Costco surrenders

US retail giant to close Daegu store every 2nd, 4th Sundays

By Park Si-soo

Preston Draper Costco Korea's country manager

The Korean unit of American discount warehouse Costco has decided to close its store in Daegu on every second and fourth Sunday, a decision viewed as the firm’s surrendering to pressure to abide by an ordinance meant to protect the livelihoods of smaller retailers.

The company has come under fire for months for ignoring the restriction, arguing it goes against freedom of business. The government hit back with financial penalties and tough inspections of Costco stores over its food safety and management system.

Adding to the pressure were boycott campaigns by civic groups and criticism by the media. Costco Korea’s country manager Preston Draper was bombarded with acute criticism last month when he was called in to testify during the National Assembly’s audit of the government.

“The Daegu store will close every second and fourth Sunday, whose first application is on Nov. 25,” Costco announced through its official website (www.costco.co.kr). Noting that the same rule will be applied to another store in Yangpyeong, Seoul, the company said it will respect a revised ordinance regarding the mandatory closure.

Last month, the Daegu government approved the Sunday ban after dismissing Costco’s petition to invalidate the ban which the firm claims infringes upon the freedom of business. A district office covering the Yangpyeong store made the same decision earlier this month, for which the store closed on Nov. 11.

With Costco running seven outlets in Korea, it was not immediately confirmed how it will deal with the five other branches.

A sign suggesting that Costco is likely to apply the Sunday ban to the other stores is that it is considering joining an association of giant retailers such as Lotte Mart, E-mart and Home plus. Established earlier this month, the association self-regulates the operations of member companies.

Mindful of public criticism of widening income disparity between big and small retailers, the association urges its members to voluntarily shut stores every second and fourth Sunday. Costco has yet to join it. But a senior Costco executive observed the association’s first meeting last Monday, according to officials of the Ministry of Knowledge Economy.

“A senior executive (of Costco) attended the meeting as a representative of a non-member company,” an official said. “Member companies are trying to add Costco to the list for the second round of meetings whose date has yet to be decided.”

Industry insiders said Costco’s presence at such a meeting is a drastic departure from its long-running management style.

“Costco is well known for having no established ties with local retailers,” an industry observer said. “But now it seems that Costco wants to share opinions and knowledge with other companies to settle the problem.”

The observer added the departure was predicted in an article which Costco Korea chief recently contributed to the Costco Connection magazine where he expressed a great level of embarrassment to the fierce criticism and other related hassles caused by the firm’s Sunday opening.

All the fuses were lit in September when the company started ignoring ordinances, enacted by local district offices, calling on giant retailers, including Costco, not to open every other Sunday. This move came after the Seoul Administrative Court ruled against the guidelines in a suit raised by Costco’s three competitors here ― E-mart, Home plus and Lotte Mart.

Although Costco didn’t benefit from the verdict because it was not among the plaintiffs, the firm has kept opening stores every Sunday, claiming the same status of the retailers who filed the lawsuit.

Entering the Korean market in 1998, Costco posted 2.086 trillion won in sales last year and 130.8 billion won in operating profit.