[Inside Chodong] K-Distribution Expands Overseas... The Bitter Side

Department Stores, Hypermarkets, and Convenience Stores See Growth Overseas
An Inevitable Choice to Offset Stagnant Domestic Demand
Seeking Ways to Overcome Regulatory Barriers Facing Offline Retail
"Innovation for the Future Begins with a

"The domestic market is so challenging that we have to worry about efficiency compared to investment, but we are experiencing continuous growth overseas where there are no regulations."

This statement was made at the spring academic conference hosted last month by the Korea Distribution Association under the theme "A New Leap for the Distribution Industry: Building a Sustainable Ecosystem and Strengthening Resilience." Industry professionals and academic experts in the distribution sector emphasized the need for "innovation" to overcome the crisis facing the domestic distribution industry, but pointed out that various hurdles such as regulations and systems are holding them back. In particular, there was a deep sense of frustration among representatives of offline channels that have lost their dominance to domestic and international online platforms.

Food and beauty manufacturers are enjoying a boom in overseas markets with the "K-brand" label. They are offsetting a significant portion of their sluggish domestic sales, caused by population decline and a stagnant domestic market, through global business. Offline channels such as department stores, hypermarkets, supermarkets, and convenience stores now see overseas expansion as a necessity, not a choice.

For example, Lotte Shopping is recording growth by operating complex shopping malls and hypermarkets in Southeast Asian countries such as Vietnam and Indonesia. Last year, the company’s domestic department store and hypermarket sales fell by 1.6% and 4.7% respectively compared to the previous year, while overseas department store and hypermarket sales increased by 43.7% and 3% respectively. In the first quarter of this year as well, while domestic sales declined year-on-year, these overseas businesses saw increases of 6.2% and 9.5% respectively.

Emart is also expanding its hypermarkets and private brand (PB) No Brand specialty stores in Southeast Asia, including Mongolia, Vietnam, the Philippines, and Laos. Convenience stores, which entered overseas markets earlier than these companies, are following the same trend. The two leading players, GS Retail and BGF Retail, are each operating more than 600 GS25 and CU stores in countries such as Mongolia, Vietnam, Malaysia, and Kazakhstan.

This growth is highlighted as a competitive advantage of "K-distribution," but it also reveals that entering new markets where they are not bound by regulations was inevitable. Hypermarkets have argued that mandatory weekend closures, operating hour restrictions, and bans on late-night online orders and deliveries-implemented since 2012 to support traditional markets, small businesses, and workers’ right to rest-are excessive. At the same time, they contend that they clearly contribute to revitalizing local economies through sourcing from local producers and supplying goods from small and medium-sized enterprises.

Super Supermarkets (SSMs) are restricted from opening new stores or operating within a one-kilometer radius of traditional commerce preservation zones and are subject to operating hour limitations. Convenience stores are also limited in the types of over-the-counter medicines they can sell. These companies have also expressed concerns about the burden of rising minimum wages and are minimizing labor costs by expanding self-checkout systems.

Meanwhile, online platforms, which are relatively free from regulations, have gained an advantage in the distribution market by offering convenient ordering and fast delivery regardless of time and place, as well as price competitiveness. According to a comparison by the Korea Economic Research Institute under the Federation of Korean Industries, the average amount spent on groceries at traditional markets on mandatory closure days for hypermarkets dropped by 55% from 13.7 million won in 2015 to 6.1 million won in 2022, while online mall purchases surged more than twentyfold from 3.5 million won to 81.7 million won. Contrary to the original intent, the mandatory closure policy has had little effect on revitalizing traditional markets, while the share of online purchases has increased significantly.

"Innovation is not something special. If we solve what can be addressed one by one and ensure fair competition, domestic distribution companies with strong fundamentals will be able to overcome the crisis." The ideas and solutions proposed by industry professionals are not grandiose. It is necessary to carefully consider the message they are sending to the government and political circles.