The following research report contains market research, analysis, statistics and business intelligence relating to research on Apparel Industry In South Korea.

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ABSTRACT
Koreans' apparent embrace of Western fashions, changes in its distribution system, and Korea's growing economy have created enormous business opportunities for U.S. apparel manufacturers. Since the 1970's, the textiles (apparel) sector has played a key role in Korea's industrial development and it continues to be a major component of its economy. Although it experienced a slowdown during the 1997-99 economic crisis, this sector has since recovered to its pre-crisis level and shipments are once again expanding. Sales in the fashion industry are projected to register a decent 5.7% year-on-year expansion to over USD 10 billion in 2001. Korea's fashion marketplace is now characterized by two market niches; 1) a primarily domestically-produced, inexpensive apparel line, plus 2) a high-end market dominated by foreign designer brands, imported mostly from the U.S. and Europe. At first, Korea's apparel industry was mostly domestically-focused since it faced little competition from imports, and its distribution was primarily manufacturer-dominated. But by the 1990's, as imported fashions began to make significant inroads into high-end markets that were once exclusive to local manufacturers, significant changes in Korea's apparel distribution system had begun to develop. Consequently, many different distribution channels exist today, including department stores, "hyperstores", discount-specialty stores, outlets, discount retailers, and home-shopping. This diversity of marketing channels has been steadily enhancing competition and offers consumers more choices and competitive pricing. End Summary.
A. MARKET ASSESSMENt

Textile Market Profile

Since the 1970's, textiles has been one of Korea's key industries and also an important export sector. At that time, the textile industry's operations were driven by cheap labor, with little focus on fashion design or the production of high quality apparel. Within the last few years, however, it has increasingly been focusing on developing new materials, dyeing technology, and fashion. Today, this sector is still an important contributor to the Korean economy; its exports accounted for almost 12% percent of Korea's total export mix in 1999. With the recent slowdown in Korea's economic growth and financial instability elsewhere in East Asia, most industry analysts predict that the Korean textile market will remain flat this year, with a modest export growth of 3%. According to the Korea Federation of Textile Industries, Korea's textile exports will increase from USD 18.5 billion in 2000 to USD 19 billion in 2001. At the same time, however, textile imports into Korea 2001 are expected to jump 9.4%, to USD 5.2 billion, over their 2000 level, due to a steady growth in the imports of raw materials and low-priced Chinese garments.
Apparel Market Profile
In 1975, a "ready-to-wear" Korean clothing industry started to develop, providing momentum for an emerging fashion/apparel industry. By the 1980's, as Korea's GNP increased and more women entered the workforce, this industry began to evolve into one offering customers choice in styles and fashions. Into the mid-90's, Korea's apparel market was firmly established as one of its most important markets, growing over 15% per year, with annual sales of USD 15 billion by 1996. With the onset of economic troubles in 1997, however, Korea's apparel sector took major losses as consumers sharply reduced spending on clothes and firms suffered major bankruptcies. Consequently, Korea's fashion industry receded, and its industry once again began focusing its marketing efforts toward supplying lower- and middle-priced apparel products. From the last two quarters of 1999, however, the Korean fashion industry has begun to turn around, and sales, especially high-end fashions, are forecastto register a 5.7% year-on-year growth to over USD 10 billion in 2001.
Competition from leading foreign brand apparel makers began to intensify in the 1990's, prompting Korea's apparel industry to further modernize. Domestic manufacturers began diversifying their product lines; the country's distribution structure started to change and distinct "fashion centers", including the Kangnam and Apkujung areas in Seoul, became established. As imports of foreign brand increased, Korea's domestic manufacturers started to pay more attention to customer service, offering better distribution and enhanced product quality over mass-produced, lower-quality fashions. In addition, the increased imports also helped bring about the emergence of discount distribution retailers, as importers and distributors began looking for lower-priced products.
B. END-USER ANALYSIS

Consumers' Quality Evaluation

Recent studies on Korean consumer behavior show that consumers tend to be both brand-savvy and price-conscious when making apparel purchases. Most consumers seem to correlate imported brand names and higher prices with superior quality. They generally pay close attention to the country-of-origin when evaluating quality and making purchasing decisions on apparel products. Specifically they prefer brand apparel from the United States and Europe over imports from other Asian countries, such as China and the South East Asian nations. Korean consumers also place a premium on the wearing of luxury brands as a way of displaying one's social position and wealth. After going through a stage of mass consumption of "ordinary" apparel, consumers are increasingly developing diverse tastes, yet at the same time searching for reasonable prices for their fashions.

