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South Korea’s big retail chains have been feeling gloomy in recent months, as low consumer confidence has squeezed their margins. And growing political pressure is giving them further cause for concern.
On Tuesday, the National Commission for Corporate Partnership, a panel that advises the government on business policy, recommended that companies with more than Won20bn in sales should not enter retail sectors including used cars, magazines, flowers, bicycles, or most sorts of restaurants.
Big chains would also face heavy restrictions on the opening of bakeries – a particularly sensitive sector for campaigners for the rights of small family shops. Public criticism has already pushed conglomerates such as Samsung and Lotte into abandoning the sale of buns and muffins.
Although the government says it is not obliged to turn the new suggestions into binding regulations, it has already taken steps in a similar direction. Big retail chains must close some supermarkets on every other Sunday to give smaller competitors a fair chance. And they are banned from opening mini-supermarkets within 1km of smaller rivals without gaining the consent of the local community. When the latter regulation was introduced last year, it earned a caustic response from the chairman of Homeplus, a subsidiary of UK retail giant Tesco, who drew a comparison with the policies of communist states.
As the country’s economy has slowed over the past few years, popular and political opinion has increasingly favoured action to boost smaller businesses, many of which complain of unfair competition from the major conglomerates.
Some analysts say that viewing South Korea’s retail sector as a zero-sum game is a mistake, and that shutting big companies out of certain sectors will do little to build the dynamic small business sector that South Korea needs. Proper enforcement of existing competition law would be more effective than sweeping new regulations, they argue.
The leaders of the big retailers are also dismissive of the politicians’ complaints. Also on Tuesday, prosecutors called four retail group leaders – the vice chairman and vice president of Shinsegae Group, the chairman of Lotte Group, and the chairman of Hyundai Department Store – to answer questions over fair competition in court.
They had all refused to attend hearings in parliament late last year, saying they were too busy. But last week’s imprisonment of Chey Tae-won – chairman of the giant conglomerate SK Group – showed that South Korea’s chaebol leaders may have an uncomfortable ride ahead.