Coupang challenge: Early morning delivery push by retailers faces uphill battle

South Korea's major hypermarket chains are intensifying efforts to revise the Distribution Business Act, with a key focus on enabling early morning delivery services. This push comes amid growing financial distress, exemplified by Homeplus facing bankruptcy, and a broader sense of crisis within the large-scale retail sector. The move is seen as a strategic attempt to level the playing field against the dominant e-commerce player, Coupang.

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Even if early morning delivery is allowed, it will be difficult for hypermarkets to secure profitability or reverse the competitive landscape with Coupang.

However, significant skepticism surrounds the effectiveness of allowing early morning deliveries as a sole solution. Industry analysts and reports suggest that even if hypermarkets gain this capability, it may not be enough to boost profitability or significantly challenge Coupang's market dominance. The high operational costs associated with early morning delivery, coupled with the fact that even established players like E-mart (SSG.com) only see about 8% of their transactions through this channel, underscore the difficulty. Lotte Mart, for instance, abandoned its early morning delivery service due to profitability concerns.

Furthermore, the discussion around revising the Distribution Business Act is increasingly viewed as a proxy for addressing other long-standing industry grievances, particularly the relaxation of mandatory store closures. Some observers suggest that hypermarkets are leveraging the early morning delivery debate to push for eased regulations on their operating hours, a move that could significantly impact their bottom line. Research indicates that mandatory closures have a substantial negative effect on hypermarket growth and profitability.

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The mandatory closure system reduces the growth rate of hypermarkets' existing stores by about 5 percentage points and lowers annual operating profit by more than 50 billion won per company.

While regulatory adjustments are being sought, critics argue that hypermarkets are overly focused on external regulatory changes rather than implementing their own innovative strategies to adapt to the rapidly evolving retail landscape. The success of smaller formats like Super Supermarkets (SSMs), which have adapted to consumer preferences for smaller, local purchases, is contrasted with the hypermarkets' perceived inertia. The debate is also shifting towards the need for an 'Online Platform Act' to address unfair practices by dominant platforms, suggesting a broader regulatory reevaluation is necessary beyond just offline retail rules.

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The 'Fair Trade Act for Transactions' is not something the US even takes issue with. We need to implement the Fair Trade Act for Transactions as soon as possible to protect the blind spots that cannot be handled by the Fair Trade Act.