The Unintended Consequences of Retail Regulation: How South Korea‘s law Fueled E-Commerce Dominance
South korea’s retail landscape is undergoing a dramatic transformation, a shift largely driven by the explosive growth of e-commerce giants like Coupang and Kurly. While seemingly a natural evolution in the age of digital commerce, this change is inextricably linked to a controversial law intended to protect traditional retailers – a law that many now believe has inadvertently crippled offline businesses and paved the way for unprecedented online dominance. This analysis delves into the complexities of this situation, examining the law’s impact, the rise of e-commerce, and the urgent need for regulatory reform.
The Rise of E-Commerce: A statistical Overview
The numbers paint a stark picture.Coupang, a leading e-commerce platform, witnessed a phenomenal surge in sales, reaching 41.3 trillion won ($29 billion) in 2024 – a staggering 40-fold increase from its 2016 revenue of 1 trillion won. Kurly, another key player, experienced an even more dramatic growth trajectory, with sales skyrocketing 127-fold from 17.3 billion won in 2016 to 2.2 trillion won in 2024. This exponential growth stands in stark contrast to the struggles faced by traditional brick-and-mortar retailers.
The Controversial Law: intended Protection, Unintended Harm
At the heart of this disparity lies the ”Large-Scale Retail distribution Act,” enacted to safeguard smaller, local businesses from the competitive pressure of large retail chains. The law imposes significant restrictions on offline retailers, mandating closures for two days each month – a decision left to local governments regarding weekday or weekend implementation. Furthermore, operation is prohibited between midnight and 10 a.m.
beyond operational limitations, the law requires any discount supermarket chain opening a new store to submit a detailed report outlining measures to mitigate negative impacts on local street markets and plans for collaboration with local vendors. While well-intentioned, these regulations have demonstrably hampered the ability of offline retailers to compete effectively.
COVID-19: Accelerating the Shift
The COVID-19 pandemic acted as a powerful catalyst, accelerating the pre-existing trend towards online shopping. As consumers prioritized safety and convenience, e-commerce platforms experienced a surge in demand between 2020 and 2022, solidifying their position as the preferred shopping destination for many South Koreans. This period effectively accelerated a massive, and arguably irreversible, shift in consumer behaviour.
Offline Retailers in Crisis: The Case of Homeplus
The consequences of these combined factors are becoming increasingly visible. Homeplus, formerly the second-largest offline retailer in Korea, filed for corporate rehabilitation with the Seoul Bankruptcy Court in march 2025, highlighting the severe financial distress gripping the sector. The company is now grappling with cash flow issues, struggling to meet payroll obligations for its 100,000 employees and facing reluctance from suppliers concerned about non-payment. This situation underscores the precarious position of many traditional retailers.
Growing Criticism and Calls for Reform
The situation has sparked significant criticism, even from within the industry. In December 2025, the Emart employees’ labor union issued a scathing statement, questioning, “Who gave rise to the monster that is Coupang?” The union argued that the combination of restrictive offline regulations and the pandemic-driven surge in e-commerce has fueled Coupang’s rapid ascent and dominance.
The union’s statement reflects a broader concern: the need for a level playing field. They called for “truly reasonable regulations that enable fair market competition between online and offline, between an irresponsible foreign company and Korean firms.” This sentiment is fueled by concerns surrounding Coupang’s corporate governance, particularly Chairman Kim Bom-seok‘s refusal to testify before the National Assembly regarding a massive data breach affecting over 33 million customers.
Expert Analysis: A Law “Killing” Offline Giants
Industry experts echo these concerns. Cho Sang-hoon, head of the industry research department at Shinhan Securities, argues that the law has been “killing” offline giants instead of fostering their competitiveness. He emphasizes that a more competitive offline sector would have ultimately benefited consumers by providing greater choice.
Proposed legislative amendments in 2020 and beyond aimed to alleviate the burden on offline distributors – allowing them to fulfill deliveries during mandated closures – ultimately failed to pass. “It’s regretful the bills never passed,” Cho stated, highlighting the political obstacles to reform.
From Economic Democracy to Online Dominance: A Shifting Landscape
The original intent of the law was rooted in the concept of “economic democracy,” a popular slogan during the
