Financing and Corporate Governance Aspects of Traditional Retailing

Recently, increasing market share of SSMs(Super Supermarkets) in the traditional supermarket business, replacing fast the small and mid-sized supermarkets and the traditional local markets, raises concerns and outcries among the small supermarket operators and the Korean society as a whole. Traditionally, supermarkets and traditional local markets were perceived as a small, family-run business, which was labor-intensive and personal knowhow-intensive, but did not require large amount of capital. Consequently, most research articles focus on the marketing and operational aspects of small supermarkets and traditional local markets, neglecting the financing aspect of the business. In this paper, we argue that the SSM-style transformation of supermarket and traditional local market is inevitable and that the most critical obstacle to such transformation is the lack of capability to raise large-enough amount of capital by the business operators of supermarkets and traditional local markets. Given that strategic partnering of small businessmen is required to raise large-size capital, we also argue that an adequate corporate governance system should be developed, and a suitable prototype governance model is proposed. Capital structure consistent with such a governance model is also proposed.