The Korea Development Institute (KDI) released a report on June 30 titled "Growth of Online Retail and Directions for Improving Distribution Market Policy." The report indicates that the online retail market is expected to reach approximately 97.74 trillion won by 2024, more than double the 48.5 trillion won recorded in 2018. The share of online retail sales surpassed 50% of the total retail market in 2023 and reached 60% in March of this year.
Online retail has rapidly expanded due to lower prices, a diverse range of products, reduced search costs, and efficient logistics and delivery systems. This shift signifies that online retail has transitioned from a supplementary channel to a core component of the retail industry.
However, the legal and regulatory framework governing the retail industry remains focused on offline big-box store regulations. The current Distribution Industry Development Act, established in 1997, was designed primarily to protect traditional markets and regulate big-box stores. Even during its 2012 revision, regulations such as operating hour restrictions, mandatory closures, and site restrictions continued to center on large offline stores.
KDI notes that the rapid expansion of platform-based transactions, including online and mobile orders and early morning deliveries, has widened the gap between the legal framework and the actual structure of the retail market. While offline big-box stores are subject to operating hour and closure regulations, online platforms competing for the same consumer demand lack corresponding regulations.
Using data from Shinhan Card on payment amounts from January 2020 to December 2024, KDI found that online retail growth does not unilaterally erode offline retail. When per capita online spending in a region increases by 1%, total offline sales in that area actually rise by 0.186%. This finding contradicts the common belief that increasing online consumption directly leads to a decline in offline sales.
However, the impact varies by retail format. For every 1% increase in online spending, big-box store sales decrease by 0.264%. This indicates a direct competitive relationship between online retail channels and big-box stores. Conversely, SSM sales increased by 0.221%, convenience store sales by 0.324%, and other specialized retail sales by 0.356%. KDI attributes this to the physical proximity of these formats to consumers, allowing them to compete in areas of demand that are less susceptible to online alternatives.
The introduction of rapid delivery systems, such as Rocket Delivery, has also been shown to reduce the frequency of offline visits. In areas where Rocket Delivery has been implemented, a 1% increase in online spending corresponds to a 0.010% decrease in the number of offline transactions per consumer and a 0.023% decrease in the number of consumers per offline retailer.
However, KDI assesses that Rocket Delivery has not yet significantly impacted overall offline sales. They recommend ongoing monitoring, as further advancements in delivery systems could have a more substantial effect on the structure of the offline retail market.
As a policy direction, KDI emphasizes the need to secure regulatory equity between online and offline channels as a priority. With the growth of the online retail market, it is essential to reassess the effectiveness of big-box store regulations in protecting traditional markets.
KDI points out that the current regulatory framework, which is designed primarily for offline channels, creates structural imbalances. While the Distribution Industry Development Act focuses on offline big-box stores, online retail platforms that cater to the same consumer demand lack equivalent regulations, resulting in a disproportionate regulatory burden on specific formats.
KDI also highlights the need to strengthen the competitiveness of small offline businesses based in local communities. They advocate for support to help traditional markets, convenience stores, and SSMs enhance consumer engagement and develop products and services that are difficult to replace online, such as local specialties and ready-to-eat meals.
Creating a fair competitive environment within online platforms is also identified as a key issue. As market concentration intensifies on specific online platforms, there can be both positive effects, such as increased consumer benefits, and negative consequences, including imbalances in negotiating power for vendors, rising fees, and preferential treatment for in-house products.
KDI stated, "In future discussions on legal amendments, it is urgent to establish a balanced regulatory framework that ensures regulatory equity between online and offline channels, preventing the burden from being concentrated on one side."
* This article has been translated by AI.
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