[Opinion] Distribution and Logistics in the Untact Era

Professor Seoyonggu, Department of Business Administration, Sookmyung Women's University

Vegetables and several side dishes ordered at midnight the previous night are delivered to the front door by 7 a.m., appearing on the breakfast table. Few countries worldwide have a distribution and logistics system capable of delivering fresh food within just six hours from order to delivery. In the era of contactless (untact) services, South Korea's e-commerce market is undergoing new experiments and rapid growth with a system unprecedented even globally.

If Coupang, the e-commerce company famous for its "Rocket Delivery," were a publicly listed company, its stock price would have more than doubled since the beginning of this year. The Rocket Delivery service, first introduced in 2014 based on its own logistics network, played a key role in Coupang's growth into a domestic retail giant. Currently, e-commerce companies holding a 30% share of the domestic consumer market are boarding the untact era, and soon, non-store retail could account for 50% of Korean consumer spending. As the system changes, trends shift, and consumption patterns evolve. In the untact era led by the e-commerce market, three key implications can be identified in distribution and logistics.

First, South Korea has the potential to become the world's first standard for future lifestyles. In the early 2000s, as the internet spread globally as a standard service, some scholars predicted that traditional offline consumption and internet-based consumption would each account for 50% of the market in 30 years. Considering that the COVID-19 pandemic has accelerated the arrival of future society, it is increasingly likely that this figure will be achieved before 2030. Untact consumers are rapidly increasing in line with the untact era. Thanks to the development of the e-commerce market, South Korea was almost the only major country where panic buying did not occur during the COVID-19 crisis. With a megacity called the Seoul metropolitan area, home to about 25 million high-income smartphone users, the possibility of a full-fledged future society unfolding in South Korea is growing. The most radical untact consumption society envisioned in future scenarios 20 years ago is now unfolding right before our eyes.

Second, the identity and competitive landscape of the retail industry are rapidly changing. Retail is transforming from a traditional service industry into an IT-converged information industry. Retail is shifting from offline business, where location and salesperson service are important, to untact business, where fulfillment services are key. Fulfillment, a term popularized by Amazon in the U.S. since 2006 when it opened its logistics system to external sellers, refers to the entire logistics process from order receipt, picking, sorting, packaging, to last-mile delivery. As the industry's identity changes in this way, retail competition has shifted to a battle between offline formats and online formats riding the untact trend. As the term "the end of retail" suggests, offline retail is facing a crisis of extinction. Over the past eight years, the stock prices of Korea's leading offline retail companies, E-Mart and Lotte Shopping, have fallen to about 30% and 20% of their peaks, respectively. Ultimately, retail in the untact era can be interpreted as evolving into a fourth industrial revolution style, integrating distribution and logistics like Amazon.

Third, there is the issue of jobs. The traditional distribution industry, known as wholesale and retail, is a job-friendly sector that creates 15% of total employment. However, recent environmental changes indicate a crisis of rapidly declining jobs in the distribution service industry. According to an analysis by the corporate evaluation site "CEO Score," among the top 500 domestic companies, the number of National Pension subscribers decreased in 15 out of 22 industries over five months from February to June. Among these, the distribution industry saw the largest employment decline. While employment increased at Coupang, it decreased in traditional offline retailers such as Lotte Shopping, Asung Daiso, and GS Retail. To revitalize small merchants and neighborhood commercial districts in the untact era, future-oriented ideas are needed. Regulatory policies reflecting outdated paradigms, such as restrictions on large store operating hours, are likely to be self-defeating measures that further reduce jobs in offline retail.