Falling on deaf ears: Costco Korea cart pusher's death

Costco Wholesale’s co-founder Jim Sinegal had said South Korea was a “fantastic market,” where it ran its largest store in terms of sales volume.

“I start to tear up just thinking about it,” he told The Seattle Times in December 2011, before stepping down as chief executive.

Still, Asia’s No. 4 economy is one of its growth markets with 18 outlets nationwide. The membership-only retailer continues to open new stores and posted strong sales growth during the pandemic.

“I think you're still going to see us open in Korea,” Costco’s Chief Financial Officer Richard Galanti said on a conference call in May of this year.

Despite its robust growth, however, it appears to have failed to keep up with new employee-friendly regulations and social commitments in the country.

Sometimes, it has opted to pay a penalty for a regulatory violation, rather than correcting its business activities, a labor union official of Costco Korea argued. Its labor union was launched in 2020.

The Seattle-based retailer has recently come into the spotlight after one of its cart pushers, in his late 20s, died in June after working in scorching heat at one of its new outlets.

“Our management hasn’t made an apology for the death of its employee, who died working in the sweltering heat,” said the labor union official.

The company has remained tightlipped about the case. It does not operate a public relations department in Korea and has not been reached for comment.

WORKPLACE NURSERY

Costco Korea also has been under fire after it was named as one of the 27 companies in Korea that failed to meet the requirements to run a daycare center at its workplace. The Ministry of Employment and Labor released the list on May 31 of this year.

Under South Korean law, a company with more than 500 full-time employees, or more than 300 female workers is required to operate a daycare center.

Costco Korea employs 706 full-time employees, including 323 women workers.

As of end-2022, 91.5% of companies subject to the requirement have opened workplace nurseries.

CODE OF ETHICS

Under Costco’s stipulated commitment to human rights, the violation of the requirement seems to run afoul of Article One of its Code of Ethics: Obey the law.

According to its Sustainable Report on human rights, Costco is committed to respecting and protecting the human rights, safety and dignity of the people who contribute to the success of its business.

But Costco Korea has never commented on, nor given an excuse for not opening a workplace daycare center. It is the only company to do so, among the 27 companies on the list, said a labor ministry official.

Further, when it opened an outlet in 2019 in the city of Hanam, Gyeonggi Province, where the deceased cart employee worked, the retailer was advised by the Ministry of SMEs and Startups to delay the store opening in consideration of its impact on mom-and-pop stores in the area.

But it pushed ahead with the opening at the cost of a 50 million won ($38,000) fine.

Retail industry observers said the domestic market is not a level playing field because antitrust probes mainly take aim at domestic retailers such as E-Mart Inc. rather than foreign rivals.

“When opening a new store, E-Mart and other hypermarts in Korea consider whether they are in conflict with the law,” said a retail industry official.

“But the government has no means to pressure Costco other than administrative action if Costco ignores domestic laws."

LAW AGAINST SERIOUS INDUSTRIAL ACCIDENTS

Now Costco is under scrutiny about the cart worker’s death in relation to the Serious Accidents Punishment Act, which came into effect in 2022.

If it is found to have not taken sufficient safety precautions to prevent the cart worker's death, its chief manager in South Korea could be sent to prison.

Costco opened its first outlet in South Korea in 1994. It raked in 5.5 trillion won ($4.2 billion) in sales for fiscal 2022, which ended in August 2022.

It earned 194.1 billion won ($146 million) in operating profit in fiscal 2022, about 2% of its global operating profit. But its operating margin of 3.5% is slightly higher than 3.43% of its US operations.

That compared to a mere 0.4% operating margin at E-Mart, the largest retail chain in South Korea in 2022. Homeplus suffered shortfalls last year.

Despite the high operating margin, Costco Korea donated merely 0.6% of its operating profits to the local community in 2022.

Business experts advise Costco to take more social responsibility as its size grows. In that regard, a failure to comply with the workplace nursery law is deemed to go against good ESG management practices.

“The social aspect, an axis of ESG management, starts with respecting the laws and culture of the local community,” said Moon Doocheol, a professor in the Department of Business Administration at Yonsei University.

Write to Dong-Hui Park at donghuip@hankyung.com
 

Yeonhee Kim edited this article.