CVSs Stand to Benefit Most among Retailers
The author is an analyst of NH Investment & Securities. She can be reached at jy.lee@nhqv.com. -- Ed.
The government’s emergency relief funds are likely to benefit offline self-owned stores and franchise businesses. We believe that the funds will mostly be spent on food, eating out, and education. CVSs are likely to be the only beneficiaries among major corporate retailers. The impact on consumer electronics stores and department stores should be neutral.
Relief funds to boost food purchases, eating-out, and education expenditure
Starting from this week, the government will provide emergency relief funds to all households across the country to help the nation overcome the effects of the Covid-19 crisis. In total, W13tn will be distributed, and most of the funds must be spent by Aug 31. Considering that three-month net retail sales in Korea amount to W93tn, consumption should be boosted by 14%. Also, as there are restrictions on where the funds can be used, the beneficiaries will likely vary by business type and item. By business type, offline self-owned stores and offline franchise businesses stand to benefit the most. By item, we believe that the funds will mostly be spent on food, eating out, and education. Medical expenditure may also increase.
CVSs to benefit most; department stores & consumer electronics stores may feel effects of surplus funds
Franchise CVSs should largely benefit from the injection of relief funds. At CVS players, 98.6% of stores are franchises. As the amount of emergency relief funds per person is highest for single-person households (W400,000 for a single-person household vs W1,000,000 for a family of four or more) and single-person households make up the lion’s share of CVSs’ customers, CVSs should strongly benefit. In particular, sales of wine, meat, processed food, and tobacco are expected to increase significantly. Recently, CVS operators have added luxury goods, golf products, and home appliances to their stock lists, in an effort to greater benefit from the government’s relief funds.
Meanwhile, owing the restrictions on where the funds can be spent, the relief funds are likely to negatively affect large discount stores. Groceries represent the largest portion of household expenditure and most offline small business owners engage in the food and retail industries, meaning that they can be alternatives to large discount stores. In order to overcome this situation, large discount stores are set to begin massive discount events from next week.
The impact on department stores and consumer electronics stores should be neutral. The emergency relief funds cannot be used in these industries. However, households may spend surplus funds?leftover after daily necessities are purchased with the emergency relief funds?on specialized, large-ticket items from department stores and consumer electronics stores.