Major Consumer Groups

Korea has experienced a population boom during the last half-century. This plus its rapid industrial development has resulted in most families living in densely-populated cities and regions. This centralized habitation has inspired family-targeted marketing, aimed at attracting neighborhood housewives to cultural, sports, and shopping centers. For example, large shopping districts have emerged in the rapidly growing areas of Kangnam and Myong-dong as well as the Seoul suburbs of Ilsan and Bundang. As in the United States, the "baby boom" generation, those born between 1945 and 1960 and now middle-aged, form a powerful consumer group. Because much of this large group has had good access to higher education, most enjoy relatively high income levels. This generation is also the first to see substantial numbers of career-oriented professional women among its members. As in the U.S., this work-focused group of parents tend to have relatively little time to spend with their family, and hence tend to buy their children expensive items such as clothes and toys in compensation. The 2nd baby-boomer generation, (those born in the early 80's), the off-shoot of the original baby boomers, has further invigorated the children's clothing market, particularly high-end children's apparel. Even more so than with other groups, appearances count: this consumer group usually buys new children's apparel every season because of the social stigma associated with children wearing "used-clothes".

C. MARKET ACCESS

A. Distribution Overview

All of these changes notwithstanding, Korea's apparel distribution continues to be dominated by the larger manufacturers. Despite fashion distribution developments described above, industry experts point out that the manufacturer-dominated distribution structure accounts for about 80% of the clothing sold in Korea. Moreover, many of these observers add this system hinders efficiency in both production and distribution. In addition, unlike wholesalers in the United States and Japan who play a central role in fashion distribution, the lack of apparel-specializing wholesalers in Korea makes it difficult for outside distribution firms to grow, to specialize, and to accumulate new technologies.

During the 1960's, Western-style apparel started to become popular in Korea, and shops selling this type of clothing soon became prevalent throughout the country. Starting in the 1970's, large domestic firms entered the ready-made-clothing market, and their clothing was distributed through department stores and flagship shops under their direct management. Apparel manufacturers were the leading distributors since manufacturing and sales were not yet separate. The 1988 Seoul Olympics helped expose Koreans to developments outside their country, thereby contributing to the promotion of Western casual-wear fashions. This indirectly encouraged a market shift towards specialized agencies that handle distribution of relatively few lines of specialty apparel. As the market continued opening into the 1990's, Korea's distribution system increasingly took consumers' convenience into account and improved customer service became more common. At the same time, the larger Chaebols already were entering the fashion distribution business with their own fashion divisions. For example, Samsung Corporation which owns SS Fashion, opened a 4,628 square meter fashion-specialty store called "U-2 Zone" in Myoung-dong in May of 1986. Sales of its 37 fashion brands at home and abroad averaged USD 125,000 a day.
Distribution Channels

Korea's apparel marketing network is wide ranging and encompasses department stores, specialty fashion shops, discount stores, home shopping (including the Internet), as well as traditional "shopping districts".

1) Department stores: Department stores, which comprise 26.4% of Korea's retail industry, experienced a 13.2% decrease in gross annual revenues to USD 7.9 billion in 1998, followed by a further 8.8% decrease to USD 7.1 billion in 1999. As of 2001, there are 104 department stores operating in Korea with average sales mark-ups ranging from 30-38%. Department stores are increasingly emphasizing high-class brand apparel, while discount stores carry basics such as socks, underwear, shirts, and neckties. Since the economic crisis, the economic phenomenon of "the rich-get-richer and the poor-get-poorer" has escalated, and the department stores are waging a competitive struggle with each other to acquire world-class brands for high-end shoppers. Hence, imported clothing has and continues to dominate the domestic, high-priced apparel market. This year, "world-class" foreign boutiques and jewelers were eagerly invited to display showpiece booths on the main floors of several department stores. For example, Hyundai Department Store invited "Chaumet" jewelers and "Hermes", while Lotte Department Store invited "Channel" and "Prada". However, although these events were hot topics in the industry, so far, only a few world-class brands have yet to enter into the Korean market.

2) Specialty fashion shops: There are about 85 different specialty fashion shops in Korea. Manufacturers who used to depend on their own agency networks are now trying to operate fashion-specialty stores that sell not only their own brands but other brands as well. For example, Shinwon Distribution opened a fashion-specialty building in Seoul that houses 30 different brand apparel stores. In 1996, this company also started to operate a fashion-specialty department store called "Private" in Kwangju, Korea. Many fashion distributors have found that their sales expansion is easier through this distribution channel than through agencies and department stores.

