Disappeared Mart Employees '10,000'... How 'NahonSan' Changed the Distribution Map [Population Extinction Hitting Industry]

Job Analysis in the Distribution Industry Over 10 Years
Large Supermarkets See Employee Numbers Drop by Over 10,000
Store Closures Continue Since 2018 Amid 'Aging Society'
Population Decline Continues, Convenience Stores and E-commerce Face Inevitable Impact

10,000.

This is the number of jobs lost in the large supermarket industry over the past decade. The demographic changes caused by low birth rates have dealt a direct blow to large supermarkets, which were mainly used by four-person households. On the other hand, the convenience store industry targeting single-person households saw the number of employees nearly double, and as online shopping became a new trend, jobs in the e-commerce industry exploded. However, it is pointed out that online industries, like offline ones, can also shrink.

On the 19th, Asia Economy analyzed business reports, audit reports, and investor relations (IR) materials from 2014 to 2023 of each company and found that the number of employees at the three major large supermarkets (Lotte Mart, E-Mart, Homeplus) decreased from 63,302 to 53,155, a reduction of 10,147. During this period, the department store industry (Lotte, Shinsegae, Hyundai, Galleria) also saw a decrease of 896 employees.

The largest reduction in employees among large supermarkets was at E-Mart. E-Mart's workforce decreased by nearly 6,000 (5,957) from 28,701 in 2013 to 22,744 last year. Lotte Mart reduced by 3,519, and Homeplus by 671. Since E-Mart is conducting a large-scale voluntary retirement program this year to improve profitability, the number of employees in large supermarkets is expected to decrease further.

Avoidance of Marriage and Childbirth... Large Supermarkets Targeting Four-Person Households Take the Brunt

The decrease in jobs at large supermarkets was influenced by regulations on the distribution industry such as mandatory closures and the rapid growth of the online market changing consumer patterns, but the most fundamental cause is demographic change. Large supermarkets, which began operations around the 1997 financial crisis, rapidly grew by targeting four-person households representing the middle class at the time, promoting a 'bulk purchase of discounted products' model. Large supermarkets were bustling every weekend with family customers shopping, and distribution conglomerates expanded their store numbers nationwide, increasing employee hiring.

However, as more people gave up marriage and childbirth, household sizes rapidly decreased, leading to a decline in the core consumers of large supermarkets. According to the Statistics Korea population census, the average household size was 3.1 persons in 2000 when large supermarkets were emerging. At that time, four-person households accounted for 31.1%, the highest proportion. But ten years later, in 2010, four-person households dropped to 22.5%, lower than two-person households (24.3%) and single-person households (23.9%). By 2022, four-person households shrank to 13.8%. Single-person households (34.5%) became the most common household type. The proportion of one- to two-person families, who tend to purchase in small quantities, reached 62.8% of all households.

This trend is also evident in the convenience store industry, which mainly operates offline stores like large supermarkets. The number of employees in the convenience store industry, frequently visited by one- to two-person households, nearly doubled over the past decade. The number of headquarters employees at the three major convenience stores (CU, GS25, Seven Eleven) increased from 3,997 in 2013 to 7,860 last year. The company with the largest increase in employees was BGF Retail, which operates CU, with an increase of 1,273 employees. Following were GS Retail's GS25 (1,273 employees) and Seven Eleven (903 employees). During this period, the number of stores of the three convenience store companies grew from 23,928 to 48,282, more than doubling.

'Same-Day Delivery Innovation' Sparks Explosive Growth in E-Commerce Jobs

The sector showing the most explosive growth in employee numbers is the e-commerce industry. Coupang, the number one player in the domestic e-commerce market, increased its workforce by 255.38%, from 2,963 in 2014 to 10,530 last year. Including Coupang's subsidiaries, the total number of employees reached 69,057 last year. Founded on February 15, 2013, Coupang started as a social commerce business with group buying but rapidly increased its workforce by directly purchasing products and launching Rocket Delivery through its own logistics centers. Coupang's employment scale ranks third among domestic companies, following Samsung Electronics (124,804 employees) and Hyundai Motor Company (73,502 employees) as of last year. The direct employment of delivery workers significantly contributed to job creation.

Kurly, which pioneered the dawn delivery market, had only 80 employees at the end of 2016 after its establishment in 2014 but surged to 1,519 employees last year, a 1,798% increase. Gmarket, acquired by E-Mart from eBay Korea in 2021, had 1,077 employees last year. Compared to 899 employees at eBay Korea as of the end of 2013, this is an increase of 178. 11st, spun off from SK Planet in 2018, expanded its workforce from 981 employees at that time to 1,227 last year.

Tsunami of Population Cliff... Domestic Demand Shrinkage Inevitable Due to Decreased Demand

2018.

This was the first year the number of domestic large supermarket stores decreased. Despite the introduction of mandatory closures and other operational regulations under the amended Distribution Industry Development Act in 2013, the three major large supermarkets initially expanded their size through new store openings, but closures began to occur from this year onward. The total number of domestic stores, including warehouse-type large supermarkets, peaked at 423 in 2017, up from 403 in 2014, then steadily declined to 397 last year.

During this period, the combined sales of the three large supermarkets slightly increased from 26.9419 trillion KRW to 27.4769 trillion KRW, but a bigger problem was the sharp deterioration in profitability. Operating profit of the three large supermarkets dropped 23% from 845.6 billion KRW in 2016 to 650.7 billion KRW the following year, then plunged nearly by half to 352.9 billion KRW in 2018. Although sales were maintained through price increases, the number of purchase transactions decreased. According to Statistics Korea, the retail sales index for large supermarkets was 110 in nominal terms as of May, exceeding 2020 sales, but the real index adjusted for inflation was only 94%.

South Korea's working-age population began to decline from 2017 and entered an aged society (population aged 65 or older exceeding 14%) at the end of 2017. The decrease in the core consumer group earning income led to worsening profitability for large supermarkets, accelerating store closures.

This is similar to Japan's department store industry, which experienced aging earlier than South Korea. Japan entered an aged society in 1994, and its working-age population began to decline from 1997. After restructuring in 2000, major department stores began closing. The number of department store locations in Japan dropped 43% from 311 in 1999 to 177 last year. Japan’s department stores, a major consumption venue for the middle class, were hit directly by population aging.

Meanwhile, in Japan, due to a culture of daily shopping for meals, comprehensive supermarkets and large convenience stores selling small quantities of fresh food have entered major commercial areas, but recently the number of convenience store locations has also been decreasing. The number of convenience stores in Japan peaked at 55,911 in January 2021 and has declined for 23 consecutive months. Although South Korea’s convenience store industry is still growing, it cannot be complacent if the working-age population continues to decline.

Professor Seo Yong-gu of the Department of Business Administration at Sookmyung Women’s University said, "As South Korea’s demographic changes are among the most extreme in the world, changes in the Korean distribution market are also happening most intensely worldwide," adding, "Even in the U.S., where the population is not declining, the offline retail sector is gradually shrinking, showing that changes in distribution are an inevitable trend like demographic issues." He continued, "The development of e-commerce will accelerate the 'end of offline retail' phenomenon, especially combined with the disappearance of regional cities. Given the current population decline trend, changes in the distribution industry are expected to come soon, so a swift policy shift considering this is urgently needed."