A new feature is emerging in urban Korea. Large, uniform, expansive, their format runs counter to the variegated high-density development which characterizes much of Korea's built-up areas. Their power to generate traffic flow portends their ability to influence change in much of Korean commerce and society generally as it does the aspect of the country's cityscapes. These new colossuses appearing in Korean neighborhoods are the discount retailers, a form of commerce now permitted by reform, and representing a market, which by virtue of the tumble in land and currency values, is now allowing the entry of foreign participants on a huge scale. Armed with a combination of marketing technique, capitalization, and superior product-sourcing capabilities, the foreign discounters pose a severe challenge not only to the diffuse, small-scale pattern of the Korean retail market but also to their Korean counterparts such as Samsung's Home Plus and Lotte Department Store's Magnet in their continual bid to provide consumers with ever-lower prices.
 Spearheading this trend is Wal-Mart International, the overseas arm of world's largest retailer Wal-Mart Stores Inc., which in July bought the four stores of Korea Makro, an offshoot of a Dutch/Korean joint venture, together with six underdeveloped sites. The company plans to operate a total of ten outlets by the first half of 1999 and is in negotiation with the insolvent New-Core Group to take over its Kim's Club discounter.
 French hypermarket group Carrefour was an early entrant to the Korean market opening its first store in the Seoul satellite city of Puchon in July 1996. In November of the same year it simultaneously opened two others in the satellite communities of Ilsan and Taejon and now operates a fourth, also on the periphery of the metropolis. Carrefour has secured 18 sites in the provincial cities of Pusan, Kwangju, Sunchon, Chonan, and Chongju, and plans to open a further 20 stores by the year 2000.
 After fielding a team to study the local market for two years, French arch-competitor to Carrefour, Groupe Promodes, has bought an 8,000 square-meter store site in Nowon-gu in the northeast of Seoul plus almost 20,000 square meters of floor space in a development in Sungnam City, Kyonggi Province, to the south of Seoul. The company plans to open a total of ten stores nationwide most likely under the name of its French hypermarket chain, Continent.

Expansion Opportunities

 U.S.-based Costco Wholesale bought three Price Club units from cash-strapped licensee Shinsegae Department Stores in June for $89 million. The group will spend $400 million to $500 million over the next four to five years building 12 additional units. Shinsegae is a minority (five percent) joint venture partner in the new arrangement while continuing to operate its department stores and its E-Mart discounter, increasingly a direct competitor to the Price Club format. In line with worldwide policy, all the company's stores will in future trade under the Costco Wholesale name.
 Since consumption fell by 26 percent during the first half of 1998, why should multinational retailers have so active an interest in the Korean market? "As global retailers look around the world, they see the [local] market and look upon Korea as an opportunity for expansion," said Bradley C. Irwin, a member of the American Chamber of Commerce in Korea's Marketing and Distribution Committee. "The country is relatively affluent, there are good population concentrations and a well-established retail industry. That, plus a relaxation of restrictions which have previously dampened interest." Further, Mr. Irwin noted also that "zoning restrictions until recently have prevented even local retailers from developing large store formats."
 A reform program in the retailing sector was enacted from 1994-6 under the previous administration of President Kim Young-Sam and completed according to schedule.
 "There was a limit on the number of stores, the size of stores, you could operate and there is a certain number of stores needed for a critical mass," said one multinational retail industry insider. "So in the first week of January 1996 there were no more limits on stores, but on the issue of land purchases, there were difficulties processing land purchases." All procedures related to store establishment and land purchases by foreigners have this year been greatly relaxed, the latter as the result of a wide-ranging legislative package liberalizing foreign real estate ownership passed by the National Assembly June 26. The changes reflect not only a need to attract foreign capital but also to address the problem of job losses created as a result of Korea's ongoing structural reforms. American management consultants McKinsey & Company produced a report for the Korean government in April on the future of the Korean economy in which it recommended the deregulation of the service sector as one of several strategies to absorb the high unemployment it envisaged ranging from eight to 12 percent in a post-crisis Korea. A single European-style hypermarket will typically employ 300 persons directly on a full-time basis.

New Affordability

 A further spur to the entry of the multinational discounters since the onset of the crisis is the sudden affordability of prime located land and the need by domestic corporations to shed assets. On the subject of Costco Wholesale Korea's plans to establish more units, company president and CEO Don Burdick, said, "The number one challenge for us is finding more property. We have been very active in the real estate market, especially in Seoul." He said he believed Korea can support 12 additional Costco sites but the "challenge is to find property we can afford and we're going to focus on Seoul." Acknowledging cheaper land has prompted Costco's expansion program, he said, "Prior real estate prices made it prohibitive to locate in the urban area of Seoul. That's why Makro built out in Ilsan. Because land is less expensive now, it makes it possible to locate in Seoul." However, he comments Costco "was always interested in owning all or part of the Price Clubs in Korea since 1994. The opportunity was created by the IMF. Shinsegae have an investment in E-Mart which they wanted to grow and we offered them a way to do that."
 Mr. Irwin disputes whether lower prices alone have sparked the entry of the multinational discounters. "It would have happened without a crisis," he said. "A lot of [the discounters] were here earlier. Wal-Mart has been looking at the market for years. Promodes was on the ground before the crisis. All these [companies] were planning to get into the market before then. The crisis presented the opportunity to accelerate their plans." Central to those plans are the opportunities occasioned by the fact the retail sector is not as efficient as in other parts of the world. "Logistical costs in Korea are the highest in the world," said Mr. Irwin. " Present retail practices and infrastructure are not promoting efficiency, so global retailers think, 'I sure am more efficient than people operating now.' They have a concrete competitive advantage which they want to press home. This is the same opportunity that Home Plus and E-Mart are going after."
 Other industry observers see the rise of the discounters in Korea in developmental terms. "The opportunity to deal directly with suppliers [as represented by the discount retail system] happened 30 years ago in France and 20 years ago in Spain," said one. "What is happening in Korea now is part of a normal phase of modernization."

The Drive for Efficiency

 Meanwhile competition in the retail discount sector is heating up. A price war has ensued between Makro, E-Mart and Home Plus, lately joined by Carrefour. E-Mart plans to have opened an additional six outlets by the end of 1998 and expand the number of its branches to 45 by 2003. Wal-Mart's plan to trade under its own name has been stymied by a domestic firm which registered the retailing giant's name as its own at the Industrial Property Office. Wal-Mart successfully contested the claim in court but the decision is now under appeal. In the meantime, the company will continue to trade under the Makro name while studying the market to decide which of its formats it will field in the Korean market: the general retailer, Wal-Mart; the more upscale, membership-based Sam's Club; or Supercenter, which includes fresh food as part of its product mix.
 Regardless of its origins, industry observers see the new competitive environment in the retailing sector as boon to consumers and ultimately the economy as a whole. Mr. Irwin said, "I don't think the issue is foreign versus local; it's efficient versus less efficient. There are many efficient local retailers as well. Where you have more efficient retailers you have a situation where there is not as much margin added to logistics. It's better for the consumer and the producers." "What we'll do for the economy is lower prices, boost business, create more efficiency which in turn will produce better prices," said Mr. Burdick. He believes the only casualties in the new order will be the department stores. "They'll have to match us on prices they don't want to match us on and consequently they will have a difficult time, but at the end of the day, there'll be a lot of taxes, employment, and investment," Mr. Burdick said.