[Trap of Regulation] Sales Drop by 9.7 Trillion Won if Mandatory Closure for Large Retailers Fully Enforced

Proposal for Amendment to the Distribution Industry Development Act
Department Stores, Duty-Free Shops, and Complex Shopping Malls
Simulation of Twice Monthly Closures
Weekend Sales Twice Weekday Sales... Losses Are Inevitable

[Asia Economy Reporters Hye-seon Lim and Min-young Cha] A bill related to mandatory closure of large offline retail stores, which has been a pledge of President Moon Jae-in and a recurring topic in the political arena every year, has been proposed. The retail industry expresses concerns that if the bill passes, it could cause an annual sales loss close to 10 trillion KRW across the entire retail sector.

On the 14th, Asia Economy estimated the scale of losses assuming that department stores, complex shopping malls, outlets, and duty-free shops, following large marts, would also have mandatory closures twice a month. The total damage to the retail industry would reach 9.7152 trillion KRW. Specifically, if regulations apply twice a month like for large marts, the sales loss for department stores operated by Lotte, Shinsegae, Hyundai (including shopping malls) alone is expected to be 3.1152 trillion KRW. Large marts would suffer 3.3264 trillion KRW, duty-free shops 2.5488 trillion KRW, and outlets 724.8 billion KRW in losses. The loss estimates take into account that weekend sales at retail stores are 1.5 to 2 times higher than weekday sales.

Regulatory Scope Covers All Offline Stores

The amendment to the Distribution Act, jointly proposed by Democratic Party lawmakers Hong Ik-pyo and Lee Dong-joo, aims to extend the current mandatory closure and late-night operation restrictions, which apply only to large marts and corporate-type supermarkets (SSM), to affiliates of mutual investment-restricted business groups operating stores, as well as to complex shopping malls, department stores, duty-free shops, and outlets above a certain size. This means all offline stores operated by Lotte Shopping, Shinsegae Group, Hyundai Department Store, and others fall under the regulatory scope. The bill’s sponsors also include Lee Hak-young, chair of the Industry, Trade, and Small and Medium Business Committee in the first half of the 21st National Assembly, demonstrating the ruling party’s intention to pass the bill. Lawmaker Hong Ik-pyo said, "This bill has been continuously discussed and was a key national agenda in the 20th National Assembly, so we plan to discuss it in depth," adding, "We intend to uphold the purpose of supporting small local businesses." Lawmaker Lee Dong-joo explained, "The amendment was proposed to balance the distribution market and prevent reckless overcompetition by large corporate retailers," and said, "Once the National Assembly is normalized, we will begin full discussions."

An executive from a retail company lamented, "Expanding mandatory closures would be disastrous," and added, "Since the COVID-19 pandemic, non-face-to-face culture has spread and fewer people visit offline stores, so strengthening operational regulations is like telling us to die." He continued, "If the mandatory closure bill passes, store restructuring will accelerate, and as closures increase, jobs will sharply decline."

More Closures than Openings in Large Marts

Over the past decade, large marts (Emart, Lotte Mart, Homeplus) that have implemented mandatory closures have seen 16 store closures in the last four years, exceeding the 9 new store openings. Including department stores, the number of openings is 13, while closures exceed twice that at 33. Although the National Assembly insists on strengthening distribution regulations to protect small merchants, the reality is quite the opposite. A retail industry insider explained, "50 to 70% of the brands in large marts and shopping malls are small and medium-sized enterprises," adding, "If stores close twice a month on weekends, small businesses operating within those stores will suffer significant damage." According to a major mart, a single store loses about 330 million KRW in sales per closure. If 140 stores nationwide close 24 times a year, annual sales decrease by approximately 1.1088 trillion KRW. Self-employed tenants in marts are estimated to suffer about 151.2 billion KRW in annual sales losses. The mart also claims that reduced purchases of agricultural, marine, and livestock products negatively impact farmers’ incomes. Based on purchase amounts, a single Sunday closure reduces purchases of agricultural, marine, and livestock products by about 5.32 billion KRW per day, totaling approximately 127.7 billion KRW annually.

The retail industry anticipates that if department stores, complex shopping malls, and outlets are included in mandatory closure regulations, it will affect not only food and beverage but also fashion and beauty sectors. There is concern that efforts to save small merchants might inadvertently cause everyone to fail together. Therefore, the retail industry advocates finding a mutually beneficial solution through voluntary negotiations between large marts and traditional markets without artificial policy interventions. The Emart 'No Brand' coexistence store located in Dangjin Traditional Market, Chungnam Province, is a good example. A retail industry official said, "Since opening the coexistence store inside the market in 2016, the number of visitors to the traditional market has steadily increased," adding, "We coordinate product offerings through prior consultations with the market merchants’ association, creating a successful private-sector coexistence case, which is more desirable in the long term." The number of users of the Dangjin Market public parking lot reached 63,623 last year, 2.5 times higher than in 2015 (25,834), before the first store opened.

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