[WHY] Korea's first world problem: Is the mart open?

Anyone who has lived in Korea for some amount of time is probably familiar with — and has likely at least once fallen victim to — the baffling shopping conundrum that is the closing of large marts every other Sunday.

A Lotte Mart branch in Seoul displays a sign announcing closing dates for August. [NEWS1]

Anyone who has lived in Korea for some amount of time is probably familiar with — and has likely at least once fallen victim to — the baffling shopping conundrum that is the closing of large marts every other Sunday.

Depending on the region, the stores might instead be closed on designated weekdays, but whatever the day may be: It is mandatory for large marts to have these closing days. It’s written in the law.

Visitors to Korea or new residents may find themselves heading to their nearest Homeplus, Lotte Mart or Emart only to be turned away by a sign on the door: “Closed.”

So why is it mandatory for large marts in Korea to have regular closing dates, and what purpose does this system actually serve?

A constant frustration

One man fell victim to the large marts' closed doors so many times that he took the matter into his own hands.

“It was a culmination of all the frustration at the times I walked to the local Homeplus only to find it closed,” said Jake Kwon, a journalist at CNN and the creator of the website ishomeplusopen.com. This website does one thing and one thing only — it tells you whether Homeplus or other large marts in Korea are open that day. The website is as simple as it sounds, with only “Yes” or “No” — written in English — against a white background on the main page.

Officially launched on Feb. 1, 2016, ishomeplusopen.com has on average over 3,000 visitors each month, according to Kwon, a testament to how many people find the closures for large marts confusing, especially foreigners. There have been a total of 345,000 visitors since the website’s launch.

“I found the closing measure inconvenient and, especially at the time of its institution, unusual,” said Kwon. “I do not remember there being a similar system in Vancouver or New York City where I lived.”

Other websites and even apps are available to people who want to know when large marts are closed. A Korean-language app, the name of which can be translated to “Are Marts Closed,” can be downloaded from Google Play Store and App Store, while Naver Map, Google Map and Kakao Map all offer information on closing dates when users search for marts nearby or search for directions to marts.

A shopper browses the aisles at a large mart in Seoul on August 8. [NEWS1]

How did it start?

Korea’s system of enforcing mandatory closing dates for large marts goes back a full decade.

Back in January 2012, the National Assembly passed an amendment to the Distribution Industry Development Act, with the overarching aim to “ensure efficient promotion and balanced development of the distribution industry,” according to the law’s general provisions.

In other words, the amendment was passed in order to protect smaller local shops and traditional markets, which were being threatened by large marts operated by conglomerates like Lotte and Shinsegae, aggressively expanding their branches since the mid-2000s.

Initially, under the amendment of the Distribution Industry Development Act in 2012, large marts and conglomerate-operated "super supermarkets" (SSMs) had to close one to two days a month, and had to keep their doors barred from midnight until 8 a.m. every day. Beginning in April the next year, the mandatory closing dates were fixed to two days a month, while large marts and SSMs had to keep closed between midnight to 10 a.m.

Conglomerates resisted the changes. Two lawsuits, filed jointly by six companies operating large marts and SSMs, took place in an effort to cancel the amendment, with the Supreme Court ruling in 2015 that the amendment was to hold, and the Constitutional Court ruling in 2018 that the enforcement of mandatory closing dates was constitutional.

The courts stated that it was in the public's best interest to maintain and nurture smaller businesses, and stressed the equally important goal of protecting the rights and health of employees working at large marts.

And so the system began.

A traditional market in Chuncheon, Gangwon in January 2022. [YONHAP]

Have small shops and traditional markets fared better by having large marts close?

In short: no. An assortment of research data and surveys conducted over the years have come to the glaring conclusion that mandatory closing dates for large marts have not in any way saved local shops or traditional markets.

The proportion held by small shops and traditional markets in overall retail sales dropped from 40.7 percent in 2012 to 32.2 percent last year, according to Statistics Korea.

