Retail market restrained by gov't regulations

Shinsegae's logistics center in Gyeonggi Province / Korea times file

By Kim Jae-heun

Contactless consumption has become the “new normal” here thanks to the fast growing e-commerce sector that contributes to the expansion of the entire retail market.

Total retail sales were less than 200 trillion won up until 2010, but have nearly doubled as they are expected to reach 387 trillion won next year

Newcomers such as Coupang and Market Kurly drove the growth with their strength as e-commerce firms and with their overnight delivery service.

The local e-commerce market only stood at 45 trillion won in 2014. However it has been showing double-digit growth annually and recorded an all-time high of 160.6 trillion won this year.

Next year, the local e-commerce market size is expected to reach 188 trillion won, up 17 percent from this year, and its share in the overall retail market will rise to 48 percent. Considering that e-commerce takes only 14 percent of the global retail market, this is exceptionally high.

This has put the Korean e-commerce market in the fifth position on the global ranking list behind China, the United States, the United Kingdom and Japan, but the market here is growing at the fastest rate.

Boston Consulting Group's Managing Director and Senior Partner Kim Yeon-hee said COVID-19 has boosted the growth of local e-commerce and its penetration rate in the overall retail market is at its highest globally.

“Korea is leading the global e-commerce sector and many countries are bench marketing domestic firms,” Kim said.

Korean firms, in particular, have successfully expanded their business to cover the fresh food sector, and have attracted middle-aged groups to shop online.

In other countries, e-commerce firms have been struggling to increase their sales in the fresh food area because of slow delivery services. Korean companies took advantage of overnight delivery systems that satisfy new customers in their 40s to 60s.

Live commerce also helped e-commerce's sale to soar. It allows customers to communicate with sellers and ask questions in real-time before they make a purchase online.

However, the government's regulations keep local retailers from growing to a global scale.

The Distribution Industry Development Act is one such example. The government put limits on the business hours for supermarkets when they flourished in 2010, in an effort to protect traditional markets.

This law has put restriction on online shopping malls too. The government has ordered domestic retailers to take two compulsory break days in a month on which they cannot take orders or make deliveries.

Many have raised questions about this regulation as it failed to lure customers to traditional markets when imposed on supermarkets.

Despite the unprecedented growth of Korean e-commerce firms, only two companies made it into the top-100 retailers ranks. American firms take up seven positions in the top 10 list and Japan and China have five and four in the top-100 list, respectively.