[Op-Ed] Easing Hypermarket Regulations: Are We Changing with the Times?

The mandatory holiday closure rule for large discount stores—often called the “shackles law”—is expected to be abolished, restrictions on business hours lifted, and online delivery allowed. This would mark a change about 12 years after the revision of the Distribution Industry Development Act.

Mandatory closures for large discount stores were introduced with the stated goals of protecting consumers and local commercial districts, but in reality they have been a misguided policy that regulates people’s daily lives. Large discount stores and super-supermarkets (SSMs) have been required to close twice a month on public holidays, and large discount stores have also been barred from online sales from midnight to 10 a.m. This distribution law failed to properly identify the fundamental problems facing traditional markets, such as the lack of transparent price comparison, and instead wrongly assumed that regulating large discount stores would lead consumers to use traditional markets more often.

Now, more than a decade later, the regulation is out of step with the times. Changes in the social environment, including population aging and the rise of single-person households, have reshaped distribution channels into both offline and online formats. In addition, online spending increased as non-face-to-face culture spread during COVID-19. According to a survey by the Korea Enterprises Federation on “where people shop on mandatory closure days for large discount stores,” “supermarkets and grocery wholesale marts” accounted for 45.1%, compared with just 11.5% for “traditional markets”—a threefold gap. In other words, while large discount stores fell behind under regulation, grocery wholesale marts and e-commerce grew in step with the times.

In the retail industry, large discount stores have in fact been subjected to discrimination. Grocery wholesale marts mainly sell agricultural, livestock, and fishery products, meaning they also threaten traditional markets and small merchants, yet because they are classified as mid- to large-sized supermarkets, they are not subject to mandatory closure and face no restrictions on operating hours or store openings. At the same time, e-commerce firms such as Coupang and Kurly grew rapidly in a short period by freely operating same-day and dawn delivery services. By contrast, 22 large discount stores closed in 2023, resulting in the loss of about 30,000 jobs.

Consumer rights have also gone unprotected, while inconvenience has only worsened. The inefficient system imposed on large discount stores increased operating costs, which were ultimately reflected in retail prices and pushed up consumer prices. Dual-income couples and single-person households who work on weekdays typically shop on weekends, but because of mandatory weekend closures, they were forced to wait for dawn delivery from e-commerce platforms even when a large discount store was nearby. In addition, the gap in shopping infrastructure between the Seoul metropolitan area and regional areas widened, local offline commercial districts collapsed, and consumer harm increased.

Agricultural, livestock, and fishery distributors, as well as small and medium-sized partner firms, were also harmed. Because freshness is crucial for agricultural, livestock, and fishery products, weekend closures led large discount stores to avoid handling them, hurting farmers, fishers, and livestock producers. Various small and medium-sized partner businesses located inside large discount stores—such as opticians and restaurants—also suffered major sales losses, considering that weekend sales at large discount stores are typically more than twice weekday sales.

Now regulation must change in step with today’s realities. Easing regulations on large discount stores would allow them to compete fairly with other retailers. Freer business activity would expand consumers’ range of choices and increase sales for retailers and their partner companies. In short, it would revitalize a consumer market that has been frozen by prolonged high interest rates and high inflation.

Jisu Yang

Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [칼럼] 대형마트 규제 완화, 시대에 발맞춰 변화하고 있나?

Author: Ji-su Yang

Date: 2024-03-21

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&idx=26529