3) Discount-specialty stores/Outlets/Discount Retailers: Discount stores account for approximately 5% of the Korean distribution market. The total size of this market segment was estimated at USD 3.65 billion, and is growing about 30% per year. There are currently about 220 discount stores operating in Korea. With the consolidation among some of the larger retail establishments, consumers are gravitating towards specialty stores that offer specific apparel lines at relatively low prices. For example, as early as 1986, Nasan Corporation began operating specialty fashion discount stores carrying several clothing brands.
4) Home-shopping: Korean consumers are increasingly choosing to purchase clothes through the mail and on the Internet. Home shopping-- which includes sales through television, mail-order catalogues, PC communications, and CD and call catalogues-- is likely to prosper since retailers do not incur the huge expenses that "bricks and mortar" stores do. Hence, they can pass along the low overhead as lower costs to consumers. Additionally, consumers appreciate the convenience of around the clock shopping that is offered through this sales medium.
5) Domestic Shopping Districts: The total market size of domestic shopping districts--which includes apparel goods and other goods--is estimated at USD 55 billion. This type of retailing comprises 73.9% of the Korean distribution market. The apparel market in these shopping districts experienced a slowdown during the economic crisis but has recovered since 1999. Following the financial crisis, the Korean fashion industry has gone through restructuring: shopping districts at Dongdaemoon and other areas have undergone development; the market for imported clothing has expanded; and the market for domestic designer brands has receded. Such changes mean that Korea's inexpensive apparel market has become the symbol of Korean-made fashion while Korea's expensive, domestic apparel market is dominated by foreign, high-quality, brand apparel. Industry professionals are aware of this, and hence are seeking ways to activate the apparel market for domestic, high-end, brand apparel in addition to making them high value-added. Last summer, the Dongdaemoon shopping district in Seoul underwent dramatic reconstruction with the building of trendy, extra-large shopping malls, and since last October, this district has been publicly acknowledged as the "fashion valley" that will control the Korean fashion industry in the future. Also, the Namdaemoon and Dongdaemoon districts have agreed to promote their surrounding areas as special tourist districts. Recently, major shopping districts have been successfully transformed to better meet the demands of practical consumers looking for "cheap but fashionable" clothes.
D. COMPETITIVE SITUATION

A. Import Trends
In 1996, the Korean distribution market was fully opened. As a result, the high-end market has become infused by brand apparel from Italy, France, and other countries, while the low-end market continues to be served by products from Hong Kong, China, Vietnam, and other East Asian countries. Starting in the mid-90s, giant, foreign clothing-makers have entered the domestic market. Several large stores were opened in Myong-dong and Apkujung-dong, including America's ÔDKNY' in late 1996, Italy's "Prada," and America's "Columbia Sports" in early 1997. Import values of apparel in 2000, including knitted goods, were USD 1.37 billion, which was a 64.3% increase from the previous year. Among these, imports of garment goods, such as knitted garments, woven garments, and hats, amounted to USD 1.17 billion, which was a 59.5% increase from 1999.* These increases were the result of: 1) the return of consumer confidence which disappeared during the financial crisis of 1997 and 2) the recovery of the Korean currency which had lost nearly half its value during the crisis, thereby suppressing import demand. Since the end of 1998, the economy has been rapidly recovering, reinvigorating consumers' demand in all types of goods. *Calculations made with 2000 January to November figures

B. Korean Import Market
China is Korea's most important source for imported clothing, accounting for over half of its total (see table below). As noted earlier, Chinese apparel tends to be mostly low-cost clothing that is sold to the middle-class markets. Apparel imports from Europe, Japan, andthe United States are mostly purchased by relatively wealthier, fashion-conscious buyers. Among Korea's fashion imports from other countries, most come in from Italy and France and are mostly high-priced fashion garments and designer brands. Imports from the U.S. made up 2.2% of Korea's apparel imports in 2000, compared to 3.5% in 1999. Imports from Hong Kong nearly tripled from 1999 to 2000 while imports from China and Japan almost doubled.

