IKEA may face mandatory regular closures in South Korea
Research will be carried out into whether large-scale specialty stores hurt small businesses
By Yoon Ja-young
Large-scale specialty stores such as IKEA and Daiso may be subject to mandatory regular closings every two weeks in South Korea as the nation’s government is set to study the validity of such a regulation.
According to the Korea Small Business Institute, it will begin research on the appropriateness of the regulation on large-scale specialty stores this month. It will examine whether they are hurting small shops and whether the regular closures are necessary, at the request of the Ministry of SMEs and Start-ups. If the study determines the regulation is necessary, IKEA and Daiso will have to close two Sundays a month.
The restriction on such large-scale specialty stores has become the thorniest issue in the retail industry.
Currently, large retail outlets such as E-mart, Home plus and Lotte Mart are subject to restrictions on operating hours following a revision of the Distribution Industry Development Act in 2012 aimed at protecting small shops. Local governments adopted ordinances based on the act, forcing large retail outlets to close on the second and fourth Sunday of the month.
However, critics have called it unfair since only retail outlets are subject to the regulation while shopping malls such as Shinsegae Group’s Starfield and specialty shops like IKEA were exempted.
“They are categorised as specialty stores, but in fact they are selling as many items as retail outlets. They are expanding their business scope rapidly,” a spokesperson for the Korea Federation of Micro Enterprise said.
“They also should be subject to regulation. Many of our members must compete with them unfairly. For instance, Daiso is killing stationery shops.” Daiso, a domestic version of a U.S. dollar store, sells diverse household items.
IKEA is also expanding its business rapidly since advancing into Korea in 2014. The Sweden-based ready-to-assemble furniture giant recorded 365 billion won in sales between September 2016 and August 2017, up 28 per cent from the previous year. It plans to have six stores here by 2020.
There has been criticism that IKEA is de facto similar to retail outlets as it sells a variety of goods as well as foods.
Operating day restrictions on these shops have been anticipated following the appointment of Hong Jong-haak as minister of SMEs and startups.
During his confirmation hearing, Hong stated in a written statement that regulations governing mandatory closings are necessary for these specialty stores if they are de facto operating similarly to retail outlets.
He said he plans to conduct research on their actual impact on local businesses and prepare a regulation in case negative effects are confirmed.
It would also be unfair if they avoid the regulatory closures while shopping malls will likely be subject to it. Shinsegae Group Vice Chairman Chung Yong-jin openly said during the opening of Starfield Goyang last August that IKEA should also be subject to the new regulation if shopping malls are to be restricted in their operating hours. Some lawmakers submitted a bill to restrict the operation of shopping malls, which is likely to get approval at the National Assembly.
While small stores struggle to compete with retail giants, some economists oppose such restrictions citing their contribution to employment. They also point out consumer choice and convenience are excluded in the discussion.
“Borders between countries have disappeared in the global retail market which is open to consumers around the world 24 hours a day. Large retailers need support to develop themselves into global players,” said Yoo Hwan-ik, director at the Korea Economic Research Institute.