[Inside Chodong] The "Regulatory Nail" Pulled Out Too Late... But the Scars Remain

Seocho-gu Allows Dawn Delivery
Large Mart Industry Responds Indifferently
Regulatory Entrenchment Undermines Deregulation Effectiveness

Seocho-gu, Seoul, has become the first in the nation to open the way for large mart dawn delivery. Since this is welcome news about the abolition of long-standing regulations, I reached out to representatives of large marts, but the response was more subdued than expected. Why did they react this way when the regulations they had long wished to be lifted were finally removed?

The biggest issue is that the industry's ecosystem has completely changed due to the regulations lasting for such a long time. The Distribution Industry Development Act, which effectively banned large mart dawn delivery, started in 2012. It enforced two mandatory holiday closures per month for large marts and introduced business hour restrictions that prohibited late-night operations. During restricted hours, not only was store opening banned, but delivery and similar activities were also completely prohibited. Delivery was considered an extension of business operations. In effect, dawn delivery was banned.

Because of this, large marts gave up on dawn delivery and instead chose a workaround by having affiliated companies handle dawn delivery.

Distribution companies had to abandon the logistics infrastructure owned by large marts and build new logistics systems specifically for dawn delivery. This led to controversies over redundant investments. The period when dawn delivery was thriving coincided with the time when large marts were struggling due to changes in the consumer market. With limited funds and ongoing inefficiencies, affiliated companies of large marts also had no choice but to give up dawn delivery one after another.

As large marts withdrew, e-commerce companies such as Coupang, Market Kurly, and Oasis Market dominated the dawn delivery market. In this situation, can large marts start dawn delivery again? Currently, expecting dawn delivery from large marts seems no different from e-commerce companies newly entering the offline large mart market.

Currently, the demand for dawn delivery is largely absorbed by e-commerce. The market has become entrenched due to the long-term regulation. Generally, the industry believes that for dawn delivery, a delivery vehicle must deliver more than 40 items to break even. For large mart dawn delivery to succeed, they need to create new large-scale demand or take customers away from e-commerce. This requires massive investment, but large marts are currently going through their toughest times since their inception.

Another problem is that the area where regulations have been lifted is too limited. Currently, only one autonomous district allows dawn delivery. The industry believes that for profitability, regulations need to be lifted simultaneously in at least several metropolitan autonomous districts for dawn delivery to be feasible. In Seocho-gu, there are four large marts: E-Mart, Lotte Mart, Kim's Club, and Costco. Among them, E-Mart conducts dawn delivery through SSG.com, Lotte Mart through Lotte On, Homeplus through Homeplus Express, and Kim's Club through Oasis Mall. Although regulations have been lifted, nothing much has changed.

Those who have hammered a nail into wood know that a wrongly hammered nail leaves a hole even after removal. If the nail is pulled out immediately, the damage is less, but pulling out an old nail inevitably causes more damage. Regulations are like nails. Old regulations fix the industry's ecosystem in place and create irreversible situations.

It has been a week since the 22nd National Assembly convened. Amid a minority government and majority opposition, with ongoing 'strong versus strong' confrontations, concerns are growing that even stronger distribution regulation bills may emerge. We hope that lawmakers reviewing these bills will carefully consider during the legislative process that once established, regulations can lead to the collapse of the entire industry.