[Exclusive] Large Discount Store Operating Restrictions 'Tailored'... Controversy Over Hasty Research for Distribution Act Sunset Extension

Government Report on the Impact of Large Discount Store and SSM Openings
Only 9 Out of 1,806 SSM Stores Nationwide Used as Sample
Distribution Act Requires 3-Year Commercial District Impact Assessment
Research Judged Long-Term Effects Based

The government-commissioned research project, conducted to determine whether to extend the operating restrictions on large supermarkets and super-supermarkets (SSMs) set to expire on the 23rd of this month, has been criticized for being hastily and poorly executed. The study, which analyzed the impact of large supermarkets and SSMs on local commercial districts, has been called inadequate in terms of sample selection, analysis period, and methodology.

Based on this flawed research, the government has put forward the opinion that "operating restrictions on large supermarkets should be extended." The amendment to the Distribution Industry Development Act, which extends the sunset clause for these regulations, passed the National Assembly’s standing committee in September and is now awaiting final legislation.

According to the retail industry on November 5, the Ministry of Trade, Industry, and Energy commissioned the Korea Institute for Industrial Economics & Trade (KIET) earlier this year to conduct a study titled "Research for Improvement of Distribution Industry Systems: Focusing on the Effects of Large Store Openings." The final report was submitted in August. This research project was initiated to assess the impact of large supermarket and SSM openings on traditional markets and small business owners ahead of the scheduled expiration of the distribution law on the 23rd of this month.

Exterior view of Emart Everyday store.

Insufficient Sample Size... Inappropriate Analytical Methods

According to the report obtained by this publication, the Korea Institute for Industrial Economics & Trade analyzed the impact of large supermarket and SSM openings by selecting 9 large supermarkets and 9 SSMs that had opened nationwide in the past three years, then analyzed credit card usage data from the relevant commercial districts.

The problem lies in the sample size: only 9 SSMs out of a total of 1,806 nationwide were selected, representing just 0.5% of all stores. In contrast, a study by Professor Cho Chunhan of Kyonggi University, presented at a National Assembly seminar, analyzed the effects of SSM openings using a sample of 280 SSMs.

The results varied depending on the sample. Professor Cho’s research found that SSM openings led to increased sales at restaurants and convenience stores, indicating a revitalization of local commercial districts. However, the government report concluded that "the impact of SSM openings is not expected to be significant."

The methodology for analyzing the effects of large store openings on commercial districts was also inadequate. The report used a Regression Discontinuity in Time (RDiT) model, grouping the 9 SSM commercial districts into a single group and estimating changes in sales for traditional markets, wholesale and retail, and food service sectors. RDiT is a statistical method used to analyze changes in relationships between variables at a given threshold (cutoff point), and in this case, it was used to measure sales changes in commercial districts after large store openings.

However, this method is typically used to analyze short-term shocks in stock markets due to issues such as tariffs imposed by the Donald Trump administration in the United States. It failed to separately account for exogenous variables such as sudden changes in demand during the COVID-19 period, regional economic downturns, and the decline of traditional markets following SSM openings.

Furthermore, SSMs face different types of competition depending on their location, such as proximity to traditional markets or placement within apartment or residential complexes. The analysis did not differentiate by location, instead treating all SSMs as a single group. An industry insider commented, "If an SSM opens near a traditional market, it affects wholesale, retail, and food service businesses within the market, but if it opens inside an apartment complex, it impacts nearby supermarkets or convenience stores. Without distinguishing by location, it is impossible to separate the effects of SSMs from regional decline."

Distribution Law Specifies 3-Year Commercial District Impact Assessment... Only 150 Days Evaluated

The analysis period for commercial districts was also in violation of regulations. The Korea Institute for Industrial Economics & Trade calculated the effects over a short-term period of 60 days and a long-term period of 150 days after the opening of large stores. However, the Enforcement Rule of the Distribution Industry Development Act specifies that the commercial district impact assessment, which must be prepared when opening a large store, should cover a period of 'three years after the start of operations.'The law sets three years as the observation period for changes in commercial districts, but the research project only considered five months and called it 'long-term.' An industry insider noted, "For SSMs, the first three to six months are typically a period of promotional discounts to attract customers, often distorting sales figures. To get an accurate picture, about five years of data are needed."

This inadequate analysis led to inconsistent conclusions. The Korea Institute for Industrial Economics & Trade stated in the report that "the impact of SSM openings on sales at franchise stores in surrounding commercial districts was not statistically significant" in the short term, but concluded that "in the long term, SSM openings had a negative impact on traditional market commercial districts."

Notably, while the report analyzed the effects of distance, period, and location for the sample of 8 large supermarkets, it omitted such analysis entirely for the 9 SSMs. An industry insider, speaking on condition of anonymity, said, "It is unreasonable to base a report justifying the extension of regulations affecting trillions of won in sales on a sample of 9 stores and a five-month analysis. Even if there was no budget for the research, this does not match the weight of the policy." A Ministry of Trade, Industry, and Energy official explained, "We understand that the sample was selected to be as representative as possible," and added, "The research institute made its own judgment regarding the period."

Meanwhile, if the law extending operating restrictions on large supermarkets and SSMs for another four years passes the Legislation and Judiciary Committee and the National Assembly plenary session, SSM-related regulations will remain in effect until November 2029.