Park, who has run a nail salon in Seoul's Gangbuk District for four years, is weighing whether to close. Bookings held up steadily on the wave of pent-up spending that followed the COVID-19 pandemic, but customers have thinned out noticeably in recent months. "Customers don't have much to spare either, so they compare prices with the shop next door," Park said. "Without a discount promotion it's hard to fill the appointment book, and once the booking platform's commission and material costs come out, there isn't much left."
The number of self-employed businesses in Seoul is shrinking across every part of the city. Sales have contracted amid weak domestic demand, while costs for rent, wages and raw materials have climbed. Experts say the decline may not be a temporary trend but a structural shift driven by changes in the economic environment. There is also concern that a continued rise in subsistence-driven business openings could become an economic burden through loans to the self-employed. That has prompted calls for additional measures, such as expanded re-employment training for middle-aged and older workers.
Data from the Seoul Metropolitan Government's commercial district analysis service show the decline is most pronounced in what are often called neighborhood trades. Between the fourth quarter of 2023 and the second quarter of this year, general clothing stores fell to 45,374 from 50,866, a drop of 5,492, or 10.80%, while beer halls and small drinking establishments fell to 15,255 from 18,412, down 3,157, or 17.15%. Fried chicken outlets (6,541 to 5,742, down 12.22%), internet cafes (1,421 to 1,140, down 19.77%) and seafood retailers (6,075 to 5,063, down 16.66%) followed the same pattern.
Trades with low barriers to entry, where a business can be started with relatively little capital, were the most exposed to rising costs and weak demand because competition between shops compounded the pressure, according to the analysis. Over the same period, nail salons fell to 4,247 from 5,371, down 1,124, or 20.93%, and mobile phone retailers fell to 6,141 from 7,316, down 1,175, or 16.06%.
Some trades shrank because of policy. Real estate brokerages fell 17.77% to 36,005 from 43,784 over the same period, the steepest drop among the categories surveyed. "The property market slump has dragged on because of high interest rates and lending restrictions," one licensed broker said. "Competition among offices has intensified and brokerage fee income has fallen, so it isn't easy to stay open in most neighborhoods."
A shift in leisure culture away from drinking and entertainment toward health care also played a role. Skin care shops jumped to 10,720 from 7,673, an increase of 3,047, or 39.71%, with counts rising sharply in all 25 of the city's autonomous districts. Sports clubs rose to 5,330 from 4,501, up 829, or 18.42%, and pet-related businesses added 542, or 24.94%. By contrast, beer halls and small drinking establishments lost 3,157 outlets over the two and a half years.
Choi, who runs a bar near Konkuk University in Gwangjin District, said the change is visible at the table. "There are far fewer customers who move on to a second or third round of drinks the way they used to, and each table orders less alcohol and fewer dishes," Choi said. "Rent, wages and food costs keep going up, so the more I sell the deeper the loss." Choi added, "The main district in front of Konkuk University is still crowded, but the commercial area itself is contracting."
Business conditions for the self-employed are expected to worsen. The Bank of Korea raised its base rate last month by 0.25 percentage point to 3% from 2.75%. It was the second straight monthly increase after July, lifting the rate back above 3% for the first time in a year and nine months. Higher rates increase interest costs for small business owners carrying debt and worsen their cash flow, while also reducing consumers' disposable income, according to the analysis, deepening the squeeze from both rising costs and falling sales.
The burden of essential spending is growing fastest among low-income households. Average monthly food spending across all South Korean households was 891,000 won in the second quarter, up 3.3% from a year earlier, but the increase was larger for households in the 20th to 40th income percentiles (6.9%) and the bottom 20% (6.1%) than for the top 20% (1.8%). As food, interest and housing costs rise, discretionary spending on dining out and clothing declines, which can weigh on sales in neighborhood commercial districts, according to the analysis.
Kim Sang-bong, a professor of economics at Hansung University, said the recent decline partly reflects an unwinding of oversupply. "The share of self-employment in our economy is excessively high, and the number of self-employed rose sharply during COVID-19," he said. "Rather than pushing people back into the self-employed market through indiscriminate cash support for business openings, we should strengthen support for re-employment and job training so that those who have closed their businesses can move into other industries."
"As the self-employed cut hiring because of labor costs, the most vulnerable jobs, such as temporary and daily-hire work, are the first to be affected," Kim added. "Jobless people in their 20s and those in their 30s and 40s who have left salaried jobs face different circumstances, so re-employment and career transition training needs to be tailored to age and prior work experience."
