Kwak Yeon-soo is a digital editor at The Korea Times creating, editing and curating digital content for the newspaper’s website, mobile app and social media. She previously covered a diverse array of cultural, political and business topics.
Minimum wage hikes hit retailers
Homeplus cashiers work at checkout counters at a store branch in Seoul in this file photo. Korea Times file
By Kwak Yeon-soo
Homeplus' operating profit plunges by 58%
By Kwak Yeon-soo
Wholesale and retail sectors have been struck by a series of minimum wage hikes, with their sales and earnings both deteriorating in 2018.
Homeplus said Friday it posted a 7.65 trillion won ($6.38 billion) in sales from March last year to February this year, down 3.67 percent from 7.93 trillion a year earlier.
Its operating profit plunged 57.59 percent year-on-year to 109 billion won during the same period.
The nation's second-biggest discount chain said its weak fiscal figures are mainly attributable to the minimum wage hikes, rising retail rents and a slump in offline retail business.
Its underperformance has forced Homeplus to close two stores in Gimhae and Bucheon. It closed 16 more stores temporarily for remodeling.
“In general, retail businesses rely heavily on labor force. And since Homeplus is the highest paying employer compared to its rivals (such as E-mart and Lotte Mart), the minimum wage hike has prompted more spending,” a Homeplus official said.
“While most retailers sought curtailed employment or reduced business hours in response to the wage hike, we converted 12,000 contract workers to full-time positions,” the official added.
President Moon Jae-in's administration has raised its minimum wage by double-digit percentages so far, sparking a backlash from various industries.
The government hiked the wage by 16.4 percent year-on-year to 7,530 won per hour in 2018, the steepest rise in 17 years. In 2019, it raised the minimum wage by 10.9 percent to 8,350 won.
Graphic by Bae So-young
Homeplus said it will strengthen competitiveness by opening new types of stores that combines characteristics of hypermarkets and warehouse-style stores and increasing online sales.
Other discount chains confirmed that minimum wage hike has weighed down on their sales and profits last year.
“Due to the steep hike in the minimum wage, the company's operating profit declined last year,” an E-mart official said. “A slump in offline retail business and increased costs are also hampering the business.”
E-mart posted an operating profit of 462.8 billion won last year, down 20.9 percent from a year earlier. Lotte Shopping recorded 597.2 billion won, which is also down 25.5 percent year-on-year.
Earlier in April, the two companies warned investors to be cautious in betting on them, citing their slowing growth stemming from government regulations and harsh competition with e-commerce firms.
“Retail has high fixed costs, which includes rents and salaries. Stiff competition and softening demand in offline retail stores are showing signs of slowing down more broadly,” said Yoo Jeong-hyun, an analyst at Daishin Securities.