[In-Depth Look] Exit Strategies for the Distribution Industry Pushed to the Brink

The biggest issue from the beginning of the Year of the Rat in 2020 has been the novel coronavirus infection (COVID-19) and the resulting domestic demand slump. In particular, Lotte Shopping has begun restructuring about 200 stores since the start of the year, foreseeing the collapse of the offline retail industry. COVID-19 is a challenge that requires wise cooperation from the entire nation along with government quarantine management, but due to unclear infection routes, restrictions on the use of multi-use facilities and cancellations of large gatherings have caused significant damage to the offline retail and retail industries.

This situation has raised voices calling for new alternatives for survival strategies of offline retail stores in the future. In the 2000s, when the domestic retail industry grew, various formats such as outlets, health & beauty (H&B) stores, complex shopping malls, and specialty stores emerged alongside traditional retail.

Moreover, with the expansion of internet access and the advent of smartphones, mobile shopping has spread, further expanding consumer choices. Along with the growth of newly emerged outlets, complex shopping malls, and H&B stores, regulatory targets have also expanded from traditional large marts to other formats. However, with the emergence of the absolute powerhouse online sector, strengthening the competitiveness of offline retail requires not simple regulation but rather autonomous coordination among offline operators. It is a situation where the changed environment must be acknowledged and support provided so that the offline retail industry can respond effectively.

Since 2009, the government has chosen to regulate large marts under the pretext of protecting traditional markets and small business owners. Recently, there have been moves to apply the mandatory two-day monthly closure imposed on large marts to complex shopping malls as well, escalating the situation. The problem is that these business regulations have proven to have little effect even on traditional markets and small business owners, yet dichotomous regulatory standards are still being applied.

Instead of achieving existing policy goals, these regulations are accelerating the simultaneous decline of the entire offline retail market, including traditional markets and retail businesses, maximizing negative effects rather than positive ones. Furthermore, these regulations widen disparities in shopping convenience between regions, which is an even bigger problem. For fresh food, major internet companies operate services mainly in Seoul and the metropolitan area. Therefore, dawn delivery and same-day delivery services are available in the metropolitan area but are impossible in rural areas. To promote dawn and same-day delivery for consumers in rural areas, it is necessary to lift delivery restrictions on large mart online malls.

Currently, online malls operated by large marts are subject to the same business day regulations as offline large marts, making delivery impossible once every two weeks. This not only creates unfair competition compared to existing online retail companies like Coupang and Market Kurly but also deprives rural consumers of shopping convenience. In Europe, this phenomenon is equated with the closure of grocery stores in small rural towns, explaining that areas lacking stores providing quality fresh food are experiencing 'Food Desertification,' making it difficult to obtain foods necessary for maintaining health.

When consumer choice narrows between regions, this issue becomes more pronounced. Even aside from the COVID-19 issue in 2020, the biggest topic in the retail distribution sector is 'survival' with no room to retreat. The frame has shifted from 'coexistence' overcoming conflicts. Now is the time to find ways for the retail industry to survive with a shared goal rather than dividing it into dichotomous conflicts of scale.

Chunhan Jo, Professor, Department of Business Administration, Gyeonggi Science and Technology University