Momentum to revise the Distribution Industry Development Act to allow dawn delivery by big-box stores appears to be narrowing to a deal on a 100 billion won distribution development fund. Because the government has set coexistence with small merchants as a precondition for easing regulations, whether retailers agree to contribute to the fund has become the structure that will determine the speed of the legal revision. The industry is watching whether Coupang, the biggest beneficiary of the act's restrictions over the past 14 years, will take part.
According to the government and the retail industry on the 13th, the Ministry of Trade, Industry and Resources is pushing to create a 100 billion won distribution development fund to be contributed by major retailers while it includes easing operating hour restrictions for big-box stores in the 6th Basic Plan for the Development of the Distribution Industry. The fund is intended to placate neighborhood business owners who oppose deregulation. The government has consistently maintained that it cannot move toward revising the law unless a coexistence plan is prepared between retailers and small merchants, and it has reportedly been contacting both sides behind the scenes to find common ground.
Restrictions on big-box stores were introduced with the 2012 revision of the Distribution Industry Development Act. In the name of protecting traditional markets and neighborhood businesses, the two pillars are an "operating hour restriction" that bars opening from midnight to 10 a.m., and a "mandatory closing" that forces closure two days a month (typically the second and fourth Sundays). Current discussions in the National Assembly target the operating hour restriction. The idea is to open the door to dawn delivery, which has been shut for 14 years, while leaving offline sales restrictions in place. Two related amendment bills are before the Assembly. A bill by Kim Dong-a of the Democratic Party of Korea keeps offline sales restrictions but exempts online ordering and delivery from the operating hour restriction and mandatory closing rules, while a bill by Kim Sung-won of the People Power Party deletes the operating hour restriction and abolishes mandatory closing on public holidays.
The ball is now in the retail industry's court, but the response is cool. Among big-box operators, there is a strong view that contributing to the fund is a double burden. They already pay funds for local coexistence whenever they open a new store, and they see this as another cost to shoulder in exchange for lifting the dawn delivery restriction. Above all, launching dawn delivery requires simultaneous investment in logistics infrastructure and expansion of night-shift staffing. On top of that, adding a fund burden bakes in the calculation that profitability would be hard to ensure.
Whether Coupang will participate is also of interest. The restrictions introduced in 2012 applied only to big-box stores and corporate supermarkets (SSMs), while Coupang expanded dawn delivery without time limits and seized the market in the meantime. Of the roughly 20 million dawn delivery users in Korea, 15 million use Coupang, accounting for 75%.
The tilted playing field shows up in the data. According to the Ministry of Trade, Industry and Resources, sales at 26 major retailers in the first half of this year rose 7.3% from a year earlier, but the picture varied sharply by format. Department stores grew 20.1%, convenience stores 3.7%, and online 8.1%, while big-box store sales fell 7.3%. SSMs dropped 6.6% as well. This is why some argue that online operators who offer dawn delivery should shoulder the fund under the same standards.
◇ If restrictions are lifted, will the sale of Homeplus Co. catch a break?
If a coexistence plan with small merchants is tied up through a fund deal, some say it could also add momentum to the sale of Homeplus Co., which is undergoing rehabilitation.
Homeplus Co. has a large network of stores in downtown areas of the Seoul metropolitan area and major cities. As securing refrigerated and frozen logistics hubs in city centers is cited as the biggest bottleneck for fresh food dawn delivery, lifting operating hour restrictions could lead to a new valuation of these stores. For potential buyers, the very nature of the asset on the block would change. Homeplus Co. formally resumed operations at 67 stores nationwide starting that day. It needs to prove normalized operations and cash generation to find a new owner.
However, efforts to ease restrictions on big-box stores were pursued under previous administrations as well, only to run aground repeatedly due to pushback from small merchants. Small business groups have even said they plan to file a constitutional petition if the amendments are pushed through this time. On top of that, with the terms of leaders at key related groups such as the Korea Federation of Micro Enterprise (KFME) and the National Federation of Merchants set to expire around the first half of next year, opposition is expected to intensify. An industry official said, "In the end, only when common ground emerges on the fund's size and distribution structure can the bill review gain speed, and cooperation from retailers will be the key."