[Opinion] The End of Retail Industry

Seoyonggu, Dean of Graduate School of Business, Sookmyung Women's University

[Asia Economy Reporter Minyoung Cha] The number of consumers visiting offline retail stores is rapidly decreasing. This phenomenon is called the "retail apocalypse." Broadly speaking, the demise of retail stores is a global phenomenon occurring since 2008, with the emergence of the new normal economy and the onset of the Fourth Industrial Revolution led by Amazon.

Last month, Lotte Shopping, which operates about 700 retail stores including department stores, large discount stores, and corporate supermarkets (SSM), surprised everyone by announcing the closure of around 200 stores, accounting for 30% of its outlets. However, the end of retail stores in Korea actually began four years ago. It started the moment Coupang built massive logistics centers with investment from Chairman Masayoshi Son and introduced Coupang delivery services, and when Market Kurly began delivering fresh food overnight. Despite the example of Amazon in the U.S., Korean retail giants missed the golden time by focusing on optimizing existing offline stores and opening shopping malls. Now, they have become followers chasing after internet overnight delivery companies, which have become the new shopping standard in Korea. There is a famous saying, "The future is already in front of us." The four years during which offline retail giants were momentarily complacent created this gap.

Even in the U.S., where the service industry is the most developed globally and the domestic economy was booming over the past four years, about 40 prestigious offline retail companies including Sears, with a 125-year history, Toys "R" Us, American Apparel, Gymboree, Forever 21, and Barneys have gone bankrupt. On average, about 9,000 retail stores closed annually in the U.S. over the past four years, and 20% of commercial spaces in Manhattan, New York, are vacant. Despite an unprecedented economic boom, the reason why representative retail stores in the U.S. are shutting down is due to deteriorating performance caused by the rapid growth of online shopping such as Amazon.

The spread of the novel coronavirus disease (COVID-19) is accelerating the demise of retail stores. Although this situation is ongoing, it has already pushed the travel industry and dining sector to their limits. Furthermore, it is accelerating the recession of self-employed businesses and retail, devastating service industries that involve direct customer interaction. While face-to-face services are at risk, non-face-to-face service markets such as mobile shopping by Coupang, HMR (Home Meal Replacement), and delivery services are growing. Just as Alibaba in China gained growth momentum from the Severe Acute Respiratory Syndrome (SARS) outbreak in 2002, the COVID-19 crisis in 2020 is expected to act as a catalyst for the growth of mobile shopping and non-face-to-face service industries in Korea.

The implications of the retail apocalypse phenomenon for us are as follows. First, population decline and the replacement of the main consumer generation. Korea is already a shrinking market with a decreasing working-age population and a declining middle-class ratio. In particular, about 15 million Korean baby boomers aged 50 to 70, who were the main drivers of department store and large discount store growth, are experiencing a rapid decline in purchasing power and consumption desire. Currently, the Korean consumer market is led by millennials under 40 years old. The decline of offline retail stores, which digital natives accustomed to smartphone shopping do not visit, is inevitable.

Second, the change in the identity of retail. The era when simple product sales could sustain businesses is over. Delivery services that dominate consumers' lifestyles, like Amazon, are the future direction retail must take. Sustainable growth is possible by creating a new success formula that integrates food, clothing, healthcare, and content, and provides hyper-personalized customized services.

Lastly, regulations on large-scale store openings and operating hours, which are implemented to protect small and medium-sized merchants, need to be reconsidered. These are 20th-century regulations based on the assumption that only offline retail markets exist as a zero-sum game. They create an uneven playing field against 24-hour online businesses and hinder the revitalization of local urban commercial districts. They neither protect small merchants nor serve local consumers well, causing inconvenience. A policy shift that considers small merchants through mobile seller education and exit strategy support seems necessary.

This content was produced with the assistance of AI translation services.