according to Samsung Securities Co., while cinema visits were down 52 percent this month through June 11. Lotte Shopping Co.’s department-store unit expects customers to avoid public places throughout June and instead is chasing demand online with discounts of as much as 70 percent.

“Since end-May we’ve seen a steep increase in online sales as customers refrain from outdoor activities,” Lee Wan Shin, head of Lotte Department Store’s marketing, said in an e-mailed statement. “We expect this mood to continue in June.”

Preventing a stall in the country’s 360 trillion-won ($322 billion) retail sector is essential to sustaining growth in a country whose exports fell last month at the fastest rate since 2009.

“The Korean economy could tumble into recession” if MERS cases spread and poor handling of the outbreak dents consumer confidence, Sharon Lam, an analyst at Morgan Stanley in Hong Kong, wrote in a June 8 note. “We are worried that it could kill the recovery momentum and that the economy could get into a vicious downward cycle.”

Bank of Korea

Department store sales fell 17 percent in the first week of June from a year earlier, the Ministry of Strategy and Finance said Monday by e-mail. Sales at large retail stores fell 3.4 percent.

It’s also putting off foreign visitors: 108,085 tourists have canceled trips to South Korea due to MERS as of June 13, the Ministry of Culture, Sports and Tourism said in a media briefing today.

The Bank of Korea cut its key interest rate to a record-low 1.5 percent Thursday and warned that MERS poses an imminent threat to consumer spending. President Park Geun Hye put off a trip to the U.S. to oversee the government’s handling of the outbreak, which has put more than 3,000 in quarantine. Five new cases were reported today, bringing the total to 150, with 16 killed.

“Consumer-related businesses are likely to experience an impact from MERS first,” Bloomberg Intelligence analyst Tim Craighead said by e-mail. “Airlines and hotels may see booking cancellations, while retail shops and casinos could get hit due to fewer visitors.”

Consumer Caution

People’s caution about venturing out may be running ahead of the risks. Unlike Severe Acute Respiratory Syndrome, which infected more than 8,000 people mainly in China and Hong Kong in 2002 and 2003, MERS doesn’t appear to spread easily.

The fatality rate from MERS is about 37 percent -- much higher than the 10 percent rate for SARS -- and the disease has killed about 449 people in nearly three years since it was first identified in Saudi Arabia. That compares to 774 killed in eight months during the SARS crisis.

That’s not stopping retailers from adapting as people avoid city centers. Online retailers and convenience stores have seen increased sales thanks to “citizens avoiding public places” and “more shoppers making smaller purchases at neighborhood markets,” Oj Nam, a retail analyst at Samsung Securities in Seoul, wrote in a June 8 note.

Moving Online

Online sales at Lotte Department Store rose 45 percent June 1-9 compared with a year earlier, with sales of health foods up 81 percent, the company said in an e-mailed statement. Its online promotions are being matched by Hyundai Department Store Co., which will offer online discounts of as much as 70 percent on about 200 products on Monday and Tuesday.

Falls in retail sales and tourism alone could cut gross domestic product growth this year by 0.15-0.8 percentage point, according to Morgan Stanley’s Lam. An index of South Korean consumer discretionary stocks fell 6.2 percent, the biggest drop in nearly four years, on June 2 when the country reported its first deaths from the syndrome.

One sector that’s seen strong growth in recent years is already suffering: tourism. Monthly tourist arrivals in 2014 peaked at 1.45 million in August.

That’s now under threat. The outbreak is “creating a climate of panic for those with imminent travel plans,” Olivier Jager, chief executive officer of travel industry information company Forwardkeys, said in an e-mailed statement.

Bookings Decline

Forwardkeys compiled figures for new flight bookings to South Korea, minus cancellations, over the first 16 days since it announced its first MERS case May 20. Compared to the same period of 2014, net bookings for June, July and August were 75 percent lower from mainland China and 101 percent lower from Hong Kong.

The greatest fear is that the outbreak becomes a regional epidemic like SARS. In May 2003, the height of SARS-related travel restrictions, Asian air passenger traffic fell as much as 51 percent from a year earlier. Chinese airlines have reduced the number of weekly flights to Seoul to 21 from 24 due to flagging demand, Xinhua reported Sunday.

Still, demand is mostly holding up, according to Eric Lin, a transport analyst with UBS Group AG in Hong Kong.

“It’s still too early to say if MERS would turn out to have the same impact as SARS,” he said, adding that its effects were limited so far because the outbreak was confined to a single country. “There’s still demand for travel and people can still reroute to other neighboring countries.”

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