The Fall of Our Neighborhood Homeplus... What Lies Ahead for 13,000 Workers

Song Bo-mi, 58, joined Homeplus in 2008. In her late 30s, when her children started needing less of her constant attention, she began working with the hope of helping pay for their after-school academy fees. Song has welcomed customers at the checkout counters of the Homeplus Gangseo branch for over 18 years. Over nearly two decades—a span during which the landscape changed twice—she built family-like bonds with local customers. She also took great pride in working for a company that was once vying for the top spot in the domestic hypermarket industry.

Now, that workplace stands at a crossroads of survival. Store shelves emptied by the day, and her colleagues left the company one by one. She found it hard to look up when an 80-something regular customer, with tears in their eyes, asked, "Where should I go if this place closes down?" What was most frustrating was that she had not received a proper explanation about future plans from the company she had worked at for nearly 20 years. The majority of employees agreed that they would even accept restructuring if it meant saving the company. Holding onto the single hope that they could revive the business if they waited and endured, they kept stocking shelves and sweeping and cleaning the store.

However, as time passed, hope turned into despair. Song, who supports her husband battling terminal liver cancer, a child preparing for employment, and another in college, said, "What worries me most is how we will survive going forward." Around her, quite a few colleagues left the company voluntarily to use their severance pay for living expenses after wages went unpaid for several months. The reality is that there are few suitable jobs available for those who have left. Homeplus employees say that many who resigned are scraping by, moving from job to job in cleaning, restaurants, or short-term part-time work.

The Seoul Bankruptcy Court halted the rehabilitation proceedings of Homeplus, which began in March last year, after one year and four months. This was because the company failed to secure 200 billion won, the minimum operating capital required to implement the rehabilitation plan. MBK Partners, the major shareholder that acquired Homeplus in 2015, and Meritz Financial Group, the largest creditor, have struggled to find common ground over who should bear how much of the funding. With its operating funds depleted, Homeplus abruptly announced the closure of 67 stores nationwide on July 13, just 10 minutes before opening hours. The sudden declaration of closure left both customers visiting the stores and employees preparing to welcome them utterly bewildered.

The Homeplus branch of the Mart Union criticized, "MBK and the management claimed it was a measure to continue business operations in connection with a 50% discount event on items, but they showed their true colors as soon as the weekend passed." They added, "They once again made a surprise notification of the catastrophic decision to temporarily close all stores without a single word of notice to the union and employees."

The roots of the Homeplus crisis trace back to its acquisition by private equity firm MBK Partners in 2015. MBK acquired Homeplus, which was jointly established by Samsung and British retail giant Tesco, for approximately 7.2 trillion won. At the time, it was the largest merger and acquisition (M&A) in South Korean history. Having acquired Homeplus using debt, MBK subsequently sold off stores and logistics centers, opting to lease some of them back to continue operations. Although they aggressively sold real estate to pay off debt, they ended up in a situation where they could barely cover the interest due to the rent required for operations. Critics point out that while competitors sought online retail breakthroughs and remodeled their offline stores, Homeplus failed to keep up with the pace of change. Employees say that the company, which strictly pursued cost efficiency instead of innovation and reinvestment over the past 10 years, "slowly aged."

The Mart Industry Union is urging active government intervention, claiming that the major shareholder, MBK Partners, is failing to fulfill its responsibility to normalize Homeplus. The union laments that, in contrast to when the president himself stepped up during his candidacy to promise the normalization of Homeplus, it is now difficult to find any measures from the political sphere. Although politicians and financial authorities rushed to announce private equity control measures after the Homeplus crisis erupted, critics point out that the prepared regulations lack sufficient controlling power. Some view these measures as mere "showpiece" actions that do not require legislative amendments, such as strengthening inspections and supervision of private equity funds by the Financial Supervisory Service or establishing voluntary internal control standards. All bills aimed at regulating private equity funds remain pending, having failed to pass the threshold of their respective standing committees. Lee Han-jin, a research fellow at the Democratic Labor Institute, criticized, "The reduction of the leverage limit (from 400% to 200%), which was a major point of contention, lost its regulatory effectiveness as it was modified through coordination by the Financial Services Commission to impose a post-reporting obligation when exceeding 200%." He also criticized that measures to protect workers, who were the primary victims of private equity funds, remained at the level of "notifying worker representatives of the impact on employment."

The issue of private equity funds transferring excessive debt to acquired companies through leveraged buyouts (LBOs) and pocketing profits through high dividends and asset sales has been pointed out not only in South Korea but also in other countries. Ahead of us, the European Union has established strong legal mechanisms to protect corporate sustainability and labor rights. For instance, they impose information disclosure obligations on private equity funds at a level similar to public funds and strictly prohibit capital outflow activities such as dividends, paid-in capital reductions, and share buybacks for 24 months post-acquisition. Concrete institutional improvement measures are being discussed as alternatives, such as a fundamental ban on leveraged buyouts (LBOs), restricting private equity entry into public services and key industries, and codifying the legal liability of management companies. Although it failed to become law due to a lack of congressional passage, the "Stop Wall Street Looting Act," first introduced in the United States in 2019, is also a noteworthy reference. It sought to invalidate the liability exemption clauses for private equity managers, allowing joint liability to be imposed on them if the acquired company went bankrupt, while banning asset-stripping activities such as dividend clawbacks. Active political pressure from civil society and politicians, along with social consensus, must be achieved to prevent private equity funds from acting as "predatory corporate raiders."

Transparent communication between labor and management is also crucial. In Europe, if a private equity fund acquires 10% or more of a non-listed company's shares, it is legally mandated to notify stakeholders, including the company's workers, of detailed information such as future business strategies and the impact on employment. This provides a minimal mechanism for employees to be aware of and respond to corporate changes in advance. Earlier this year, the structural innovation-type rehabilitation plan submitted by Homeplus to the court included store closures and workforce reductions. Although opinions within the union were divided, many workers said, "Let's endure restructuring if it means saving the company." Some even voiced, "I want to save the company even if it means giving up several months of salary." There was a desperate sentiment that "we can only survive if the company survives." Ultimately, however, even this plan was not properly implemented.

There are many reasons for corporate failure. Neither management decisions nor investment choices were the responsibility of the workers. However, this crisis is no different in showing who bears the consequences first and most severely. Like Song, who spent nearly 20 years of her youth here, there are many workers at Homeplus who have protected their workplace since its inception. The majority of them are female heads of households responsible for their families' livelihoods. The voices of employees saying, "We want to save Homeplus even if we have to undergo bone-cutting restructuring and give up several months of salary," were desperate. If mass unemployment becomes a reality, the impact is expected to extend beyond individual workers and their families to the local economy and the overall retail ecosystem.

(Reference) Lee Han-jin, Research Fellow, Democratic Labor Institute Issue Paper <Problems and Improvement Measures of Private Equity Regulation Directions After the MBK Homeplus Crisis>

(Photo: Yonhap News)

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