[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 Fair Competitive Environment"

"The domestic market is so challenging that we have to seriously consider the efficiency of our investments, but we are experiencing continuous growth overseas, where there are no regulations."

This statement was made at the spring academic conference held last month by the Korea Distribution Association under the theme 'A New Leap Forward for the Distribution Industry: Building a Sustainable Ecosystem and Strengthening Resilience.' Industry professionals and academic experts emphasized that 'innovation' is necessary to overcome the crisis facing the domestic distribution industry, but also pointed out that various hurdles such as regulations and institutional barriers are holding them back. In particular, representatives of offline channels, who have lost dominance to domestic and international online platforms, expressed deep frustration.

Food and beauty manufacturers are enjoying a boom in overseas markets under the K-brand banner. They are offsetting a significant portion of sluggish domestic sales, caused by population decline and stagnant domestic demand, through global business. Offline channels such as department stores, hypermarkets, supermarkets, and convenience stores now consider overseas expansion not as an option, but as a necessity.

For example, Lotte Shopping is recording growth by operating complex shopping malls and hypermarkets in Southeast Asian regions such as Vietnam and Indonesia. While the company's domestic department store and hypermarket sales fell by 1.6% and 4.7%, respectively, last year compared to the previous year, 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 posted negative growth compared to the same period last year, 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 store chains, which ventured abroad even 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 edge of K-distribution, but it also reflects the reality that entering new markets where they can operate without regulatory constraints was unavoidable. Hypermarkets have long argued that mandatory weekend closures, business 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 direct purchasing from production sites and sourcing goods from small and medium-sized enterprises.

Super Supermarkets (SSM) are restricted from opening new stores or operating within a 1 km radius of designated traditional commercial preservation zones and face business hour limitations. Convenience stores are also subject to restrictions on the types of over-the-counter emergency medicines they can sell. These companies also cite the burden from minimum wage increases and are minimizing labor costs by expanding the use of self-checkout counters.

Meanwhile, online platforms, which are relatively free from regulations, have gained dominance in the distribution market by offering convenient ordering and fast delivery regardless of time and location, as well as price competitiveness. According to a study 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. In contrast, online mall purchases increased 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 only significantly increasing the share of online purchases.

"Innovation is not something extraordinary. If we address solvable issues 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 insiders are not grandiose. It is worth reflecting on the messages they are sending to the government and political circles.