Sales Halved, Delivery App Fees Cause Deficits... Self-Employed on the Brink of Hell [How Is Your Dream?]

Editor's NoteThe year 2020, marked by the impact of the novel coronavirus disease (COVID-19) crisis, is expected to be a turning point, with the domestic economic trend drawing a clear 'K'-shaped polarization curve. The prevailing view is that the upper income and asset classes will experience a rapid and strong recovery, while the lower classes will face a steep downward slope.

Meanwhile, the life-cycle challenges that once lined up before us are becoming increasingly unreachable 'dreams' no matter how hard we try. The self-deprecating term 'byeorakgeoji' (sudden pauper), describing those who suddenly fall into destitution despite their efforts, reflects a form of relative poverty different from the past.

In response, Asia Economy is diagnosing the challenges our society must solve this year?such as real estate, jobs, childbirth, self-employment, and education?through the project '2021, How Are Your Dreams?' and exploring possible solutions.

[Asia Economy Reporters Kim Hyun-jung and Lee Seung-jin] The COVID-19 crisis has pushed self-employed business owners to the brink. Sales have plummeted to less than half, markets have rapidly changed, and maintenance costs remain unchanged. It is truly an era of triple hardship. The government has introduced a tailored response package worth 9.3 trillion won to alleviate rent burdens and compensate for sales losses. However, self-employed individuals at the edge of a cliff are embracing the fear of closure, which may become a reality at any time.

According to a recent survey conducted by the Korea Federation of Micro Enterprise Associations on 1,018 businesses nationwide from October 19 to November 5 last year, 70.8% of respondents reported a decrease in sales compared to 2019. The average sales decline rate was 37.4%.

Another survey by Korea Credit Data showed that as of December 27 (week 52) after the COVID-19 outbreak, nationwide sales of small business owners were only 44% of the previous year. In particular, sales in Seoul were at 39% of the previous year, and central business districts such as Mapo (28%), Jongno (29%), Yongsan (31%), and Jung-gu (32%) remained around 30%.

Last Year’s Sales at 44% Compared to Previous Year
Highest Fixed Cost Burden "Rent" at 69%
47% of Government Support Funds Spent on "Rent"

◆"Good landlords are someone else’s story" Maintenance costs are the biggest burden= Although sales have sharply declined, maintenance costs have not decreased. Especially, the voices of small business owners suffering from rent costs are growing louder. Since small business owners operate their businesses with one or a few employees, rent accounts for the largest portion of fixed costs. In the same survey by the Korea Federation of Micro Enterprise Associations (multiple responses allowed), self-employed individuals identified rent (68.8%) as the most economically burdensome fixed cost. This figure is significantly higher than labor costs (54.1%) or various taxes (50.6%). When asked to choose only one, 58.6% selected rent. Most COVID-19 support funds for small business owners were also spent on rent (47.3%).

Mr. Lee, who produces plaques in Jongno, Seoul, laid off all three employees after sales plummeted by 70% due to the cancellation of most sports events last year. He said, "Since I have been running this business for 18 years, I tried to endure it by taking out loans, but I can no longer afford the rent of several million won and am considering closing the business."

Mr. Lee urged the government to implement long-term rent support policies. He said, "One-time cash support is ineffective. It is necessary to support a certain percentage of rent for at least six months and increase tax benefits for landlords to encourage voluntary rent reductions."

Delivery Apps and Contactless Services Accelerate
Sales Increase but Profits Decline Due to Fees
Profitability Worsens Due to Labor and Commission Costs
‘Digital Divide’ Issues Among Elderly

◆Starting delivery apps... Elderly self-employed owners are just pacing= With the prolonged COVID-19 crisis, the transition to contactless services such as installing kiosks in stores or starting delivery services is rapidly progressing. However, elderly or small-scale business owners are struggling to keep up with these changes, worsening their conditions as they fall behind in competition. There is also a risk that blindly adopting contactless services could worsen profitability.

Mr. Kim, who runs a restaurant in Seoul and has introduced delivery services, said, "I actively discourage those around me who want to start delivery." He started delivery services through a delivery application last year. Although sales increased, the actual money he takes home decreased. Mr. Kim said, "After starting delivery, orders increased beyond what I could handle alone, so I hired employees, but labor costs exceeded the increased sales, and delivery commissions are a heavy burden. On top of that, I have to manage delivery reviews, so I am suffering from double and triple hardships."

As the industry rapidly shifts toward contactless services, which are relatively difficult for the elderly to access, a ‘digital divide’ phenomenon has emerged. According to a report by the Small and Medium Business Research Institute on ‘The Impact of Demographic Changes on Small Business Owners,’ 67.6% of small business owners were aged 50 or older in 2018. Among small business owners aged 50 or older, 94.7% had no experience in sales through e-commerce. A representative from the Korea Federation of Micro Enterprise Associations said, "Many elderly small business owners are excluded from information, and for small-scale businesses, adopting contactless services like delivery may worsen profitability. Currently, government education and support related to this are minimal. While individual interest is important, government support to prepare for aging is also necessary," he emphasized.