The Shadow of 10 Years of Regulations on Large Marts and Future Improvement Tasks

1. Large-Mart Deregulation Momentum and Pending Deregulation Bills in the National Assembly (Trade, Industry, Energy, SMEs and Startups Committee)

It has been ten years since the Distribution Industry Development Act (hereinafter “the Distribution Act”), promulgated in January 2012, introduced regulations on large-scale retail stores and SSMs (corporate supermarkets). The Act includes: mandatory store closures for large marts (twice a month on Sundays in the 2nd and 4th weeks), restrictions on operating hours (midnight to 10:00 a.m.), and a ban on opening stores of 3,000㎡ or larger within a 1km radius of traditional markets. These regulations largely target major discount retailers such as E-Mart, Homeplus, Lotte Mart, Costco, Express, and No Brand—retailers through which consumers can purchase a wide variety of goods at lower prices.

Recently, the Ministry of Trade, Industry and Energy has convened a “coexistence” consultative body with organizations including the National Federation of Merchants and the Korea Chain Store Association to discuss a compromise package that would ease weekend mandatory closure rules and relax restrictions related to online sales by large marts. According to the Office of the Prime Minister, across-the-board deregulation would be difficult; instead, the government intends to pursue tailored deregulation at the local-government level reflecting regional circumstances—drawing growing public attention. In Daegu Metropolitan City (Mayor Hong Joon-pyo), eight districts and counties signed a coexistence and shared-growth agreement on Monday the 19th with the Daegu Merchants Association, the Korea Chain Store Association, and the Supermarket Cooperative, including the abolition of weekend mandatory closures starting next year (Asia Economy, December 19, 2022).

Despite this broader deregulatory atmosphere, the National Assembly’s Trade, Industry, Energy, SMEs and Startups Committee has kept relevant amendments to the Distribution Act dormant for more than two and a half years. A bill proposed by Rep. Lee Jong-bae of the People Power Party (co-sponsored by 10 lawmakers; Bill No. 2201, July 20, 2020) seeks to relax mandatory closure requirements when large marts engage in online shopping operations (mail-order/telecommunications sales). A separate bill proposed by Democratic Party lawmaker Rep. Ko Yong-jin (co-sponsored by 11 lawmakers; Bill No. 10899, June 18, 2021) also includes provisions to exempt large marts from mandatory closures and operating-hour restrictions when conducting telecommunications sales, and to relax criteria for applying regulations to quasi-large-scale stores.

2. The Status and Changes of Traditional Markets After the Introduction of Large-Mart Regulations
◩ Traditional Market Sales Rose Gradually and Then Stagnated; Store Count and Average Employment Declined or Remained Flat

Looking at changes in traditional market sales over the past decade since large-mart regulations were introduced, sales increased gradually from KRW 19.9 trillion in 2013 to KRW 25.1 trillion in 2020, but have since shown signs of stagnation. In terms of market share by retail format, traditional markets fell from 14.3% in 2013 to 9.5% in 2020.

The total number of stores in traditional markets nationwide declined from 210,000 in 2013 to 207,000 in 2020, while average employment (number of workers) stagnated at around 1.6 persons per store. Even where the sector appears to recover through various support programs and restrictions on large-scale retailers, the overall market has tended to decline or stagnate due to weak intrinsic competitiveness.

◩ Despite Various Support Measures, Efforts to Strengthen Competitiveness—Including Modernization and Promotion—Remain Insufficient

Over the past decade following the introduction of large-mart regulations, indicators of modernization and promotional activities aimed at improving consumer convenience suggest that traditional markets have made insufficient efforts to strengthen their own competitiveness.

Credit-card terminal adoption improved only modestly from 60.8% in 2014 to 71.8% in 2020, meaning roughly three out of ten stores still do not accept credit-card payments. POS system adoption actually fell from 7.1% in 2014 to 6.8% in 2020. The adoption of online shopping malls increased only marginally from 1.0% in 2014 to 2.7% in 2020. By contrast, promotional infrastructure—such as event plazas, theme streets, arches or structures, TV/LED advertising boards, and market guide maps—declined from 1,536 facilities in 2014 to 1,401 in 2020, a reduction of about 135.

3. The Shadow of a Decade of Large-Mart Regulations: Multidimensional Analysis Including the Absence of Policy Effects
◩ No Evidence of Protecting or Revitalizing Traditional Markets; Only Contraction/Stagnation in the Offline Retail Sector

The stated purpose of the Distribution Act amendments—mandatory closures and operating-hour restrictions—was to protect and revitalize traditional markets against large-scale retailers. However, reviewing sales trends (2015–2020) by competing retail formats shows that large-mart sales remained essentially unchanged, from KRW 32.8 trillion in 2015 to KRW 33.8 trillion in 2020—suggesting little real growth once inflation is considered. Traditional market sales rose slightly from KRW 21.1 trillion in 2015 to KRW 25.1 trillion in 2020, but the increase of about KRW 4 trillion is also limited in real terms.

