Korea shops till the mom 'n' pops
drop By Aidan Foster-Carter
A battle is raging in Korea. Unless you
live there you may have missed it, for fortunately
this isn't a real war. We're not talking about the
North, and its outrageous threat to rain artillery
shells and rockets on peaceful activists
exercising their lawful - albeit provocative -
right to launch propaganda-laden balloons across
the Demilitarized Zone (DMZ). Cravenly, I'm glad
the Southern authorities blocked them. Sometimes
discretion really is the better part of valor.
So let's refocus away from the humorously
named DMZ to the upmarket suburbs of Seoul. Like
their equivalents elsewhere in our Identi-Kit
world, these are full of people whose idea of a
good time, pathetically, is shopping. South Korea
is quite a rich country these days, so this basic
activity no longer means
popping out to the
corner store for this and that when needed.
No sir, or rather no ma'am. These days, it
goes like this. You get in your shiny car or
sport-utility vehicle (Chelsea tractor, we call
them in my country). Other folks have the exact
same idea, so you sit in traffic, wasting time and
money while polluting the air. Eventually you
reach Shangri-la.
And what is this temple
of earthly desires? Why, a hypermarket, of course.
Here every need can be sated, every want
satisfied. Quality is assured, prices are
competitive. The aisles may be crowded, but hey,
this is how modern families live. Full fridge,
full freezer: Full life.
I'm not knocking,
much less mocking. We all do this. Me, I'm lucky
to live within walking distance of a Waitrose, the
best British supermarket. Carrying all those bags
home - plus my toddler, for a real challenge - is
good exercise. But most people don't have this
option, so if you have a car (OK, we're not
talking village India here), it makes sense to
drive. There may be nearer, smaller shops - but
the range is less, the price is higher, the
quality variable.
Hence the rise of
hypermarkets. This is a global phenomenon, but
with local characteristics. A store brand may
flourish in its own country or continent, yet
stumble if it ventures further afield and makes
the mistake of thinking it had found a formula
that works worldwide. We all consume, but not
identically. In everything from diet to layout,
cultural difference is key.
That's
certainly how it has proved in South Korea. Your
Korean friends may tell you theirs is a small
country, but they are mistaken. Fifty million
people is not few; and average income per head
above US$20,000 - or $30,000 if measured at
purchasing power parity (PPP) - is too big a
market to ignore. Two global retail giants -
Walmart (US) and France's Carrefour - came in and
tried their hardest. But neither could make a go
of it, so they sold up and quit.
Why did
they fail? Do non-Koreans just not get the Korean
market? True, up to a point. Or did Koreans gang
up against the intrusive foreigner? Not that time
- although read on.
By contrast, another
global major, Tesco of the UK, has been very
successful in South Korea. It first arrived in
1999, initially as a joint venture with Samsung,
but it is now wholly owned. With 458 Homeplus
stores, this is Tesco's biggest market worldwide
outside its UK home base. In 2010 sales topped $10
billion, generating profits of more than $500
million.
Fresh octopus, twice
daily What then is Tesco's secret? Fresh
octopus twice daily, so I once read. Meaning: Know
your customer and give her what she wants, only
cheaper and better. It's not rocket science,
really.
There may be another ingredient.
Click on homeplus.co.kr, and all manner of
bargains fill your screen - in Korean, naturally.
I can't see an English option, nor even the name
Tesco. This is Homeplus, and it's perceived as
Korean. Smart move, as we shall see in a moment.
On a smaller scale, another foreign
retailer has been doing well in South Korea.
Costco has a different formula: It's a membership
warehouse club, notionally serving small
businesses but open to retail customers too. With
only eight stores so far in Korea, turnover in
2011 reached a healthy 2.86 trillion won ($2.57
billion). Just one of its three outlets in Seoul,
at Yangjae - in now-world-famous Gangnam,
naturally - chalked up sales of 500 billion won
last year.
But in Korea, as everywhere,
there is a downside. What's good for Costco or
Tesco, and the consumers who flock to buy there,
is bad news for small independent shops. Most of
them just can't compete, especially as Tesco and
its Korean rivals - the two main ones are E-mart
and Lotte Mart - operate not only hypermarkets but
also smaller local stores, which in Korea are
rather confusingly known as super-supermarkets
(SSMs). More than 300 of Homeplus' outlets are
neighborhood SSMs, branded Homeplus Express (just
like Tesco Express in the UK).
Large and
small shopkeepers have been skirmishing for a few
years now. The big battalions at first seemed
unstoppable, but as elections drew nearer
politicians started worrying about fairness - or
perhaps votes. In November 2010 the National
Assembly passed a law banning supermarkets from
opening within 500 meters of traditional markets
or family-run stores, unless they got consent from
local authorities and small-business associations.
In July 2011 the distance bar was doubled to a
kilometer. Naturally that has slowed the opening
of SSMs.
This April the capital, run by
the liberal opposition Democratic United Party,
added its own by-law: ordering hypermarkets in
Seoul to close from midnight to 8am and alternate
Sundays. E-mart, Lotte and Homeplus took the City
of Seoul to court. In June the ban was overturned
and this trio resumed Sunday trading - as did
Costco, which had also been affected.
