The debate over the Distribution Industry Development Act is resurfacing. As criticism grows that restrictions on large retailers' operating hours and mandatory closure days do not fit a distribution environment reorganized around online, discussions on deregulation, including allowing early-morning delivery, are gaining momentum. This series examines the market shifts driven by the Distribution Industry Development Act and their subtext, and seeks directions for regulation and win-win solutions suited to the changed retail landscape. [Editor's note]
A tectonic shift is expected in the early-morning delivery market. This is because, on the 8th, the ruling party, government, and presidential office agreed at a high-level consultative meeting at the prime minister's residence in Samcheong-dong, Seoul, to push for an amendment to the Distribution Industry Development Act (hereafter the Act). The crux is to create exceptions to the current law that bans large retailers from operating from midnight to 10 a.m. If the amendment proposed by the Democratic Party of Korea passes the National Assembly's plenary session, early-morning delivery centered on stores such as large retailers will become possible.
But the retail industry's reaction is cautious. While it welcomes the move to ease regulations, it says it must watch to the end to see whether deregulation will actually happen. That is because the Democratic Party, which vocally pushed the process that shackled large retailers' operating environment, holds an overwhelming majority in the National Assembly. It is also a burden that lawmakers who had called for even stronger regulations on large retailers now occupy key posts.
◇ Why the retail industry is half hopeful, half distrustful
According to the retail industry on the 11th, as soon as discussions began on easing regulations on large retailers, controversy is reigniting over mandatory closure days and operating hour limits that have been a social flashpoint for more than a decade. This controversy has persisted since the 2010s. The same debate has repeated for well over ten years.
Some in the retail industry are pessimistic that deregulation will not be properly realized. Resistance is already strong even though the government has only broached the subject. The Korea Federation of Micro Enterprise (KFME), the Korea Merchant Association, and the Korea Supermarkets Cooperative Association issued a joint statement on the 6th, saying, "The operating hour limits and mandatory closure days at the core of the Act are the 'minimum safety net' and a 'symbol of co-prosperity' that have protected neighborhood commerce and traditional markets," and, "The government's move flatly denies this. If large retailers also jump into early-morning delivery when small merchants are already on the brink, the result will be nothing but 'indiscriminate slaughter.'" The Korea Federation of Micro Businesses and Self-Employed also said, "Amending the Act to allow early-morning delivery by large retailers is tantamount to cutting off the last lifeline of neighborhood commerce."
Unions also spoke out. The Korean Confederation of Trade Unions (KCTU) Service Federation argued, "Saying you will push large retailers into the early-morning delivery race is no different from declaring that, rather than learning from the disaster created by Coupang, you will spread that structure to other industries." A parcel delivery union also said, "Pursuing expansion of early-morning delivery is no different from pushing workers' lives and safety to the back burner. Immediately stop discussions on easing regulations for large retailers' early-morning delivery."
Another reason the retail industry believes deregulation may not proceed smoothly is that Democratic Party figures who have led regulations on large retailers still occupy key posts. National Assembly Speaker Woo Won-sik is a leading figure who has taken a hard line on large retailers since his days as a lawmaker with the Millennium Democratic Party. He was also the first chair of the Euljiro Committee, which played a major role in introducing and amending the Act.
In December 2013, Woo proposed an amendment to the Act that would bar large retailers from handling specific items designated as "co-prosperity items" by local governments. Although opposition from farmers' groups hindered legislation, it succeeded in bringing to the fore the issue of retail chains encroaching on neighborhood commerce.
Six years later, in Nov. 2019, Woo Won-sik also said, "Although an amendment to the Act was long ago proposed to fix a reality in which 0.1% of large corporations monopolize most of the retail self-employment field, it has not advanced a single step on the grounds that it would undermine the competitiveness of the distribution industry." He said this at a joint press conference with groups including the National Coalition for Amending the Retail Law of Small and Medium Merchants, composed of small-business and self-employed organizations.
A retail industry official said, "The Euljiro Committee still exists, so I think we have to watch to the end to know whether regulations on large retailers, including early-morning delivery, will actually be eased."
Hong Ik-pyo, a former Democratic Party lawmaker who moved to serve as senior presidential secretary for political affairs at the Blue House, has also advocated regulating large retailers. In Sept. 2017, Hong, as the lead sponsor of a partial amendment bill to the Act, argued that complex shopping malls and outlets should also be brought under the regulatory framework.
At the time, Hong said, "Although the current law introduced distribution regulations such as restrictions on the registration of large-scale stores and operating limits on large retailers and SSMs to protect small merchants, the deterioration in small merchants' operating conditions continues," and, "More recently, the expansion of previously nonexistent mega retail outlets such as complex shopping malls and outlets by large retail companies has accelerated the collapse of local commercial districts and deepened conflicts between business formats." However, contrary to the justifications they offered, the Act's effect on revitalizing small merchants' sales has not been proven.
◇ Move to ease regulations on large retailers amid criticism they only boosted Coupang
The reason the ruling camp suddenly took up easing regulations on large retailers is criticism that regulations enacted to protect small merchants only boosted Coupang, an e-commerce company. In Nov. last year, Coupang leaked a massive amount of consumer information and failed to provide an adequate response, and some diagnosed that this was because Coupang enjoys a monopolistic position in the e-commerce market.
Choi Ja-young, a professor in the Department of Venture and Small Business Studies at Soongsil University, said, "For the past 10-plus years, regulations that have tightened offline retail have created an environment in which e-commerce firms can effectively run unregulated 24/7, 365 days a year," adding, "Designed for an offline-versus-offline landscape when online shopping's share was negligible, those regulations have today become an 'old shackle' that entrenches the monopoly structure of online platforms and blocks competition itself."
Small merchants are also raising their voices to condemn Coupang's abuse of power. In the food delivery app market, they say, it touts "free delivery" while shifting the burden of high commissions and delivery fees onto partner businesses. Kim Woo-seok, head of the Korea Foodservice Industry Association, said, "For Coupang, the restaurant and self-employment sectors are nothing more than disposable parts to be used and thrown away." While they cannot avoid using Coupang Eats to maintain sales volume, the burden on self-employed owners is only growing due to commissions and delivery fees.
There are also suspicions that it used partner data to create and push its own private label (PB) products. Allegations emerged in a National Assembly hearing that Coupang obtained sales records (data) from sellers on its platform, then created Coupang PB products and siphoned off their sales. This is why the Democratic Party's Euljiro Committee pursued the "Task Force to Correct Coupang (TF)."
A retail industry official said, "It is regrettable that, as 10 years ago and now, the claim persists that regulating large retailers directly translates into the growth of small merchants. We need to closely examine the changes in retail formats and consumer welfare resulting from regulations on large retailers." Lee Jong-woo, a professor in the Department of Business Administration at Ajou University, also said, "A decade ago, large retailers were the strongest and concentration was severe, but circumstances have changed. Today, the main force in the retail industry impacting small merchants is not large retailers but e-commerce."