"Offline Retail Regulations Created a Dominant Coupang Ecosystem"
Years of Hypermarket Restrictions Have Weakened Offline Retail
Experts Call for Reform of Current Laws
As Homeplus, the second-largest hypermarket operator in Korea, faces a critical juncture for its survival, the recent customer data leak at Coupang, the country’s leading e-commerce platform, is further shaking up the retail market and signaling a major upheaval. There is a growing call to level the playing field, as more than a decade of strict operating regulations on large retail companies has entrenched a Coupang-centered monopolistic distribution structure.
According to the retail industry on December 26, Homeplus will submit its self-rescue plan, which includes the separation and sale of Homeplus Express, by December 29. Initially, Homeplus pursued a pre-approval merger and acquisition (M&A), but after failing to find a buyer, the company now plans to proceed with a post-approval M&A.
Industry experts believe that the Homeplus crisis stems from a deteriorating business environment, exacerbated by regulations on offline retail. Once the second-largest hypermarket operator, Homeplus filed for corporate rehabilitation with the Seoul Bankruptcy Court in March due to liquidity issues caused by management difficulties.Homeplus’s annual revenue, which stood at 6 trillion won in 2016, remained at 6 trillion won last year.Taking inflation into account, this effectively means negative growth.
This is because the Retail Industry Development Act, implemented in 2013 to protect small businesses and traditional markets, introduced restrictions on store openings and banned operations on public holidays for large hypermarkets and supermarkets, directly impacting their business.
During this period, Korea’s retail market rapidly shifted toward e-commerce platforms such as Coupang. Coupang’s revenue soared from 1 trillion won in 2016 to 41.3 trillion won last year, a fortyfold increase. Kurly’s revenue grew from 17.3 billion won to 2.1956 trillion won last year, an increase of approximately 127 times.
According to the Ministry of Trade, Industry and Energy, the share of offline sales, which was around 70% in 2016, fell to 45.9% as of last month. The number of hypermarket stores dropped to 368 last month, a 0.5% decrease from the same month last year. Sales per store also declined by 8.6%.
The National Emart Labor Union (Emart Union), in a statement regarding the Coupang data leak incident that began with the question, “Who created this monster?” said, “Coupang experienced rapid growth and established a dominant distribution ecosystem due to more than 13 years of ongoing offline retail regulations and the impact of COVID-19.” The union urged, “Even now, we hope to see fair competition between online and offline businesses, responsible foreign companies and local Korean companies, as well as rational regulations and government support for the development of the retail industry in the interest of consumers.”
Experts argue that current regulations on hypermarket operations should be eased. Lee Jongwoo, professor of business administration at Ajou University, stated, “Weekend sales are crucial for hypermarkets, but the regulations have significantly altered consumer behavior,” adding, “The Retail Industry Development Act should be abolished as soon as possible, and the industry should be guided toward competition rather than sanctions.” Lee Eunhee, professor of consumer studies at Inha University, commented, “Offline regulations have further accelerated the shift to online,” and said, “With the current competitive structure between online and offline, extending the Retail Industry Development Act for another four years is not desirable.”
Some analysts suggest that the shift is driven more by consumer demand for the convenience of online shopping than by regulations themselves. Choi Chul, professor of consumer economics at Sookmyung Women’s University, said, “While it is true that government regulations on offline retailers have affected the growth of hypermarkets, the widening growth gap is mainly because offline businesses have failed to match the convenience offered by online e-commerce platforms.” He added, “Offline retailers still have strengths over online platforms in certain categories such as fresh food, and they should have leveraged these advantages more effectively.”
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