Rule breaker operates every Sunday, risks biggest-ever PR crisis


Korean customers love shopping for American frozen food and confectionery at warehouse stores like Costco, and they do it at the cost of getting stuck in traffic every time they go.

But there is one thing they can’t stand, and that is feeling like they are being taken for granted.

Costco Wholesale Korea’s current position is to continue violating Seoul City’s rules that obligate large discount stores to close on the second and fourth Sundays each month. Making things worse, Costco is sticking to a “no comment” policy ever since its country manager Preston Draper declared on its website last week the company’s unwillingness to abide by the rules.

The company’s marketing team manager Bae Sung-won is avoiding phone calls from reporters (Costco says it has no PR staff), and an official at the American Chamber of Commerce in Korea delivered the official “no comment” position of both Costco and AmCham despite strong criticism from the media.

Even the most loyal Costco customers are bearing a grudge against the retailer’s actions, especially since Costco’s Yangjae outlet in southern Seoul generates some 500 billion won ($447 million) in annual sales, the highest among all 592 Costco stores worldwide.

“I used to love Costco, but this behavior of going against the rules makes me feel like I shouldn’t buy too much from them,” said Choi Seung-won, a homemaker in her 30s who buys hundreds of thousands of won worth of groceries from Costco each week.

“I heard the Yangjae outlet sells more than any other Costco store in the world. Is this why they’re treating Korea like a pushover? They won’t even budge to accept credit cards other than Samsung Card.”

Kim Sung-ja, another frequent shopper at the warehouse store, also said she found Costco’s attitude unpleasant.

“They are doing business in Korea; obviously, they should stick to the Korean law. I wonder if they’re selling Korea short because we are already buying so much from them,” said Kim, who often struggles to hit the store at the least crowded hours. Costco’s Yangjae store is always packed with customers even during weekdays.

“People might still shop at Costco, but this is not the right way to treat their key market.”

Draper argues that Costco should also be allowed to operate its warehouses since the courts suspended the implementation of the ban on E-mart, Lotte Mart and Homeplus, which had filed for injunctions with several local courts.

The three domestic retail chains are opening stores on Sundays only in areas where the injunctions were issued. They are still closing seven outlets including the Lotte Mart in Jeju and E-Mart’s Mia store in northeastern Seoul.

Seoul City slapped a fine of 10 million won against each of the three Costco stores in the capital for operating on Sept. 9 and is set to impose another 20 million won per store for its second offense on Sept. 23. The fine will be 30 million won from the third time onwards.

Seoul City said on Wednesday that it sent a complaint to Costco Wholesale Korea for defying the city’s ordinance meant to protect traditional markets as well as mom-and-pop stores.

Costco is a foreign company but it is obligated to abide to Korean law as long as it does business here, the city government said in the statement.

“The city’s ordinance still applies to Costco since it did not take part in the lawsuit (for the injunction),” said Seoul City spokesman Ryu Gyeong-gi.

Arguing that the fine of up to 30 million won is not high enough, the city plans to suggest revising the Distribution Industry Development Act to the central government.

“As a large mart, Costco believes that the principles of equal protection under the law should apply to all similarly situated parties,” Draper said.

“If every company acted based on its own beliefs, society would be in chaos,” said Kim Jin-sook, a homemaker in her 50s who used to shop at Costco at least twice a month.

An executive at a homegrown discount store speculated that the regulation on Costco could fan out to be an international issue as the global warehouse chain must be operating based on meticulous legal consultations in both Korea and the U.S.

Even before its worst-ever PR crisis, Costco has long been criticized for turning a deaf ear to consumer complaints.

Despite having an estimated 250,000 members who pay annual fees, Costco’s Yangjae store has parking space for only 730 cars and accepts only cash or Samsung Card, which charges the lowest credit card commissions.

By Kim So-hyun (sophie@heraldcorp.com)