[Takryucheongron] Protection of Small Business Owners Must Continue Through Amendment of the Distribution Industry Development Act

Jo Hye-jeong, Research Fellow at the Small and Medium Business Institute.

In the 21st National Assembly, an amendment to the Distribution Industry Development Act is being proposed to extend the restrictions on large supermarket openings and further strengthen coexistence with local commercial districts. In particular, Lee Jang-seop, a member of the Democratic Party of Korea, has introduced a bill to extend the regulations related to the 'Traditional Commercial Preservation Zone,' which is set to expire this year, for an additional five years. According to the current law, areas within 1 km of traditional markets and traditional stores are designated as Traditional Commercial Preservation Zones, where the establishment of large-scale stores such as large supermarkets is regulated.

Due to the impact of the novel coronavirus infection (COVID-19), the growth of the online market has accelerated, causing offline distribution to stagnate, raising concerns about related distribution regulations. The outbreak of COVID-19 led to the implementation of remote work and the spread of social distancing, increasing people's preference for contactless consumption to avoid the risk of infection. According to the Ministry of Trade, Industry and Energy, online sales in February this year increased by 34.3% compared to the same month last year, continuing the upward trend, while offline sales sharply declined, reflecting the ongoing slump of offline businesses. It is argued that distribution regulations do not adequately reflect the rapidly changing distribution environment, which is shifting towards online.

However, it remains difficult to ignore the influence of large offline distribution companies such as large supermarkets. Recently, with the increased preference for nearby shopping due to COVID-19, sales of corporate supermarkets (SSMs) have grown, and as confirmed cases occurred in online shopping mall logistics warehouses, demand that had been concentrated online has shifted to large supermarkets. Given their location within residential areas, their strong influence on consumers is expected to continue.

From an institutional perspective, protection for small offline merchants is necessary. If restrictions on the opening of new large stores are removed, it will be even more difficult for small businesses to maintain their survival rights in competition with large distribution companies. Small business owners are also raising their voices to strengthen regulations related to the opening and operation of large-scale stores. According to the 2019 'Opinion Survey on the Amendment of the Distribution Industry Development Act' by the Korea Federation of Small and Medium Business, 55.6% of small business owners support the amendment, with the most common reason being 'revitalization of alleyway commercial districts through increased sales of surrounding small businesses,' at 48.9%. This was followed by 24.8% citing difficulties in coping with worsening business conditions due to factors such as sluggish domestic demand and increased costs.

To protect small merchants, it is necessary to consider regulations on the opening of large stores in Traditional Commercial Preservation Zones. However, strict evaluations of coexistence with local communities and the impact on surrounding commercial districts should be taken into account to enhance the effectiveness of related location regulations. Careful consideration of the scope of regulations based on impact assessment analysis results and stakeholder consultations is also required. At the same time, institutional support to strengthen the offline competitiveness of small merchants in traditional markets and traditional stores should be considered in response to the rapidly changing distribution environment. Small business owners themselves should also devise proactive response measures, such as embracing changes in consumer trends and technology.

Furthermore, reflecting the rapidly growing online distribution market environment, it is essential to revise regulations to ensure fair competition and coexistence between large distribution companies and small and medium-sized enterprises in the online market. A system that stakeholders in the distribution industry can agree upon must be established.

Jo Hye-jung, Research Fellow, Korea Institute for Industrial Economics & Trade

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