In a January 2021 research report by the Federation of Korean Industries (FKI), only 8.3 percent of respondents said that they visited small local shops and traditional markets when large marts such as Homeplus were closed.

In the results of an earlier survey by the Korea Distribution Association in 2020, the number of people who responded that they visited small local shops and traditional markets instead of large marts was even lower, at only 5.8 percent.

“It was almost inevitable that the mandatory closures would have no impact,” said Lee Eun-hee, professor of consumer sciences at Inha University. “Regulating customers’ movements will not force them to go another route. Simply closing a certain type of store will not make people visit another type of store.”

Shopping carts are lined up outside a large mart in Seoul on a closing day. [YONHAP]

Then where do customers go when large marts close?

The answer is online shopping malls.

Sales by online shopping malls doubled in the past decade according to Statistics Korea, with the proportion of sales from online shopping malls in total retail sales jumping from 13.8 percent in 2012 to 28.1 percent last year. The amount of transactions on online shopping malls jumped from 34.1 trillion won ($25.3 billion) in 2012 to 187.1 trillion won last year, an increase of more than 448 percent.

More specifically, sales by online shopping malls peaked with an average of 37 percent growth on days when large marts closed, according to research by Suh Yong-gu, a professor of business administration and marketing at Sookmyung Women’s University.

“Online shopping malls are the easiest way for me to shop for groceries when my local Homeplus is closed,” said Kim Seung-gyu, a newlywed office worker in his 30s who lives in Seoul. “I can’t bother to go anywhere else. Sometimes, smaller shops don’t have what I’m looking for on their shelves, and it’s a hassle to go out to traditional markets.”

“You just get used to online shopping,” said Cho Sang-won, a university student in his 20s who lives alone. “I guess traditional markets could be cheaper, but I haven’t been to one in years.”

Like Kim and Cho, many consumers are defaulting to online shopping malls, with 49.5 percent of people shopping online for groceries when large marts are closed, according to a survey conducted by the Korea Chamber of Commerce and Industry (KCCI) on 1,000 consumers in June this year. Another 33.5 percent responded that they would rather wait a day for large marts to open again than visit a traditional market.

Some respondents in these surveys by professor Suh and the KCCI went so far as to say that large marts and smaller businesses including traditional markets were not to be seen as competitors, with 57.3 percent of respondents in Suh’s research saying that the two types of enterprises are not in competition with each other, and 67.8 percent of respondents in the KCCI survey saying that regulations on large marts should be lifted.

“Large marts and smaller businesses including traditional markets are not in competition with each other, but with online shopping malls,” said Suh. “People used to talk about the Walmart effect, but now all we talk about is the Amazon effect,” he continued, referring to the terms used to describe the economic impact felt by local businesses when a large retailer opens a new location in the area, and the disruption of the retail market caused by increased e-commerce.

“The pie for offline enterprises is shrinking rapidly compared to that of online shopping malls,” added Lee. “This has only been exacerbated by the Covid-19 pandemic.”

Gwangjang Market in Seoul is crowded with shoppers and tourists on September 5, a week from Chuseok. [YONHAP]

Some traditional markets are now famous tourist attractions, what about them?

While many small shops and traditional markets have been neglected, a select few seem to thrive as tourist attractions. Although most traditional markets do not have a systematic way of counting the number of daily visitors to get a solid comparison between markets, tourism websites such as the Korea Tourism Organization, World Travel Guide, Expat Guide Korea and Seoul Space list a handful of the most popular markets, many of which overlap.

“Approximately 10,000 people visit our market every day,” said Kim Jin-chul, president of the Mangwon Market Association, one of the traditional markets listed on tourism websites. “Foreign tourists have increased in the last few years, and although they’ve shrunk with the pandemic, the number has bounced back recently. I’d say about 20 tour guides each leading around 10 foreign tourists visit every day.”

According to the Seoul Tourism Association, certain traditional markets were previously advertised to foreigners as places to visit, but the association does not actively promote them anymore.

