Small Businesses Hit Hard by Slow Economy

  • By Jo Jae-hee

    June 22, 2018 12:42

    Small businesses have suffered more than a 10-percent decline in sales so far this year compared to the same period of 2017.

    This is due to a chronic slowdown in private consumption compounded by declining export growth.

    The situation is particularly difficult for small shops and service businesses, which complain that conditions are even worse than in the aftermath of the 1997 Asian financial crisis as the decline is being compounded by the minimum wage hike.

    Jung Yeon-sung at Dankook University said these businesses are experiencing an even more acute drop in revenues than the average decline suggests.

    Small-business data show average monthly sales of W33.72 million, down 12.3 percent compared to the same period of 2017 (US$1=W1,113).

    The data were compiled from the seven business sectors most small enterprises belong to including retail, accommodation, food and private education.

    Kitchen appliances from closed restaurants are piled up at a second-hand shop in Seoul on Tuesday.

    The revenues were tallied by data from credit card companies and represent more than 80 percent of small businesses with fewer than 10 staff in the country, the majority of which are sole proprietorships.

    In retail, such as small boutiques, monthly sales fall 41.4 percent from W57.6 million to W33.75 million. Small guesthouses or B&Bs saw monthly revenues fall 50 percent from W65.9 million to 31.5 million. Home-appliance or second-hand shops' sales fell around 40 percent, and small tutoring businesses' more than 10 percent.

    The biggest falls were in Daegu (32.6 percent), Seoul (28.6 percent) and Sejong administrative city (20.5 percent).

    As household debt swells to approach a record W1,500 trillion, customers are tightening their purse strings. Noh Min-sun, a researcher at the Korea Small Business Institute, said, "Looking at how steep the rate of decline was, we can see that consumers are cutting back on spending on unnecessary things to pay interest on housing loans and other obligations."

    Small businesses are also bracing for the mandatory shortening of the working week, which will eventually apply to small businesses as well.

    Experts say bold policies are needed in order to reinvigorate the economy. Kim Jung-sik at Yonsei University said, "The government's policies aimed at curbing real estate speculation seem to have crimped private consumption. Stimulating the construction economy through infrastructure investment could offer at least a short-term solution." 

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