These patterns were broadly shared across offline formats, including supermarkets and miscellaneous-goods stores, which either stagnated or contracted overall. Academic studies similarly conclude that the policy failed to achieve its goals. Both Seo Yong-gu et al. (2019) and Kim Hyun-ah et al. (2022) found that after regulation was introduced, sales and consumption growth rates declined simultaneously for large marts, traditional markets, and surrounding commercial districts.

◩ Rapid Growth of Online Retail: Excessive Regulation on Large Offline Retailers

Sales of online retailers increased sharply—roughly tripling from KRW 54.1 (2015) to KRW 159.4 (2020). This trend is expected to have intensified further during the three years following the COVID-19 pandemic.

Seo Jin-hyung et al. (2022), using card transaction data and consumer survey results focused on large marts in Gyeonggi Province, found that new large-mart openings can generate spillover effects that revitalize local commercial districts. While some consumers shifted to nearby supermarkets on mandatory closure days, the increase was not substantial; rather, online shopping accelerated, intensifying imbalance between online and offline retail.

Changes in market share by offline retail format (sales share) further illustrate this shift. Large marts’ market share fell sharply from 21.7% in 2015 to 12.8% in 2020 (down about 9 percentage points). Traditional markets also declined from 13.9% to 9.5% (down about 4.4 percentage points). Meanwhile, online retailers’ market share surged from 35.7% in 2015 to 60.2% in 2020. This indicates that regulations on large retailers did not increase traditional market usage; instead, they pushed consumers toward the more convenient online market. In other words, the policy contributed to the growth of online retail while bringing stagnation and contraction to the offline retail sector through excessive regulation on large marts.

◩ Competitive Structure Shifted from “Large Marts vs. Small Supermarkets/Traditional Markets” to “Offline vs. Online”

With changes in consumer behavior and the expansion of the online market after the COVID-era pandemic, competition in the distribution sector is no longer primarily between large marts and small supermarkets/traditional markets; it has shifted to competition between offline and online retailers (Korea Chamber of Commerce and Industry, 2019). Jeong Hoe-sang (2022) also argued that large marts in Seoul do not compete directly with small supermarkets; competition and substitution largely occur among retailers of similar scale, implying that operating-hour regulations on large retailers have very limited effectiveness in protecting small retailers.

◩ No Beneficiaries—Only Infringement of Consumer Choice and the Constitutional Principle of Proportionality

Large-mart regulations have neither achieved their legislative purpose nor created clear beneficiaries. Instead, they have undermined consumer choice and convenience by preventing consumers from using large marts on weekends (Sundays) and during late-night/early-morning hours.

Moreover, as Justice Cho Yong-ho noted in the sole dissenting opinion during the Constitutional Court’s review of these regulations in June 2018, the policy may violate the “appropriateness” requirement under the constitutional principle of proportionality, which requires that a policy measure be used only when the public interest achieved outweighs the private interest infringed.

4. Future Reform Tasks: Passage of Pending Deregulation Bills and Full Abolition Within the Term of the 21st National Assembly

A decade after the introduction of large-mart regulations, there is no meaningful evidence that the policy protected or revitalized traditional markets. Instead, the entire offline distribution sector—including large marts—has experienced contraction or stagnation. Recent market-share trends also show that the competitive structure has shifted from “large marts vs. small supermarkets/traditional markets” to “online vs. offline” competition. In addition, traditional markets appear to have made insufficient self-driven efforts to strengthen competitiveness through modernization and promotion.

Under these conditions, regulations on large retailers can be assessed as a failed policy that infringed consumer choice without delivering effective outcomes.

Starting with the Daegu case, coexistence agreements that ease weekend mandatory-closure rules should expand across local governments, facilitated by mediation from the Ministry of Trade, Industry and Energy and metropolitan governments. Once the budget season concludes, the National Assembly should pass the pending amendments to the Distribution Act that would exempt large marts from weekend mandatory closures and operating-hour restrictions when conducting online shopping and telecommunications sales. Over time, policy should move toward fully abolishing weekend mandatory-closure and operating-hour regulations within the term of the 21st National Assembly.

Finally, it must be emphasized that the survival of traditional markets ultimately depends on merchants’ own efforts to improve competitiveness—through investment in modernization that enhances consumer convenience and stronger promotional activities that earn consumer choice.

Korean version: https://www.cfe.org/bbs/bbsDetail.php?cid=issue&pn=2&idx=25220