[Square] The Distribution Industry in Crisis: Coexistence Over Regulation Is the Answer

Ikseong Kim, Honorary President of the Korea Distribution Science Association (Professor at Dongduk Women's University)

The novel coronavirus infection (COVID-19) is accelerating the growth rate of e-commerce. The sales ratio between online and offline channels is becoming equal, and soon the online distribution sales are expected to surpass offline sales. According to the Ministry of Trade, Industry and Energy, major online retailers' sales in March reached 5.441 trillion KRW, a 16.9% increase compared to the same month last year. In contrast, offline sales dropped by 17.6% to 5.445 trillion KRW. Department store and large supermarket sales plummeted by 40.3% and 13.8%, respectively, and overseas luxury goods sales also decreased by 19.4% year-on-year.

The non-face-to-face consumption and experiences driven by fear of virus infection are now becoming entrenched as a lifestyle habit beyond mere convenience. Offline retailers will likely have to undergo a restructuring phase. The boundary between online and offline distribution channels is collapsing, and the shift to an 'omni channel' is inevitable. The 'omni channel' emphasized by Lotte Chairman Shin Dong-bin at the group presidents' meeting in 2014 has become the trend of transformation. The omni channel, which leverages the strengths of both online and offline, will be a strategic keyword leading the sustainable growth of Korea's distribution industry.

Online companies should not be complacent either. At this point where 50% of consumer distribution sales have shifted online, online companies need to invest more in delivery personnel and automation to continue early morning delivery services. Large portal companies like Naver and KakaoTalk, as well as social commerce companies, are expanding their entry into the e-commerce market. Furthermore, new counterattacks from Lotte, Shinsegae, and Homeplus are anticipated. For example, can Coupang reduce its nearly 700 billion KRW deficit, continue investing, and maintain its growth trajectory?

If the distribution industry fails to reach consumers' hearts with new competitive strategies, it may have to close its doors following restructuring. The ability to source globally to provide products that satisfy the best cost-effectiveness will be the foremost prerequisite for sustainable growth. A faster, low-cost delivery system must also be developed to meet consumers' learned experiences accustomed to same-day and early morning deliveries. Experiments and investment capacity to apply delivery systems using electric autonomous vehicles and drones in the distribution market will also be crucial for survival.

New media technology, namely extended reality (XR), is expected to materialize soon as an ultra-realistic distribution format. Virtual department stores and supermarkets equipped with mixed reality (MR) technology, encompassing virtual reality (VR) and augmented reality (AR), will emerge, and consumers will shop in virtual spaces wearing headset-type glasses. New technologies of the Fourth Industrial Revolution, such as big data analysis using artificial intelligence, 5G communication technology, and 3D stereoscopic imaging technology, will transform the distribution industry anew. The manufacturing industry might even take over parts of the distribution industry. Nonstop consumption from manufacturing to consumption could become a reality. This highlights the urgent reality that opportunities in the distribution industry could turn into crises in the near future.

The conflict between large distribution companies and small business owners, and the resulting regulations, pose a bigger problem. The survival of small business owners after COVID-19 is an important policy issue that the government and the National Assembly must consider. However, this should not be resolved through regulations on large distribution companies. Restricting shopping mall construction, reducing operating hours of large retailers, or disallowing deliveries outside business hours will not solve the problem. At a time when e-commerce consumption exceeds 50% of total consumer distribution and digital innovation technology is becoming the essence of competition, past regulations no longer hold meaning.

The solution is to establish a symbiotic ecosystem that recognizes and utilizes the mutual existence of large distribution companies and small business owners, fitting the new changes. The virus will attack us again, and online learning and telecommuting will recur. If large, medium, and small distribution companies and small business owners fail to create symbiotic businesses that allow each to survive and grow, our distribution industry could perish together. The Korean distribution market could even be dominated by large global distribution companies. We must not give up innovation and convenience, nor halt growth, driven by power and numbers.

If our distribution companies, standing at the dawn of the Fourth Industrial Revolution, fail to secure technological competitiveness and miss growth opportunities due to regulations, they will forever fall behind global large companies in competition. There is no conflict between small business owners and large distribution companies in Japan, Taiwan, Europe, and the United States. If we create an idea platform and mobilize all efforts among industry, academia, research, and government to create symbiotic businesses, creative outcomes beyond regulations will surely emerge. In a society where we live together, both large, strong, and splendid companies and small, weak, and modest stores are important; what matters is surviving together in symbiosis until the end.

Kim Ik-sung, Honorary President of the Korea Distribution Science Association & Professor at Dongduk Women’s University

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