[Column] Real crisis hasn’t even begun yet

Posted on : 2021-02-23 17:08 KST Modified on : 2021-02-23 17:08 KST
Kim Yong-sub
Kim Yong-sub

By Kim Yong-sub, director of Trend Insight & Business Creativity

Problems caused by a brief downturn in the economy can be fixed when the economy bounces back. But it’s tougher to fix problems that result from structural changes.

The average vacancy rate at office buildings in Tokyo’s five central wards rose to 4.82% last month. That rate was at 1.53% one year ago and under 2% six months ago, but has spiked in just half a year.

The office vacancy rate had stayed between 1% and 3% for years, but it has been steeply climbing month after month during the pandemic. The rise is due to an increase in corporate restructuring, telecommuting and working from home.

Dentsu, Japan’s biggest advertising agency, sold its main office and then announced it would rent office space in the same building — but only using half as much as before. The company was able to downsize its office space because it had already downsized its workforce while having 20% of its remaining employees work remotely.

Leading British advertising agency M&C Saatchi said it would trim office space by 25%, while global communications firm WPP, which has 130,000 employees in 107 countries around the world, announced a plan to reduce floor space at its UK headquarters by 20%.

Such changes aren’t only taking place overseas. There are plenty of South Korean companies that want to reduce their office space, too. The office vacancy rate is being dragged up not only by the widespread adoption of telecommuting and restructuring owing to the economic recession but also by automation reducing the amount of work that needs to be done.

More office vacancies ultimately lead to a crisis for the shops clustered in commercial districts, producing even more vacancies in a vicious cycle. While there are discrepancies between various polls, the office vacancy rate in downtown Seoul is around 10%.

According to the Korean Film Council, South Korean cinemas received 59.52 million visits altogether in 2020. That was just one-quarter of the number in 2019, which totaled 226.68 million. In contrast, usage of Netflix and other video streaming services has surged, along with sales of big televisions offering high definition images.

Theaters may be in trouble, but people are still watching movies. Improvements to the home theater mean there’s no guarantee that box office receipts will recover to the 200 million levels even after the pandemic is over. It’s possible that movies will remain while movie theaters disappear.

In 1994, Bill Gates said that banking is necessary, but banks are not — and that prediction has already come true. Banks continue to restructure and close branches.

To riff on Gates’ remarks a little, sales are necessary, but sales staff are not, and shopping is necessary, but shopping malls are not.

Tesla has shocked the industry not only with its electric cars and autonomous driving technology but also with the way it sells cars. From the very beginning, Tesla has sold its cars through an online platform rather than through salespeople, and now auto insurance is being sold on platforms, too.

Since the pandemic has made face-to-face sales more challenging, the auto industry is increasingly interested in selling vehicles through online platforms. Whether we’re talking about automobiles or insurance, salespeople play less of a role, with the pandemic serving as the catalyst.

Lotte has been a major player in traditional retail, but now it’s struggling with its limited online strategy. Meanwhile, Coupang is overpowering the behemoths of retail in the online environment. This situation will certainly not change even when the pandemic is over, and the peril posed by outdated business models will only grow. All these changes are linked to jobs.

And jobs, in turn, are linked to individual crises. According to Statistics Korea, South Korea’s unemployment rolls hit 1.57 million in January, the highest number since 1999, in the wake of the Asian Financial Crisis. In the economically inactive population, there were 2.37 million people “taking some time off” in 2020 — in short, neither working nor doing other productive activities such as raising children, doing housework or going to school.

On top of these numbers, there were around 600,000 “discouraged workers,” referring to those who’d like to have a job but have stopped looking, and 840,000 people who were nominally employed but taking leave from work.

People in these categories are effectively unemployed. Despite concerns that these numbers are only going to worsen, politicians are chasing pipe dreams and squandering their time squabbling. They’re completely divorced from reality.

Please direct comments or questions to [english@hani.co.kr]

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