Homeplus collapse reignites calls to ease hypermarket regulations

The termination of Homeplus's court receivership proceedings has revived calls to ease regulations on hypermarkets, with some in the industry arguing that the rules accelerated the retailer's loss of competitiveness. The ruling party and government had pledged to ease the restrictions, but the debate has gone nowhere.

Political and industry sources said Tuesday that an amendment to the Distribution Industry Development Act that would ease hypermarket regulations remains stalled in the National Assembly's Industry, Trade, Resources, SMEs and Startups Committee. The bill was referred to the standing committee in May but lost momentum as the June 3 local elections and negotiations over the second-half Assembly leadership took over the legislative calendar. The Democratic Party of Korea, Cheong Wa Dae and the government all agreed in February on the need to ease hypermarket regulations, yet five months have passed with no progress.

Under the current Distribution Industry Development Act, hypermarkets and quasi-large retail outlets must close two days per month and are barred from operating between midnight and 10 a.m. Early-morning delivery is also prohibited during those restricted hours. The rules were introduced in 2012 to protect traditional markets, but critics have long argued that e-commerce players such as Coupang Inc benefited instead. The pending amendment would carve out exceptions to the late-night operating ban to allow online deliveries during those hours.

While the debate has dragged on, hypermarkets' share of total retail sales fell to 8.1 percent in May — down from 15.1 percent as recently as 2021, roughly half what it once was. Overall retail sales that month rose 9 percent from a year earlier, while hypermarket sales dropped 5 percent.

Industry observers point to both the management strategy of majority shareholder MBK Partners and government regulations as factors behind Homeplus's weakening competitiveness. The argument is that e-commerce moved into the vacuum created by hypermarket restrictions, deepening a vicious cycle for the sector. Critics also contend that the regulations compounded the precarious position of Homeplus — owned by a private equity fund — compared with Lotte Mart and E-mart, which are backed by large domestic retail conglomerates.

Research findings have also emerged suggesting that shifting hypermarkets' mandatory closure days from weekends to weekdays has little impact on traditional markets. Starting with Daegu in February 2023, Seoul, Busan, Gyeonggi Province and Cheongju have all moved their mandatory closure days from weekends to weekdays. The Korea Development Institute (KDI) released a report in May concluding that higher hypermarket sales do not directly translate into lower sales for fresh produce, traditional retail and other lifestyle and grocery sectors.

The report found that for every 1 percent increase in per-capita online spending, hypermarket sales fell by 0.264 percent. A separate survey of 2,000 adults nationwide conducted by the Korea Distribution Association in April found that 59.5 percent of respondents supported abolishing or easing the mandatory closure requirement, compared with 30.4 percent who favored keeping the current rules. Some 65.1 percent also backed allowing early-morning delivery.

Lee Jin-guk, a senior research fellow at KDI, said that from a consumer convenience standpoint, allowing early-morning delivery would stimulate competition among online, offline and hypermarket players, boosting consumer welfare. He added that it would still be necessary to examine whether traditional markets would actually be harmed.

Meanwhile, the Democratic Party is pushing to hold a hearing at the National Assembly's Political Affairs Committee over the Homeplus situation. The targets of the hearing would include MBK Partners and its largest creditor, Meritz Financial Group. However, the process is expected to take more time, as the People Power Party is boycotting the Democratic Party-led second-half Assembly leadership arrangement, complicating agreement on a hearing schedule and witnesses.

Rep. Min Byeong-deok of the Democratic Party said at a meeting held Monday that "this situation is a textbook case of a predatory private equity fund that acquires a company with massive debt, strips it bare and walks away," adding that he "strongly urges the pursuit of a Homeplus hearing to protect the livelihoods of 100,000 workers and their families."