Bullying bureaucrats Smarting at
its defeat, the city council fought back - and
made the foreign firm a scapegoat. Bizarrely,
Seoul claims that Costco cannot benefit from the
ruling as it was not a party to the original suit.
When Costco ignored that, the city first fined it
30 million won and then sent in hit squads of no
fewer than 40 inspectors, twice. (Don't these
people have real work to do?)
Needless to
say they found various minor infractions -
parking, hygiene etc: they'd find way more on the
latter front in traditional markets. But no one is
pretending this is the real issue. It's sheer
bureaucratic bullying. Costco is the nail that
stands out. As a foreign firm with a foreign name,
indeed a foreign chief executive officer, and not
one of the big three, it makes an easy target.
This is election year in South Korea.
Suddenly everyone, even the ruling conservative
party - rebranded Saenuri (New Frontier) this year
by its new leader and now presidential candidate,
the Delphic dictator's daughter Park Geun-hye -
professes to be on the side of the little guy.
"Economic democracy" is all the rage, though no
one really knows what it means - except dislike of
the big conglomerates (chaebol), which frankly
have never been loved. There are real issues
here, but they won't be solved by populist slogans
or dubious rules. Costco is fighting back: On
October 15 it filed suit against the three
district councils in Seoul where its stores are.
Meanwhile it plans to open as usual next Sunday.
So we must wait and see what the courts rule, and
also whether Seoul council sends the heavy crew in
once more.
Sadly, I'm a bit pessimistic.
Costco may win its legal fight, but I hope it
hasn't already lost the wider war for hearts and
minds. Depressingly, the local press - even The
Korea Herald and The Korea Times, read only by
expatriates - has been almost all hostile: with
much pompous finger-wagging, "when in Rome"
homilies and the like. No one sees fit to defend
the rule of law (they assume Costco is the
lawbreaker, not the council), or the interests of
the consumer. The tone is reminiscent of that used
against other foreign betes noires like Texan fund
Lone Star, harassed for years for the "crime" of
making a vast profit on a risky investment.
Thus on September 28 The Korea Herald ran
an article headlined "Costco riles customers by
defying city ordinance", sub-headed: "Rule breaker
operates every Sunday, risks biggest-ever PR
crisis." Taking exception to the company's "no
comment" policy - "Costco says it has no PR
staff"; well, maybe it actually doesn't - this
tendentious piece alleged that "even the most
loyal Costco customers are bearing a grudge
against the retailer's actions".
Fortress Korea It quotes a
couple, in best fortress-Korea mode: "I heard the
Yangjae outlet sells more than any other Costco
store in the world. Is this why they're treating
Korea like a pushover? ... I wonder if they're
selling Korea short because we are already buying
so much from them."
A further comment is
doubly revealing. The paper claimed that "the
three domestic retail chains are opening stores on
Sundays only in areas where the injunctions were
issued", while keeping outlets elsewhere closed.
That too is dismal, if even the big three are
kowtowing to populist pressure rather than serving
their customers and standing up for their legal
rights.
But how interesting that the
Herald regards Homeplus, like E-mart and Lotte, as
"domestic" - when in fact it is 100% owned by
Tesco! Clearly foreignness is in the eye of the
beholder.
At least one reader of this sort
of stuff got riled. On October 22 The Korea Times
published a letter headlined "Rule of law in
business". Writing from Seoul, Steven Austin
accused Seoul Metropolitan Government of using
"Gestapo tactics" against Costco. He also had this
to say:
Make no mistake; helping mom-and-pop
stores is not the issue. They have been
suffering for a long time, because they are
dinosaurs in a modern economy. Their business
model is flawed, as rational people don't want
to buy inferior produce or the same products at
grossly inflated prices. Most of these shops are
rundown, dirty, and cluttered. The service is
subpar, and consumers don't actively choose to
shop there. They shop there when they are in a
pinch. Creative destruction of these mom-and-pop
stores is inevitable.
"Creative
destruction" was Austrian economist Joseph
Schumpeter's arresting phrase for the way
capitalism works and has to work. If a trade
becomes uneconomic, it makes no long-run sense to
protect it. Mr Austin may sound harsh, but
empirically and logically he's right.
South Korea's local shops, and traditional
markets too, need to find a new business model or
viable raison d'etre. Customers are voting
with their feet, as they are entitled to, so as to
gain choice, value and quality. "Small is
beautiful" may be a fashionable nostrum, but I
can't see how it applies here. Do other Koreans
owe mom and pop a living, no matter what? And
however you answer that question, bashing a handy
foreign scapegoat is no kind of answer.
Aidan Foster-Carter is honorary
senior research fellow in sociology and modern
Korea at Leeds University, and a freelance
consultant, writer and broadcaster on Korean
affairs. He has visited South Korea some 25 times
in the past 30 years, starting in 1982.
(Copyright 2012 Asia Times Online
(Holdings) Ltd. All rights reserved. Please
contact us about sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
