Historic milestone as business closures surpass 1 million due to weak domestic demand

Last year, the number of businesses that filed for closure exceeded 1 million for the first time since statistics began being recorded.

In particular, retail and food service industries accounted for nearly half of all business closures, indicating that sectors closely related to domestic consumption have been severely impacted.

According to the National Tax Service on the 6th, the number of businesses that filed for closure in 2024 was recorded at 1,008,282. This figure represents an increase of 21,795 compared to the previous year, marking the first time since 1995 that the number has surpassed 1 million.

The number of business closures fell from 922,159 in 2019 to 867,292 in 2022; however, it surged to 986,487 in 2023, continuing an upward trend for two consecutive years.

Surge in business closures due to economic recession

Examining the reasons for closures, 'business failure' accounted for 506,198 cases (50.2%), representing the largest share. This marks the first time since the global financial crisis in 2010 that closure due to business failure has surpassed 50%.

Following that, 449,240 were attributed to 'other' reasons, with 40,123 due to transfer of ownership, 4,471 due to corporate conversion, 3,998 due to administrative sanctions, 2,829 due to winding up or merger, and 1,089 due to seasonal business.

By industry, the number of business closures was highest in retail, with 299,642 cases (29.7%), followed by food service (15.2%), real estate (11.1%), and wholesale and brokerage (7.1%).

When combining retail and food service, they account for about 45% of all closures. The construction industry also saw 49,584 closures (4.9%), confirming the impact of the construction market downturn.

Retail closure rate hits 11-year high

The overall business closure rate, indicating the proportion of closures compared to total businesses, rose to 9.04%, marking an increase for two consecutive years.

By industry, the closure rate in retail reached 16.78%, the highest level since 2013 (17.72%). This was followed by food service (15.82%) and human services (14.11%).

Experts analyze that the decrease in real income due to high interest rates and inflation, along with the expansion of online shopping and the trend toward automation, have exacerbated the operational difficulties faced by offline retail and food service industries.

According to Statistics Korea, the real index of retail sales decreased by 0.3% in the first quarter of this year compared to the same period last year, continuing a decline in retail sales that has persisted since the second quarter of 2022.

This severe sluggishness in domestic demand is also affecting the debt repayment capabilities of self-employed individuals.

Serious domestic demand sluggishness

As per the Bank of Korea, the delinquency rate for vulnerable self-employed loans stood at 12.24% at the end of the first quarter, marking the highest level since the second quarter of 2013 (13.54%).

In response to the perceived threat of economic recession, the government has prepared two supplementary budgets this year. The second supplementary budget includes provisions for consumer coupons to aid livelihood recovery and debt relief measures for vulnerable borrowers such as self-employed individuals and small business owners.

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