[Free Speech Forum] Big-Box Store Regulations Lag Behind Changes in the Retail Landscape

There are growing calls for excessive, outdated regulations that fail to keep pace with changes in the market to be abolished. Regulations on large discount stores were introduced through the Distribution Industry Development Act in 2012 with the stated aim of “protecting traditional markets and neighborhood commercial districts.” However, even after 10 years, controversy has persisted over their necessity and effectiveness, along with criticism that they have failed to achieve their original purpose.

Now that the center of the retail market has shifted from offline to online, large discount stores no longer pose a threat to neighborhood businesses. It is an undeniable fact that offline retailers have been hit hard by the rapid expansion of the e-commerce industry, including companies such as Coupang and Market Kurly. Large discount stores have sought to respond through innovations such as dawn delivery, but delivery is prohibited on mandatory closure days, leading many to conclude that they are being held back by regulation. Unlike in the past, when large discount stores were criticized for threatening a “win-win economy,” large discount stores and traditional markets are now increasingly bound by a shared fate, making such regulations meaningless.

The biggest problem is that they are ineffective. There is no clear causal relationship showing that regulations on large discount stores revive nearby neighborhood commercial districts or increase sales for small business owners. According to Statistics Korea’s “Share of Total Retail Sales by Business Type After the Introduction of Mandatory Closures for Large Discount Stores,” total sales at traditional markets and neighborhood commercial districts actually declined. This is because consumers who once shopped at large discount stores shifted in large numbers to online shopping malls, convenience stores, and other alternatives. If small and medium-sized retail channels are not fully reaping the indirect benefits of these regulations, then one has to question what effect this regulatory policy is actually having.

South Korea’s excessive regulations on large discount stores also run counter to overseas trends. European countries such as France, which once imposed the strongest regulations on large discount stores, as well as the United Kingdom and Germany, have been gradually easing the intensity of such regulations. In Japan, it has been made clear that regulation of large discount stores is no longer intended to protect small merchants, but is instead carried out indirectly from the perspective of urban planning, such as the impact of large stores on the residential environment.

Artificial business restrictions caused by regulation infringe on consumers’ freedom of choice. Consumers choose where to shop by considering a range of factors such as price, quality, and service. Therefore, if regulations were eased—for example, by allowing dawn delivery during restricted business hours or on mandatory closure days—consumer convenience would increase and their choices would expand.

As e-commerce becomes the center of retail distribution, regulations based on the outdated binary logic of large discount stores versus small and medium-sized retailers must be reformed as soon as possible. Beginning with Daegu, whose case became a catalyst for regulatory reform, one can hope that deregulation of large discount stores will spread nationwide.

Jaein Hong, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: [자유발언대] 유통환경 변화를 따라가지 못하는 대형마트 규제

Author: Jae-in Hong

Date: 2023-03-27

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=6&idx=25489