Apparel Import Trends, by Country (unit: USD 1,000)
1995 1996 1997 1998 1999 2000
China 386,931 572,857 619,967 274,428 438,893 809,125
Italy 234,749 313,490 263,458 65,158 90,323 141,698
Japan 76,539 78,869 79,231 26,388 46,287 72,122
Taiwan 16,820 18,134 19,492 24,474 40,668 37,613
United States 68,264 99,199 74,635 23,704 29,080 30,456
United Kingdom 21,207 29,892 43,480 7,887 18,200 31,225
France 36,832 34,669 32,380 7,662 12,227 16,484
Vietnam 24,286 34,657 32,696 13,556 11,805 37,613
Hong Kong 47,026 93,506 52,896 9,723 8,391 23,640
Other Countries 109,678 123,969 161,263 99,766 139,630 172,299
TOTAL 1,022,332 1,399,242 1,379,498 552,746 835,504 1,372,275
Source: the Korean Apparel Industry Association

A. China
In 2000, apparel imports from China rose to USD 809 million, a 84.4% increase from the previous year. These imports consisted of mainly mid- to low-priced textile products apparel. As Korea's labor and other apparel manufacturing costs have continued to rise, Korean clothing companies have found it advantageous to either import their apparel from China or directly manufacture offshore. Imports from China made by either Chinese and/or Korean manufacturers primarily include woven apparel, mostly men's pants and jackets, and non-woven apparel, mostly sweaters and knitted shirts.

B. Italy
Textile product imports from Italy increased to USD 141.7 million in 2000, a 56.9% increase from the previous year. Korea's economic recovery in early 1999 brought back consumer confidence and demand for high-priced designer brands, including brand apparel from this country.

C. Japan
Apparel imports from Japan reached USD 72.1 million in 2000, a 55.8% increase from the previous year. Imported items primarily consisted of basics, sweaters, knitted garments, and woven garments (women's pants, skirts, and men's shirts).

D. United States
Korean imports of U.S. apparel have rebounded from their relatively low level during the recent economic crisis. In 2000 they totaled USD 30.5 million. U.S. brands are well-known in Korea and especially popular in the casual wear market. However, much of the U.S. apparel that is sold in Korea is actually manufactured through joint-venture arrangements or under license by local companies. Thus, while Korea's low import figures (for U.S. clothing) seem to suggest a small market for U.S. apparel, American-designed clothing is in fact widely worn in Korea. E. Import Trends by Type
As depicted in the following table, textile imports have increased in almost all types of apparel since 1998, attesting to Korea's renewed consumer confidence and economic recovery. Imports of woven garments, the lion's share of Korean apparel imports, totaled USD 749 million in the first 11 months of 2000, up by well over 70% from the same period in 1999. Korean imports of knitted garments amounted to USD 409 million in the first 11 months of 2000, an increase of over 40% from the same period in the previous year, and their apparel import share was 32%, a slight decrease from its 34.4% share in 1999. Imports of high-priced garments from countries such as Italy, Japan, and the U.S. also significantly increased. Source: Korean Apparel Industry Association

E. COMMENT

Korea's steady reduction in tariff and non-tariff barriers against imported apparel, its evolving distribution system, and the rebounding of its economy have created enormous opportunities for which U.S. apparel manufacturers can capitalize. Most of the opportunities for U.S. clothing exporters can be found
in either specialty fashions or high-quality, name brand apparel which enjoy worldwide recognition. After a two-year slump in sales during the 1997-99 currency crisis, the name brand apparel import market has since sprung back to life as sales of luxury brands at department stores and specialty shops are again increasing. To capture this growing market opportunity, U.S. clothing exporters should consider developing more active promotional efforts to take advantage of Korea's growing demand for U.S. fashions. For further information regarding the Korean apparel market, please contact:

Mr. Mitchel I. Auerbach
Commercial Attache
Commercial Service Korea
American Embassy Seoul
82, Sejong-ro, Chongro-ku
Seoul 110-050, Korea
Fax: 822-737-5357
E-mail: mitchel.auerbach@mail.doc.gov

Ms. So Eun Joo
Commercial Specialist
Commercial Service Korea
American Embassy Seoul
82, Sejong-ro, Chongro-ku
Seoul 110-050, Korea
Phone: 822-397-4583
Fax: 822-737-5357
E-mail: so.eun.joo@mail.doc.gov
Website: http://www.cskorea-doc.gov

DISCLAIMER
Information in this report relies on sources including Government Publications, Opinions of industry experts and other public sources. Infomat can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof. All prices subject to change without notice.

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Published: 2006 August
Market: Mens Womens Childrens
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Industry: Apparel
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