“Turning traditional markets into tourist attractions cannot be a real solution,” said Lee. “Only a few locations would be able to survive through that strategy. We need to seek out other options.”

Such options to revitalize traditional markets are mainly digitalization of services and differentiation of concepts, according to experts.

“Traditional markets need to adapt to changing times by speeding up digitalization and offering up-to-date services,” said Lee.

In relation to this, digitalization of traditional markets in cooperation with major e-commerce companies such as Coupang and Naver have recently proven fruitful. According to Coupang, sales of shops who adopted deliveries with the company saw a 77 percent average increase over the last two years. Naver reported similar results, saying that in the past three years, 170 shops in traditional markets that they collaborated with experienced a 74-times jump in the number of orders.

A shop owner at Jwadong Traditional Market holds up his phone to show a delivery service app. [YONHAP]

While such collaborations are encouraging in general, people will need to be careful about letting e-commerce companies step into “help” traditional markets digitalize, according to Lee.

“We need to be careful to not have traditional markets rely on e-commerce companies to turn them digital,” said Lee. “There is also the problem of exactly how much of those increased sales actually goes back to the small business owners.”

These success cases in collaboration with e-commerce companies aside, the overall digitalization of small shops and traditional markets has been slow. According to the most recent report on traditional markets published by the Ministry of SMEs and Startups in 2020, only 7.5 percent of traditional markets countrywide had set up a website, while 0.9 percent of shops and vendors in traditional markets had made use of online shopping malls.

The Korean government is trying to raise these numbers and push for the digitalization of small shops and traditional markets. In a policy announcement to support small businesses that was revealed on Aug. 26, the Yoon Suk-yeol government set forth plans to accelerate the digitalization of small businesses, including building a nationwide big data platform to provide useful management information by 2023, and training 100,000 business owners every year to adapt to e-commerce by 2027.

“Educational programs and governmental support for digitalization are most urgent to revitalize small businesses including traditional markets,” said Park Sang-hee, a spokesperson for the Korea Federation of Micro Enterprise.

A shopper carries groceries through a large mart in Seoul on July 17, 2022. [YONHAP]

Could the mandatory closures for large marts be abolished in the near future?

As of now, doesn't seem very likely.

The Yoon Suk-yeol government had introduced the idea of abolishing the mandatory closing dates for large marts in early August, but quickly scrapped it after facing backlash from small business owners and related associations. Yoon himself instructed officials during a Ministry of Economy and Finance meeting on Aug. 25 to “carefully consider the matter so as not to harm small businesses.”

“The issue will most likely drag on year after year,” said Suh. “It’s become a politicized topic, and is not a matter of which option would yield the most economic gains anymore. If changes are to be made to the current system, consumers need to speak up.”

Large marts and the conglomerates that operate them are naturally expected to want an abolishment of the current mandatory closing dates. According to NH Investment & Securities, Emart could generate additional sales of 960 billion won per year if mandatory closing dates are abolished, while Lotte Mart could gain an additional 384 billion won every year.

Those representing small businesses ask whether it’s fair for large marts to try to “take over” what remaining proportion local shops and traditional markets are struggling to hold on to in the retail industry.

“It seems to us that large marts and SSMs are trying to make up for their own losses from the rise of e-commerce by taking over smaller offline shops and markets,” said Park. “Small businesses recognize the need to change, such as adopting digitalization — perhaps large marts also need to change.”

For some consumers, it’s a non-issue.

“I don’t really care if Homeplus starts opening every day,” said Kim, the office worker in his 30s who said he uses online shopping malls when large marts close. “I think I would still keep using Market Kurly even if that happens. I guess I would also order delivery from traditional markets if they offered it, but the nearest market to my house doesn’t have that option yet.”

When asked if he has heard of ishomeplusopen.com, Kim replied he knows and used to visit the site, but has now memorized when his Homeplus closes.

“It’s every second and fourth Sunday.”

BY LIM JEONG-WON [lim.jeongwon@joongang.co.kr]