The South Korean market is going to be worth at least $2.5 billion this year at retail, according to various local industry officials met during a visit to the country in connection with last week’s Busan International Smart Shoe & Parts Fair (BISS), where many national brands of hiking boot exhibited.
It may be as high as $3 billion including fishing, camping and snow sports, making it the third-largest in the world after the U.S. and Germany.
It is also growing much faster. Sales of outdoor products are expected to increase by between 25 and 30 percent this year, says Dong Chil Kwon, president of Treksta, which claims to be the largest Korean supplier of outdoor boots. Kwon, who previously worked for Nike, says the market has been rising at annual rates of between 20 and 30 percent since six years ago, when the workweek was shortened from six to five days.
Further growth is expected with the planned elimination of Saturday as a school day and with a plan to waive visa requirements for Chinese tourists staying for up to 30 days in the country. The South Korean government wants to attract 20 million tourists a year, triple the present number of foreign visitors, through its multiple natural and cultural attractions, including its national parks and its beaches.
South Korea offers plenty of opportunities for one-day hiking. Only about 30 percent of the territory is densely inhabited. The rest of the land is covered by hills and mountains. It has 20 national parks and many other types of parks. Most of the 1,700-odd hiking trails that cross the country are easily reached from Seoul, Busan and other major cities.
Thus, some 15 million Koreans of all ages and income levels go hiking more or less regularly with their lunch-box over the weekend, after a hard workweek spent in a highly urbanized environment dominated by concrete and asphalt. Like running, hiking is a relatively inexpensive sports activity and is thus highly suitable for the country’s population of 42 million people, whose average household income is estimated at $17,000 per year.
Climbing and bouldering are growing, but camping remains an extremely rare experience, practiced mostly in the spring and the summer. Therefore, the portion occupied by equipment in the total outdoor market is very small. Some 70 percent of the market consists of clothing, and 25 percent of footwear.
The North Face, which moved into Korea in the 1990s, is regarded as by far the largest brand in the market, with annual retail sales estimated at between $400 and $500 million. The brand is sold by a joint venture controlled by Youngone Corporation, a large Korean conglomerate specializing in apparel, with Goldwin of Japan as a minority partner.
A Korean brand, Kolon Sport, is said to be second with sales of around $300 million. It is followed by Columbia Sportswear and K2 Korea, each with sales of about $200 million. K2 Korea has nothing to do with the American ski company by the same name, and it markets a large variety of outdoor products. It is the major supplier of Gore-Tex-lined shoes and clothing.
The third tier is occupied by four companies, each with sales of about $100 million: Black Yak, Edelweiss, LG Fashion and Treksta. Edelweiss represents Berghaus in Korea, and it recently bought the rights to the Millet brand from the French Lafuma group. Earlier, LG Fashion, a big apparel group that will reach a turnover of $1 billion this year, bought the Lafuma brand for the Korean market.
Characterized by very colorful garments and wide use of breathable membranes and all kinds of down feathers, the outdoor apparel market is led by TNF, followed by Kolon, Columbia, K2 Korea, Lafuma, Black Yak, Millet and Treksta. In the outdoor footwear segment, Treksta claims the leadership, followed by K2 Korea, Kolon, TNF and Lafuma. Treksta, which introduced its apparel line four years ago, hopes to reach a higher position soon.
Treksta is shooting for growth of 35 percent this year. In 2008, Treksta sold 724,387 pairs of outdoor shoes under its own brand worth $27.9 million in Korea, and 140,100 pairs worth $8.0 million in other countries. As we reported in our issue of July 22, Treksta is entering the European market via Spain and Portugal, where it is currently conducting market tests.
Besides Treksta, Kwon runs a large company, Hypergrip, that makes about 2.8 million pairs of shoes in Korea and China for other important Western brands such as Hanwag, MBT, Millet, Oakley and Vaude. Kwon is trying to push his own brand because it generates gross margins of around 40 percent, compared with only about 3 percent for its OEM business.
Only about 10 percent of the shoes sold by Korean outdoor brands are still made in South Korea, a former major source of production where many important sports brands continue to maintain rather advanced shoe development facilities.
Some of their footwear is made just north of the Demilitarized Zone in North Korea, where workers’ wages are still at a low level of around $60 a month.
In spite of the strong development of the South Korean outdoor market, there are only a few specialist outdoor retailers selling multiple brands, and reportedly none of them has a chain of stores. The biggest single specialist is probably the virtual store of okoutdoor.com, whose annual sales are said to be about to reach $100 million.
Okoutdoor.com pursues an aggressive sales and marketing policy, charging very low prices and running big promotions and advertising on television, but several major brands refuse to work with it, allegedly because the company deals a lot with parallel imports.
There are also no multi-sport specialty retailers in Korea. Apparently, the first one of the kind will be Intersport, whose pilot store is scheduled to be opened in Seoul next February. Three other Intersport stores are set to open shortly afterwards, including a mega-store of 4,000 square meters.
LG Fashion, owner of the Lafuma brand for the Korean market and of a couple of other apparel brands, signed the Intersport license for the country a few months ago, as reported in Sporting Goods Intelligence Europe, and outdoor is one of the categories that it plans to focus on initially, along with football and baseball.
For the time being, like Adidas, Nike and other sports brands, the outdoor brands achieve most of their sales in Korea through their own mono-brand stores and through corners in the department stores, following a business model that also applies to China, even though South Korea is much more developed economically.
LG Fashion sells virtually all its Lafuma clothing and footwear via a network of about 150 mono-brand stores in Korea, adapting the collection to the very colourful tastes of the local market. TNF and Kolon sell about 70 percent of all their products through single-brand stores, and one of those of TNF in Seoul reaches annual sales of about $1 million.
The ratio is closer to 60 percent for Treksta, which owns about 100 stores in the country. Another 15 percent is realized through department stores and a similar volume through the few multi-brand outdoor stores operating in the country, where Arc’teryx is said to be the No. 1 brand. The balance of 10 percent comes from the shoe shops, including large chains such as ABC.
The relatively large outdoor sections of the department stores are regarded as the second-largest retail channel. Outdoor, golf and other sports take up almost equal shares in the sporting goods sales of Lotte’s department stores, which reached about $300 million last year.
While sales of golf products are down and those of other sports are flat, Lotte’s sales of outdoor products are going up at a 25 percent annual rate on a comparable store basis, according to the head buyer for these kinds of products.
With 25 department stores and three outlet stores, Lotte is the biggest single outdoor retailer in Korea. It is followed by Shinsegae, which operates seven department stores in the country. It opened the last one in Busan last March, claiming that it is now the largest one in the world.
In addition to large shop-in-shops for brands such as TNF, Adidas and Nike, it features an “Outdoor Village” of about 700 square meters with corners rented out by brands such as Columbia, Kolon and Lafuma. It also sells other brands such as Hanwag, Mont-Bell, Rab, Schöffel and Wild Roses, taking a commission of 20 percent from the distributors of these brands, based on contracts that are renewable once a year.