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Stuck between a rock and the minimum wage hike

Convenience store owners struggle as sales fall, costs rise
Mar 04,2019
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Convenience store operators paid out the first wage to their part-time workers based on the newly-risen minimum wage last month. An employee at a convenience store in Seoul arranges products on display. [YONHAP]
The first two months of the year is not usually the most profitable period for convenience store operators. After draining the budget celebrating over the holiday period, people’s spending at convenience stores naturally drops.

The situation was worse than usual this year as the latest hike in the minimum wage and legally-mandated paid holiday hours meant that shop owners were making less money and paying more in labor costs. The minimum wage has risen by 29 percent over the past two years to stand at 8,350 won ($7.50).

To find out how convenience stores are faring after the minimum wage hike, the JoongAng Ilbo talked to 20 people who operate stores in Seoul.

Excluding four family-run convenience stores, only half of the remaining 16 convenience stores actually provided the legally-mandated paid holiday hours to their part-time workers. Under the Labor Standards Act, paid holiday is given to employees who work at least 15 hours a week.

Of the remaining eight, six circumvented the law by hiring more part-timers and lowering their weekly work time to below 15 hours, with family members filling in when necessary.

“Until a year ago, the [proportion of] fixed costs like rent, franchise commissions and labor costs were comparable, but the labor cost now accounts for 50 percent [of total fixed costs],” said 53-year-old Seong In-je, who runs a convenience store in Gangnam District, southern Seoul.

“The pressure we feel has grown following the consequential rise of the legally-mandated paid holiday hours and four insurance programs [national pension, health insurance, industrial accident compensation fund and employment insurance] from the minimum wage hike.”

Two convenience store owners confessed they did not offer paid holiday hours to employees who worked at least 15 hours. Under the two-sided compromise, the worker received 8,350 won in hourly wages, but not a penny of paid holiday hours. The majority of such workers who did not demand full payment were socially vulnerable people, with one senior citizen and the rest Chinese students.

Even the eight operators who paid holiday hours minimized the number of employees that were entitled to receive them to one or two workers. In total, 90 percent of the interviewed store operators either replaced existing workers with family members or cut down their working hours.



Hire more, pay less

A store owner surnamed Lim runs a convenience store near City Hall in central Seoul. Last year, Lim told the store’s part-timers to work fewer hours. The response was not what he had expected.

“Things worked out without anyone’s feelings getting hurt because university students now earn enough pocket money while working fewer hours following the rise in the minimum wage,” said Lim.

Lim has allocated seven workers to work each day of the week while Chinese students and graduate students work at night.

But hiring more people to keep costs down also means more time spent training and managing them.

“I have six workers and it’s tough managing them,” said Shim, who manages a store in Hwagok-dong, western Seoul. When I had one or two employees, I entrusted them with the jobs. But now, I have to educate every single one of them.”

Shim explained that the workers who said they were fine with short working hours turned out to have several other part-time jobs elsewhere. “Most of them have two to three [part-time] jobs.”



Seeking out the socially vulnerable

A 68-year-old shopkeeper surnamed Kim who runs a store in Gangseo District, western Seoul, takes turns with his spouse to fill 20 hours at the convenience store. Kim’s friend in his 60s works the remaining four hours of the day. Though the friend is entitled to paid holiday hours, they agreed not to acknowledge them.

“I know this is against the law, but it was an inevitable choice due to low earnings,” Kim said, adding that he would like to close the business and receive an hourly pay of 8,350 won of his own by working elsewhere.

Chinese students in Korea are popular with shopkeepers, who tend to avoid giving them paid holiday hours. By law, international students aren’t allowed to work more than 20 hours a week, but shop owners turn a blind eye in return for not paying for holidays.

“[I hire] Chinese students to avoid allocating the paid holiday hours,” said a store owner surnamed Kim, who operates his business in Jung-gu, central Seoul. “I’d have to pay them if they report it to the Ministry of Employment and Labor, but that rarely happens because they will also be placed under a handicap.”



A looming threat

Despite rising costs, many shop owners don’t have a way out.

“Even if I want to stop running the business, I can’t because I still have three years remaining in the contract,” said one shop owner.

Another shopkeeper running a store in Dobong District, northern Seoul, said, “It’s no longer a matter of profit but rather a matter of whether I can sustain [the business] until the contract expires. If I quit, I’d have to pay 50 million won in penalties.”

Daily revenue ahead of the New Year’s holiday was between 1.3 million and 1.4 million won, according to a shopkeeper who wished to remain anonymous.

Situations aren’t much better for shopkeepers with multiple convenience stores. When the economy was good, they were able to rake in money through economies of scale, but now things have changed due to the recent rise in costs.

“I recently sold off a store that cost me 300 million won in premiums [at the time of purchase] at 40 million won,” said Yoo, who runs seven convenience stores. “I paid off the loss with the profits I had earned over the past 13 years.”

A shopkeeper surnamed Kim, who manages a convenience store in Jung District, central Seoul, recently agreed with the headquarters to close the business from 9 p.m. to 7 a.m. instead of running it 24 hours a day. The fewer hours have allowed Kim not to hire employees, but instead operate the store with family members. Kim comes to work at 7 a.m. and works until 5 p.m. His wife takes care of the remaining hours. The couple’s son and daughter help out on weekends.

“I had a 65-year-old part-timer three months ago, but I had to let him go,” said Kim.

Another convenience store operator surnamed Jang works at the store for 12 hours a day. Her husband takes responsibility for the other 12 hours.

“I stopped using part-time workers three years ago,” Jang said. “I even struggle to go to hospital [due to the long working hours]. Even if I want to hire a part-timer, that isn’t really an option because all I earn after working is around 2 million won.”

BY KIM YOUNG-JU, SHIN HYE-YEON AND BAEK HEE-YOUN [jin.minji@joongang.co.kr]