Problems with Extending the Sunset on Hypermarket Regulations by 4 Years and Follow-up Legislative Tasks

1. Raising the Issue: With the Sunset Extension, the Offline Retail Industry Has Entered a Phase of Extinction

The sunset provision was extended, but the industry has entered a phase of extinction.

On November 18, the National Assembly passed an amendment to the Distribution Industry Development Act extending by four years the sunset provision on business regulations for large discount stores and super supermarkets (SSMs). The amendment simply extended the validity period while keeping mandatory closure days, business hour restrictions, and store opening regulations intact, making it a case of anti-business regulation being maintained by inertia without any meaningful review of the regulation’s benefits and costs.

The problem is that while these regulations are being extended, the very foundation of the offline retail industry is rapidly weakening. The regulations were maintained under the banner of “protection,” but the result has been stagnation and restructuring across the industry.

2. What Is Problematic About Extending the Sunset on Large Discount Store Regulations?

◩ Collapse of Procedural Legitimacy: Extension Without Debate, Decision Without Verification

This amendment was passed through the entire process—the National Assembly’s Trade, Industry, Energy, SMEs and Startups Committee, the Legislation and Judiciary Committee, and the plenary session—without a single debate for or against it. The original purpose of the sunset system, namely regulatory review and public discussion, effectively did not function.

The Ministry of Trade, Industry and Energy, the competent ministry, supported the extension on the grounds of maintaining protection for traditional markets and small merchants, but this runs counter to the government’s own deregulatory stance pursued just over a year earlier. No explanation or responsible review was offered for this abrupt policy shift.

◩ Problems with the Policy Basis: Maintaining Regulation Based on Unrepresentative Analysis

The Ministry of Trade, Industry and Energy’s commissioned study, used as the main basis for extending the regulation, revealed serious limitations in both representativeness and methodology. Out of 487 large discount stores nationwide, only 8 were sampled, and out of 1,806 SSMs, only 9 were sampled. It also used short-term data from just 60 to 150 days before and after store openings to assess medium- and long-term effects.

Nevertheless, the conclusion was that “the current system needs to be maintained.” This is hard to view as genuine empirical analysis; rather, it is closer to a formalistic review premised on a predetermined policy conclusion. As controversy grew, the government added a provision requiring a comprehensive analysis of the need for regulation to be reported to the National Assembly three months before the expiration date, but this is merely an after-the-fact supplement.

◩ Misidentifying Competitive Relationships: Large Discount Stores and Neighborhood Supermarkets Are in Different Markets

It has also been repeatedly confirmed that the very premise of large discount store regulation is out of step with reality. According to an analysis commissioned by the Korea Economic Research Institute (KERI) from Professor Hoesang Jung of Kangwon National University, large discount stores and small- and medium-sized supermarkets are not, in practice, competitors in terms of consumer usage patterns and price competition structures.

Large discount stores serve bulk, planned purchases, while small and medium-sized supermarkets serve frequent, small-volume, nearby purchases, and in many product categories competition appeared only within the same retail format. This means the policy premise—that regulating large discount store operations will protect small retailers—does not hold up empirically.

◩ The Actual Results of Regulation: Simultaneous Stagnation Across the Entire Offline Retail Industry

Recent statistics show that large discount store regulation is not merely a problem affecting one retail format but is acting as a structural factor weakening the entire offline retail sector.

As of 2025, large discount store sales fell 11.7% year-on-year, and SSM sales also turned downward. The number of stores operated by the three major large discount store chains fell from 424 in 2017 to 392, and over the past 10 years sales declined from KRW 33 trillion to below KRW 30 trillion. Large discount stores recorded negative growth for five consecutive quarters, marking the largest decline since statistics began to be compiled.

Traditional markets are no exception. The number of traditional markets has actually decreased since 2013, and while large discount stores, SSMs, and traditional markets have all experienced stagnation, only the share of online retail has expanded rapidly. This undermines the claim that the regulations have protected traditional markets.

3. The Paradox of Protecting Small Merchants

◩ The Blind Spot of Franchise SSMs

SSM regulation is particularly disconnected from reality. About half of SSMs nationwide are small business establishments operated as franchise stores. More and more self-employed owners who once ran neighborhood supermarkets are switching brands to improve competitiveness, yet they are subject to the same regulations as large discount stores simply because the sign bears the name of a large corporate affiliate. In other words, a policy justified in the name of protecting small merchants has ended up regulating actual small merchants, while also creating fairness issues with similar retail formats such as convenience stores.

◩ The Self-Contradiction of Policy Logic: The Regulations Only Helped Online Retail

Government-commissioned studies and many empirical studies consistently show that when use of large discount stores and SSMs is restricted, consumption is more likely to shift to online shopping than to traditional markets. As a result, large discount store regulation has failed to protect traditional markets, weakened the resilience of offline retail, and indirectly functioned as a policy tool that only strengthened the market dominance of online platforms.

4. Follow-up Legislative Tasks and Recommendations: What Is Needed Is Not an “Extension” but a “Regulatory Reset”

The Center for Free Enterprise (CFE) views this amendment to the Distribution Industry Development Act as a case in which anti-business regulation was automatically extended even amid an industrial crisis. What is now needed is not an extension but a regulatory reset.

First, to make the sunset system meaningful, an independent and objective regulatory impact assessment must come first.

Second, the uniform business regulations imposed on large discount stores and SSMs should be gradually eased.

Third, policies to protect traditional markets and small and medium-sized retailers should shift away from regulation and toward direct support and competitiveness enhancement.

Fourth, the current approach of regulating only offline retail must be abandoned, and competitive neutrality across industries must be restored.

The four-year extension of the sunset on large discount store regulations is not a mere institutional extension. It is a decision that has institutionally entrenched the crisis in the offline retail industry by maintaining anti-business regulation while ignoring the changed market structure.

The Center for Free Enterprise (CFE) clearly points out that regulations imposed in the name of protection are damaging both industrial resilience and consumer choice, and emphasizes that what is now needed is not the maintenance of regulation but its redesign.

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Original title: 대형마트 규제일몰 4년 연장의 문제와 후속 입법과제

Author: Center for Free Enterprise (CFE)

Date: 2025-12-18

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=issue&pn=1&idx=28417