[Inside Chodong] The Homeplus Crisis: The Need to Address the Core Issue of 'Regulation'

Have you heard of the 'all-line' strategy of large discount stores? All-line is a strategy that combines online and offline operations of large discount stores. In short, it is a plan for large discount stores to utilize their nationwide physical stores as logistics centers to carry out online delivery. Since the utilization of existing offline stores is maximized, this is naturally an attractive idea from the perspective of large discount stores. However, ironically, the large discount store that most prominently promoted the innovative all-line strategy was Homeplus, which is currently facing the greatest difficulties.

In 2019, Im Ilsun, then CEO of Homeplus, announced the all-line strategy at a 'business strategy press conference.' The reason Im was confident in promoting the all-line strategy was due to Homeplus's unique characteristics. Unlike other large discount stores, Homeplus stores have spacious rear areas that allow logistics vehicles to easily enter and exit. Also, the width of the rear space is wide, enabling free movement of employees and relatively convenient loading and transportation of goods. This makes the stores sufficiently suitable to be used as logistics centers for online delivery, especially for early morning delivery.

This characteristic stems from a past joint venture with the British company Tesco. Since Tesco was established during World War II, it preferred store structures that allowed vehicles to easily enter and exit in emergencies, and Homeplus adopted this. Most of the 'clock tower buildings,' a distinctive feature of Homeplus stores that can be seen while walking around, have this kind of structure.

However, the all-line strategy, which was Homeplus's bold move, did not achieve as much success as expected. Although other large discount stores showed interest in the strategy, the biggest problem was regulation. The battleground for online delivery is early morning delivery, but regulations fundamentally blocked this. The current Distribution Industry Development Act enforces mandatory holidays and closing hours for large discount stores. Accordingly, stores cannot operate twice a month, and early morning (outside business hours) delivery is prohibited. Furthermore, in 2021, the Ministry of Government Legislation issued an authoritative interpretation stating that using stores as logistics centers for online delivery is equivalent to opening the stores, effectively putting a stop to it. As a result, early morning delivery by large discount stores has been practically banned. Especially during the turbulent COVID-19 period, online companies dominated the market by emphasizing early morning delivery, and Homeplus suffered significant damage even in its core offline business.

Recently, criticism has increased toward MBK Partners, the private equity firm owning Homeplus, regarding the current situation. Questions abound about why short-term bonds purchased by many individual investors were sold and why the company filed for court receivership, whether the timing of the receivership filing was appropriate, and how the National Pension Service decided to invest 300 billion won in MBK just two weeks before the receivership. However, even considering MBK's responsibility, regulatory reform is an urgent issue. Ultimately, the root cause of Homeplus's crisis began with the decline in competitiveness of its core large discount store business.

Homeplus employs about 20,000 people. Considering the families of employees, suppliers, and tenant companies, it is clear that if Homeplus collapses, the damage will be uncontrollable. With an early presidential election anticipated, the political sphere will not just stand by and watch Homeplus close. Jobs of related parties are at stake, and the enormous economic damage is evident. Regulatory reform is like diagnosing and treating the root cause of a disease to save a patient. Moreover, the origin of Homeplus's crisis is not different from the concerns of its industry peers, E-Mart and Lotte Mart. If these shackles are left as they are in an already difficult situation, another crisis for large discount stores could arise, which must be kept in mind.