Nearly all small business owners in local commercial districts have no investment plans for second half: survey

Nearly 97 out of every 100 small business owners in local commercial districts have made no investment plans for the second half of this year, a new survey shows. Analysts say a clear "survival mode" has taken hold amid prolonged sluggish domestic demand and rising costs, with owners focused on preserving cash and keeping operations afloat rather than renovating stores or replacing equipment.

The Korea Federation of SMEs on Thursday released results of its survey on first-half business conditions and second-half outlook for small business owners in local commercial districts, polling 505 businesses. The survey covered 10 major sectors — including convenience stores, supermarkets, general restaurants, cafes and bakeries, hagwon, and laundries and hair salons — and was conducted from June 30 to July 6.

Among respondents, 96.6% said they had no investment plans for the second half of this year, while only 3.4% said they did.

Even those with investment plans leaned toward maintaining existing stores rather than aggressively expanding. Store remodeling and exterior improvements topped the list of planned investment areas at 47.1%, followed by marketing and sales channel diversification at 29.4%, product or business-type changes at 17.6%, and equipment replacement at 5.9%. However, only 17 respondents reported having investment plans, so the breakdown figures should be interpreted with caution.

Small business owners' overall view of conditions remained deeply negative. Some 63.6% said conditions in the first half of this year had worsened compared with the second half of last year. Another 59.8% expected conditions to deteriorate further in the second half, while only 8.3% anticipated an improvement.

Negative outlooks dominated across specific indicators as well. Some 58.4% expected their financial situation to worsen in the second half, 59.4% forecast a decline in sales, and 59.8% anticipated a drop in operating profit. Meanwhile, 58.8% expected fewer customers visiting their physical stores.

Pessimism was particularly pronounced in everyday lifestyle service sectors. Among businesses expecting sales to worsen in the second half, laundries and hair salons posted the highest rate at 72.7%, followed by real estate agencies at 70.0%, hagwon at 68.0%, and bars and pojangmacha at 63.3%.

Within the food and beverage sector, sentiment varied by type. Some 63.3% of bars and pojangmacha expected sales to worsen, as did 56.0% of general restaurants, while cafes and bakeries came in at 41.2% — the lowest among all sectors surveyed.

The leading reason for the negative second-half outlook was a decline in consumer spending power. Some 60.9% of pessimistic respondents cited falling real incomes driven by high prices and income inequality, while 23.5% pointed to rising operating costs including raw materials, rent and labor.

Sluggish domestic demand was the most commonly cited operational difficulty in the first half, at 77.2%. Rising raw material and procurement costs followed at 55.2%, with energy costs such as electricity and gas at 30.9%, rising labor costs at 23.4%, and loan principal repayment and interest burdens at 17.4%.

The types of cost pressures also differed by sector. Rising raw material and procurement costs were the top concern for 88.0% of general restaurants, 89.8% of bars and pojangmacha, and 76.5% of cafes and bakeries. In the accommodation sector, energy costs such as electricity and gas were the leading burden, cited by 53.7%.

A gap also emerged based on whether businesses had joined online platforms. Those not on any platform reported rates of worsening or declining conditions — across overall business, finances, sales, operating profit and foot traffic — that were more than 7 percentage points higher than those with an online presence. This suggests that access to online sales channels has helped cushion some of the blow from the economic downturn.

"Small business owners currently have a greater policy demand for expanded tax benefits and reduced energy costs than for an expansion of policy funding," said Kim Hui-jung, head of the economic policy division at the Korea Federation of SMEs. "We need to pursue tailored policies that reflect the operating environment and characteristics of each sector."