[The Crisis in Distribution Industry] Missing the 'Digitalization' Golden Time... Sighs Over Regulation-Only Policies

Ruling Party Strengthens Regulations on Complex Shopping Malls Following Department Stores and Large Marts
Twice Monthly Closures and Operating Hours Restrictions
Golden Time for Distribution Big 3 to Transition to O2O
Need for Stable Offline Cash Cow

[Asia Economy Reporters Hye-seon Lim, Min-young Cha, Seung-jin Lee] While the offline retail industry is facing a survival crisis, the government remains focused solely on regulations. The industry is caught between a sales cliff caused by the COVID-19 pandemic and government regulations that are holding it back. In a situation where facility investments must precede the establishment of an omnichannel linking offline and online, retailers are suffering from an unexpected double burden. There are concerns that excessive regulations could cause the industry to miss a golden opportunity.

On the 22nd, a senior official in the retail industry pointed out, "There are signs that the ruling party’s first campaign pledge after the election, 'strengthening regulations on complex shopping malls,' is about to be implemented in earnest," adding, "With the ruling party’s landslide victory, various regulatory policies on the retail industry are not being eased but rather gaining momentum." If the pledge is realized, various regulations such as location restrictions and operating hour limits from the urban planning stage, mandatory designated holidays, and a requirement to close twice a month on holidays will be enforced.

The controversy over regulations on large discount stores (large marts) also shows no sign of resolution. According to the amendment to the Distribution Industry Development Act, large marts and corporate supermarkets (SSMs) must close for business twice every month on Sundays. This policy also applies to online malls operated by large marts. Although there are criticisms that such regulations are unfair since internet shopping malls are not subject to them, the government remains silent. Andong City is attempting to temporarily ease regulations for the first time among local governments in response to the COVID-19 crisis, but strong opposition within the city is making progress difficult.

Outlets located in suburban areas such as Paju and Yeoju are struggling because shuttle bus operations are not allowed. Under the pretext of protecting small merchants, not only large marts but also department stores have been banned from operating shuttle buses. This contrasts with the case of Japan’s largest premium outlet, Gotemba Premium Outlets. Gotemba Outlet has operated free shuttle buses linked to the train station every 15 minutes and also runs direct buses to Shinjuku and Yokohama.

Such a regulatory environment focused solely on shaking offline stores, which are the cash cows of traditional retailers, is pointed out as a factor that could undermine the competitiveness of domestic companies in transitioning online. Efforts for digital transformation, which pursue a shift from offline-centered to online-centered business, require facility investments and labor costs.

In the case of Lotte Group, it is focusing on building the online-based shopping platform "Lotte ON" centered on its affiliate Lotte e-commerce. It is attempting changes based on Lotte Information & Communication’s core artificial intelligence (AI) technology and Lotte Members’ customer big data. It is expected to be reborn as an integrated version of traditional offline companies such as Lotte Mart, Lotte Department Store, and Lotte Hi-Mart.

SSG.com, Shinsegae Group’s dawn delivery specialist company, is also a result of combining Emart’s unique logistics know-how and IT technology. Emart established SSG.com in 2018 through a physical division and formally spun it off after merging Shinsegae Mall in March. However, despite continuous investments in automation facilities, it has yet to turn a profit. SSG.com’s sales in 2019 reached 844.2 billion KRW, but its net loss was 58.5 billion KRW. Homeplus and Hyundai Department Store are also seeking survival by strengthening O2O services that enhance customer convenience.

Professor Yong-gu Seo of Sookmyung Women’s University said, "After the 2009 global financial crisis, the situation for small merchants became very difficult, leading to strengthened offline regulations on traditional retailers. However, the recent success of large e-commerce companies like Coupang has clearly shown that these regulations are ineffective," adding, "It is necessary to ease regulations so that traditional offline retailers can gain momentum while starting O2O services such as immediate delivery from marts."

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