Shinsegae upscale outlet faces curbs

Shinsegae Corp.’s new premium outlet in Paju, north of Seoul, could face government restrictions after smaller retailers protested that it hurts their businesses.

The Small and Medium Business Administration launched an inquiry on Monday to determine the scale of damage sustained by small- and medium-sized discount outlets in the area since Shinsegae Chelsea opened on March 18.

The smaller stores claimed their number of customers has dropped significantly as the Shinsegae outlet had more than 600,000 visitors in the two weeks following its opening.

The state agency requested on March 14 that Shinsegae postpone the opening. But the company refused, prompting the SMBA to begin a process for compulsory arbitration.

After the investigation is concluded in early May, the agency will issue an order expected to restrict its operations.

If the firm fails to comply, it could face punishment of up to 50 million won ($46,000) in fines or less than one year’s imprisonment.

In May 2010, an association of fashion outlet merchants in Gyeonggi Province requested government mediation claiming that Shinsegae Chelsea’s opening could threaten their businesses.

After negotiations to exclude brands that overlap with stores in nearby outlets from Shinsegae Chelsea failed, the SMBA advised the outlet to postpone the opening on March 14 according to the Act on the Promotion of Collaborative Cooperation between Large Enterprises and Small-Medium Enterprises, which was ignored by Shinsegae Chelsea.

While the SMBA is looking to intervene, the operators of the outlet are claiming that as it is registered as a real estate rental business, it is not subject to the regulations.

The outlet, whose business registration was as a retail and wholesale of clothing and real estate rental firm, changed to real estate rental only on March 22.

The SMBA for its part is maintaining that the outlet is subject to its intervention as the outlet’s operations are affecting those of small and medium-sized businesses in the area.

By Choi He-suk  (cheesuk@heraldcorp.com)