Revise the Distribution Industry Development Act That Ignores Consumers

At the intersection of Rue de la Michodière and Rue Neuve-Saint-Augustin in Paris, a large retail store opened its doors. Consumers flocked to it in droves, thrilled by unprecedentedly low prices, a wide variety of products, fixed prices, return services, and convenient facilities.

Each time this business expanded its scope, nearby small shops began closing one by one. Monsieur Baudu, owner of the fabric shop “Old Elbeuf,” and old man Bourras, who ran a handmade umbrella shop, fiercely denounced the large retailer’s marketing methods as contrary to business ethics. They held out, determined to preserve their traditional pride against this new competitor, but when customers stopped coming, they had no choice but to shut down.

In the end, the small merchants of Paris—who insisted that the true virtue of a merchant was not “selling a lot” but “selling at the highest possible price”—were abandoned by consumers, while the newly opened large retailer recorded the highest sales of the year.

This is the story told in Émile Zola’s novel *The Ladies’ Paradise*, which was inspired by Bon Marché, the world’s first department store, opened in the 1850s. In other words, the conflict between large retailers and small merchants is not something new; it has continued ever since department stores first appeared 170 years ago.

Unfortunately, both in the 1850s and in the 21st century, consumers have continued to choose large retailers. It is a serious problem that neighborhood commercial districts have failed to resolve their own shortcomings and are being turned away by consumers for the same reasons.

In politics, lawmakers are pouring out heavy-handed regulations as though large retailers themselves were the problem. The Distribution Industry Development Act, introduced in 2010, prohibits big-box stores from operating on weekends and restricts them from opening near traditional markets. It was originally supposed to be abolished after five years under a sunset provision, but instead it has been repeatedly extended.

On top of that, in the 21st National Assembly, the ruling Democratic Party of Korea is leading efforts to draft legislation that would expand the scope of regulation beyond big-box stores and SSMs to include department stores, duty-free shops, and even mixed-use shopping malls. There are also moves to replace the current registration system with a permit system, effectively preventing big-box stores from opening at all, as well as bills to expand the radius of traditional commercial preservation zones from the current 1 km to 20 km. No matter how hard one looks, there is no sign of any consideration for consumers, the ultimate decision-makers in the retail industry.

An even bigger problem is that these retail regulations have produced nothing but side effects in the market, let alone meaningful results. Not only have they taken away consumers’ freedom to shop as they wish, but forced closures have also reduced jobs centered on large retailers, while also inflicting secondary damage on shop tenants inside the stores, small manufacturers supplying them, and even farmers.

Most disheartening of all is the news that the very small business owners these regulations were meant to protect are finding their situation increasingly difficult. The Distribution Industry Development Act has saved no one and has made the entire nation its victim.

The reason for this failure is simple. The Distribution Industry Development Act focuses solely on restricting consumer behavior. Because consumers cannot experience in traditional markets the same satisfaction they get from big-box stores, they simply shop on weekdays with store closure dates in mind or turn to online shopping. Some use grocery wholesale marts that are not subject to regulation. In other words, closing big-box stores does not lead consumers to visit traditional markets.

If the Distribution Industry Development Act is to live up to its name by actually developing the retail industry, it should focus on strengthening the competitiveness of small merchants. A crisis cannot be overcome through dependence on political power while failing to improve on one’s own.

A more effective approach would be to improve traditional markets so that consumers can find there the same reasons they choose big-box stores. Instead of imposing regulations that tie consumers’ hands, the government and the National Assembly need to devise measures that help small business owners build competitiveness on their own and respond flexibly to change.

The news that Korean hoes are selling like hotcakes on Amazon carries great significance. If online shopping is the dominant trend, then small business owners, like Yeongju Blacksmith Shop with its hoes, should also try online sales; and if contactless services are spreading because of COVID, they should pursue changes such as offering delivery services. Just as LA’s Farmers Market grew together alongside The Grove Mall, it may also be a good solution to approach large retailers not as rivals but as partners for coexistence.

Finally, if there is truly a need to protect traditional markets and neighborhood commercial districts, I suggest that the member of the National Assembly and politicians who made these laws should lead by example. A good way to honor the spirit of the law would be to pay 10% of members of the National Assembly’s salaries in traditional market gift certificates, so that they and their families would take the lead in using traditional markets.

Eun-kyung Kwak, Director of the Center for Free Enterprise (CFE) Corporate Culture Office

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Original title: 소비자 외면하는 유통산업발전법 개선해야

Author: Eun-kyung Kwak

Date: 2020-10-26

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=23192