1 in 3 Mom-and-Pop Stores Shut Within 3 Years

One out of every three mom-and-pop stores like fried chicken restaurants, coffee shops and hole-in-the-wall pubs close down less than three years after they open, according to a study by the Seoul Metropolitan Government.

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But despite the high failure rate, an increasing number of retirees open up small businesses to make ends meet.

The city government analyzed data on some 580,000 mom-and-pop stores in the capital and found that the number operating in back streets and residential areas increased gradually since 2007 and surged over the last five years.

Coffee shops multiplied from 1,291 in 2010 to 3,053 in 2014, up 2.36 times over the five-year period. The number of small pubs rose from 553 to 1,272, more than doubling over the same period.

Although the growth rate was not as steep, newly opened Korean restaurants ranked at the top in terms of volume, growing from 6,689 in 2010 to 9,772 in 2014.

But 33 percent of these shops closed down after less than three years. Out of 14,305 mom-and-pop stores in seven areas of business that opened in 2012, 4,729 closed by October last year. Fried chicken restaurants had the highest rate of closure within three years at 38 percent, followed by beer pubs (37 percent), coffee shops (36 percent) and Western restaurants (33 percent).

This pattern was also evident among mom-and-pop stores that opened in 2014, with 11 percent of beauty shops, 10 percent of coffee shops and eight percent of beer pubs and fried chicken restaurants closing within a year after. Overall, one in 10 closed down within a year.

According to the city government, the average monthly sales grew 12.9 percent from W22.6 million in September 2013 to W25.5 million last September. But the average amount per transaction fell 13.7 percent from W23,273 to W20,076.

A city official said, "Revenues increased, but so did overheads, making owners shoulder a bigger burden".

Experts said the surge in the number of new mom-and-pop stores and high closure rates are typical signs of a recession.

"People who lost their jobs due to the slump are forced to open small stores, but with consumers keeping their wallets shut, the result is simply intensifying competition. As long as big businesses refrain from hiring more workers, more people will open their own small shops", said Kwon Kang-soo, a consultant for venture businesses.