The government has decided to lift the lock on early-morning delivery by big-box stores for the first time in 14 years, but the mood in the retail industry is hardly upbeat. Even if the regulation disappears, they are not ready to compete with Coupang right away, and a contribution of more than 100 billion won to a coexistence fund is being floated as the price of deregulation. Industry voices grumble that the mandatory closures of offline stores, which are competitive right now, should be lifted first.
According to related industries on the 27th, big-box store regulations were introduced in 2012 through an amendment to the Distribution Industry Development Act, justified as protecting traditional markets and mom-and-pop businesses. The two pillars are a "business hours restriction," which prohibits opening from midnight to 10 a.m., and a "mandatory closure," which requires closing two days a month (typically the second and fourth Sundays). The latest easing talks target the business hours restriction. The idea is to lift the hours cap so packing, release, and delivery can take place late at night and in the early morning. It means opening the door to early-morning delivery that has been shut for 14 years.
◇ "Mandatory closures for offline stores should be lifted first"
Even so, big-box stores are lukewarm because the early-morning delivery market is already a tilted playing field. According to the e-commerce industry, there are an estimated 20 million early-morning delivery users in Korea. Among them, 15 million use Coupang, accounting for 75%. That is the result of Coupang, which launched Rocket Delivery in 2014 and early-morning delivery in 2018, investing around 9 trillion won solely in logistics infrastructure to lay more than 100 logistics centers across 30 regions nationwide.
On the surface, big-box stores also appear to have logistics bases. Every store has vehicle loading docks, backroom warehouses, and refrigeration and freezing facilities. In Seoul and the greater metropolitan area alone, E-MART has 72 stores and Lotte Mart has 59.
On top of that, E-MART operates around 100 PP (picking and packing) centers by converting back-of-store areas into dedicated logistics space. They handle 80,000 orders a day, but because they are store-based, they are bound by business hour restrictions and used only for daytime "SSG delivery." The Neo Centers, which are online-only logistics centers outside stores, handle early-morning delivery, but there are only two, in Gimpo, Gyeonggi, and Gwangju. According to Hana Securities, early-morning delivery accounts for just over 8% of E-MART SSG.com's transaction amount (about 6 trillion won). Lotte Mart does not offer early-morning delivery at all.
As a latecomer, fresh food is seen as the battleground. That is based on the assessment that they are ahead in sourcing at origin, product assortment, and cold chain operating experience. The problem is what comes next. Additional infrastructure investment, securing delivery vehicles and drivers, and deploying night-shift staff all have to follow. Under the Labor Standards Act, night work from 10 p.m. to 6 a.m. adds 50% to the regular wage. If they hire dedicated staff, labor costs rise to 1.5 times daytime levels; if they cover with overtime by existing store staff, they can jump to twice as much. Delivery unit costs in those hours are also said to be about 30% higher than during the day.
An industry official said, "With the big-box store sector itself in a tough spot, it would be difficult to invest aggressively in early-morning delivery without confirmed profitability," adding, "Easing the twice-monthly mandatory closures would deliver more practical benefit."
◇ The government's 100 billion won coexistence fund bill
The coexistence fund being discussed as a condition for deregulation is also a burden. As it settled on including the easing of business hour restrictions in the 6th Basic Plan for Distribution Industry Development, the Ministry of Trade, Industry and Resources is also pushing to create a 100 billion won distribution development fund contributed by large retailers. It is a "carrot" to soothe small merchants in neighborhood business districts who oppose deregulation.
The problem is the bill arrives first. There is no guarantee sales will increase immediately through early-morning delivery, yet contributions must be paid up front. According to the industry, the government has proposed that the 100 billion won be borne by the retail sector, including big-box stores and e-commerce companies (excluding Coupang). E-commerce players, whose interests diverge, are reportedly reluctant to contribute at all. That is because they would be paying to lift regulations on their competitors, the big-box stores. The Ministry of Trade and Industry (MOTI) is said to have explained that "the coexistence fund is one of several measures to support those who oppose allowing early-morning delivery."
Chung-Ang University economics professor Lee Jeong-hee said, "Easing big-box store regulations is an issue that has come up and been shelved multiple times over 14 years. In the previous administration, it was the No. 1 regulatory reform item but was scrapped due to opposition from small merchants," adding, "This time it comes with the pretext of 'reining in Coupang,' but authorities should fully discuss with both retailers and small merchants whether it will be effective and what safeguards are needed."