The business of going out of business booms in South Korea

Liquidation services are seeing a surge in activity as the coronavirus forces shops and restaurants to close down.

South Korea cafes
The government had warned South Koreans for years not to open more fried chicken shops or cafes as the small hospitality sector is saturated. Small business profit margins were thinning before the coronavirus outbreak [File: Kim Hong-Ji/Reuters]

You Young-sik has tried his luck running businesses, but after his convenience store, a sausage factory and a second-hand furniture shop all failed, he realised he had found a niche, one that he understood well: helping people go out of business.

You says he is now busier than ever due to the resurgence of the coronavirus, tearing down sign boards and removing cash registers from shuttered hair salons, barbecue buffets and other enterprises whose business model was based around human contact.

“This is my busiest year so far, having done this for 10 years. Inquiries are about four to five times higher,” said the 54-year-old liquidation specialist, who added that his business started taking off about two years ago as a street-level economic downturn began.

“I can’t do them all but I still take about twice the work I used to, which is why I need to head out at 4 or 5 in the morning,” said You in the city of Suwon, south of Seoul, as he answers telephone calls and tightens ropes around tables and chairs on his truck.

Tough social distancing rules to curb a second wave of coronavirus have markedly slowed retail traffic and emptied cafes across Seoul since mid-August.

The tables and chairs that You collects from closing businesses will end up in recycled kitchenware shops, such as Dajoobang in a run-down part of Seoul’s Hwanghakdong area.

“Our 600-pyeong (21,350 square feet, 1,984 square metre) storage warehouse has been completely full for about two months,” said Cho Gye-su, a 53-year-old manager at Dajoobang.

“Second-hand goods have been piling up and we have nowhere to sell them to, so the coronavirus has been really bad for us,” said Cho, pointing to used fridges, rice cookers and waffle makers all cleaned up and displayed in glass racks.

Family retailers battered

The inventory glut at recycled kitchenware stores and booming liquidation businesses points to battered family retailers in every corner of the country.

While policymakers brag that retail sales returned to growth in June and per-day exports recorded the slowest decline in seven months in August, small businesses are failing at a rate not seen since the global financial crisis, data from Statistics Korea shows.

South Korea economy
Many South Korean cafes and shops have been forced to get rid of furniture and fittings when they close down [File: Kim Hong-Ji/Reuters]

The hardest-hit sectors in Asia’s fourth-largest economy include hospitality, retail and restaurants, which are traditionally small, family-run businesses.

South Korea has among the world’s highest proportion of self-employed people, comprising about 25 percent of the job market, leaving many of its citizens vulnerable to downturns. A 2017 Bank of Korea study showed only 38 percent of the self-employed businesses survive three years.

New retirees seeking to supplement pensions by opening fried chicken diners or coffee shops and unemployed youth starting their own cafes have driven demand for second-hand sales for liquidators like You.

But unprecedented social distancing restrictions imposed on eateries in Seoul since late August, banning onsite dining after 9pm and limiting coffee and bakery franchises to takeout and delivery, has made trading tough for new startups.

The government has warned South Koreans for several years not to open more fried chicken shops or cafes as the small hospitality sector is saturated.

Small business profit margins were thinning before the coronavirus outbreak.

On top of the pandemic, that has also fuelled an acceleration of e-commerce, small businesses are fighting spiking rents, a shorter work week and higher minimum wages under the left-leaning President Moon Jae-in.

Moon has raised the legal minimum wage by about a third in the past three years to 8,720 won ($7.20) an hour for 2021 and capped weekly work hours to 52 hours, raising costs and making layoffs inevitable for small businesses.

Statistics Korea data show the number of self-employed businesses was down by 128,000 in July from a year earlier to 5.55 million, logging the biggest drop since 2009.

Kim Da-eun, 27, ran a private tuition school for the past three years in Anseong, south of Seoul, but is now shuttering it as the number of students has dropped below 10, down from 40 last year, as the coronavirus outbreak kept many at home.

“I’m now looking for a job but I don’t see anyone hiring. So I will be sticking to my delivery part-time for a while,” Kim said, observing the demolition of her business.

Source: Reuters