SMBA hands down restrictions for Costco's Songdo branch

The Small and Medium Business Administration said Thursday it had placed restrictions on the operations of warehouse discount retailer Costco’s branch in Songdo, Incheon, to help reduce damage to surrounding small businesses.

According to the restrictions, Costco will be prevented from selling cigarettes or government-issued trashed bags, as well as Korean soju or beer products in small quantities. Ramen must also be sold only in packages of 15 or larger.

The store will not be able to offer delivery services for customers in Songdo with the exception of special cases such as deliveries for customers with disabilities. 

Operating hours were also limited to 9 a.m. to 10 p.m.

The SMBA‘s decision, effective for three years, came as Costco’s new branch opening was opposed by small grocery stores and markets in the Songdo area. A cooperative of supermarket owners in Songdo had asked the SMBA to help mediate the clash with Costco on Nov. 25. 

The cooperative asked that Costco build a distribution center in Songdo and buy delivery vehicles from the area, close the shop for four days a month, not sell Korean liquor brands and delay the opening.

After discussion, the SMBA requested in late December that Costco postpone the opening of its Songdo branch, but Costco refused. On Jan. 4, the SMBA sent an official recommendation to Costco to postpone its Songdo opening to work out an agreement with vendors in the surrounding district. 

However, Costco unilaterally went ahead with the opening on Jan. 9.

The final restrictions came after the SMBA hosted a meeting earlier this month. It said it took into consideration the positions of the Incheon supermarket cooperative, Costco, local government entities and consumers.

However, Kim Ji-yeon, who heads up the cooperative of Incheon supermarkets, said the decision was “extremely unsatisfactory.”

“Nearly none of our demands were reflected in this decision,” he told The Korea Herald. “From our point of view, the restrictions are almost exactly what Costco asked for in the mediations.” 

According to the cooperative, supermarkets in the area near Costco’s Songdo branch have suffered 25-30 percent drops in sales since the branch opened last month.

Costco currently faces a fine of up to 50 million won ($43,700) for opening its Songdo branch against the SMBA’s order for postponement. If the company decides to break the operation restrictions it will face additional fines of up to 150 million won.

By Won Ho-jung (hjwon@heraldcorp.com)