New retail policy reduces jobs

Many Japanese and Chinese tourists shop at the Lotte Mart branch in Seoul Station because of its proximity to the Myeongdong shopping district and Namdaemun Market. Chinese like household supplies and traditional Korean herbal medicine such as wormwood while Japanese opt for seaweed, kimchi and snacks. Foreign tourists represent 12 percent of the store’s revenue. Lotte Mart also provides express service that offers direct home delivery. On Sunday, however, many foreign tourists were disappointed to find the store closed because they did not know of the new law that requires large retailers to close Sunday on the second and fourth week of each month.

Lotte Mart said, “We planned to hire 400 employees between ages 56 and 60 as permanent contract workers at the end of this month, but postponed this plan.” The discount chain seems reluctant to hire senior citizens because of the possibility that it might have to lay off existing staff due to a decline in revenue triggered by the new regulation. The chain planned to hire 1,000 senior citizens -- 400 plus another 400 in the first half of this year and 200 in the second –- but is unsure about hiring the remaining 600. People are desperate about finding work after retirement. Even former executives at large companies and those with Ph.Ds applied for the 400 slots earlier this year.

Two months after the government regulation went into effect at the end of March, three major Korean retailers cut more than 3,000 jobs (839 at E-Mart, 1,607 at Home Plus, and 610 at Lotte Mart). Those who were laid off comprised the underprivileged in the job market -- part-time and weekend workers and employees from sales service providers. As more municipal and provincial governments adopt the policy, the number of jobs will be decreased further. Small businesses at large retail stores such as restaurants, dress stores, optical shops, beauty salons and pharmacies, have been hit hard in revenue.

While gauging the revenue loss of large retailers, suppliers, farmers and fishermen from the policy is easy, whether the benefits are going to traditional markets near the retailers is unclear. What is evident, however, is that the revenue of traditional markets has not risen because shopping has gotten more inconvenient and transaction costs have increased. With fears over a prolonged European debt crisis, upper middle-class consumers are staying frugal. This rather discourages consumption at a time when domestic spending should be boosted.

The main goal of the government’s regulation on large retailers is to protect small business owners. The government even wants to protect the economically marginalized by limiting free competition. Low-income households and consumers are not being considered by the policy, however. Selling a variety of quality goods at low prices helps low-income households, who are the biggest victim of an economic downturn caused by weak consumption. The regulation on large retailers undermines price stability through a market-friendly retail and logistics revolution, robust transactions and consumer welfare.