Costco least affected by government regulation

22-Sep-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

The government implemented a law in 2014 mandating local retail giants to get consent from small traders at nearby traditional markets when opening a supermarket in the area.

The purpose of the law was to create an ecosystem promoting win-win business between small dealers and large retailers.

However, it turned out that Costco was not much affected by the regulation.

In April last year, the American multinational retailer opened its new branch in Hanam, Gyeonggi Province, despite the government’s request to postpone it.

One thousand small traders from Deokpung Traditional Market opposed the opening of Costco’s new outlet in the town and the Ministry of SMEs and Startups had held arbitrations between the two parties four times already.

Costco was fined 40 million won for ignoring the government’s request.

It did exactly the same three years ago, when the American retailer opened a branch in Songdo, Incheon. It paid a penalty then too.

In the end, Costco was able to continue its skyrocketing sales growth in Korea.

Its revenue jumped to 4.17 trillion won last year from 2.86 trillion won six years ago, when the restriction was adopted.

In the case of Lotte Shopping, which runs Lotte Group’s supermarkets and department stores in the country, it has failed to win approval from Seoul City to break ground on a new building.

Local retailers have to get permission from the local government to start construction but the Seoul Metropolitan government has not authorised Lotte Shopping to do so. Costco obtained approval from Gyeonggi Province and Incheon Metropolitan City to begin construction.

For seven years, Lotte Shopping has left a 20,000-square-metre site in Sangam-dong, western Seoul, untouched. It spent 197.2 billion won to purchase the land to build a shopping mall there.

However, one of the 17 traditional markets in the vicinity did not agree to the opening of Lotte Group’s shopping mall.

Lotte Shopping said it cannot defy the government like Costco did because Lotte is a Korean firm.

“The cases are different for us and Costco. However, I can say that we are in a different position when it comes to deciding whether to respect the local government or government’s request or not,” a Lotte Shopping official said.

The startups ministry said local governments had already authorised opening of Costco’s branches in Songdo and Hanam and all it could do was impose a 40 million won fine.

“Instead, we ordered preventive actions against Costco’s two branches like restricting sales of certain items and providing free services. This is to make sure that small traders in the nearby traditional markets are not financially damaged by the American retailer,” a ministry official said.


Category: Korea

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