Korea sees unprecedented wave of business closures

The door of a shuttered restaurant remains locked in Seoul, May 22. Yonhap

In an online community of more than 1.8 million small business owners, a user in Jeonju, North Jeolla Province, wrote on Friday: “Am I the only one whose business is falling apart?”

“The restaurant near my shop went out of business and has since been replaced by a rental space, and the walnut pastry store next to it also shut down,” the user continued. “This feels serious and unsettling.”

The post was soon flooded with sympathetic replies, including: “Business is so dead I can’t even think straight” and “I opened my chicken shop at 4 p.m. and only made 120,000 ($87) won by 8 p.m.”

These accounts from small business owners offer a vivid snapshot of the hardships many are enduring — struggles that are reflected in the data.

According to recent data from the National Tax Service, just over 1 million businesses — both individual and corporate — filed for closure last year, up by nearly 22,000 from the previous year. It was the first time the number surpassed 1 million since the government began tracking such statistics in 1995.

The surge in closures is widely attributed to prolonged business downturns following the COVID-19 pandemic, coupled with reduced consumer spending driven by high interest rates and inflation.

The most commonly cited reason was a downturn in business, with just over 500,000 owners attributing their closure to declining sales, accounting for 50.2 percent of all cases. It marked the first time on record that such closures exceeded 500,000, and the first time since 2010, in the wake of the global financial crisis, that business failure was the leading cause in more than half of all cases.

Other reasons for closure, in order of frequency, included: unspecified causes, business transfers, conversion to a corporation, administrative sanctions and mergers or dissolutions.

By industry, retail and restaurant businesses accounted for 45 percent of all closures. Retail alone saw the highest number, with nearly 300,000 closures, representing 29.7 percent of the total across 52 sectors.

Restaurants followed with 15.2 percent, followed by real estate at 11.1 percent and wholesale and trade brokerages at 7.1 percent.

The high rate of business closures has contributed to a rise in commercial vacancy. According to the Korea Real Estate Board, the nationwide vacancy rate for small retail spaces rose to 7.3 percent in the first quarter of this year, up 0.5 percentage points from the previous quarter.