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 a wave of revenge spending after the COVID-19 pandemic, but customers have thinned 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 calendar, and once the booking platform's commission and the cost of materials are taken out, there isn't much left."
The number of self-employed storefronts in Seoul has fallen by roughly 39,000 over the past two and a half years. Amid high prices and high interest rates, neighborhood businesses that depend on spending by local residents are contracting fastest. Traditional everyday trades such as pubs, clothing shops and internet cafes have shrunk, while skin care salons and sports clubs have grown, pointing to a restructuring of self-employment driven by shifting consumption.
Seoul had 624,791 self-employed storefronts in the second quarter, down 38,682, or 5.83%, from 663,473 in the fourth quarter of 2023, according to the Seoul Metropolitan Government's commercial district analysis service on the 5th. The number rose after the end of the pandemic, peaked in the fourth quarter of 2023 and has declined for 10 consecutive quarters through the second quarter of this year. That is a net decline that already accounts for new openings, meaning the actual number of businesses that shut down is likely larger.
By district, the decline was sharpest on Seoul's outskirts, where businesses rely more heavily on local spending. Eunpyeong District fell 9.03%, from 21,425 storefronts in the fourth quarter of 2023 to 19,491 in the second quarter, the steepest rate of decline. Gangbuk District followed at 8.66%, Jung District at 8.51%, Nowon District at 8.25% and Guro District at 7.72%. Declines were relatively modest in Jongno District at 2.89%, Mapo District at 3.33%, Seongdong District at 3.56%, Seocho District at 4.26% and Gangnam District at 4.87%.
The drop was also steepest in trades that serve neighborhood customers. Between the fourth quarter of 2023 and the second quarter of this year, general clothing shops fell 5,492, or 10.80%, to 45,374 from 50,866. Pubs and small bars fell 3,157, or 17.15%, to 15,255 from 18,412. Chicken restaurants dropped to 5,742 from 6,541, down 12.22%; internet cafes to 1,140 from 1,421, down 19.77%; and seafood shops to 5,063 from 6,075, down 16.66%.
The declines reflect weak revenue from sluggish domestic demand alongside rising costs for rent, labor and raw materials. Trades with low barriers to entry, which can be started with relatively little capital, were hit hardest as competition among storefronts intensified. Over the same period, nail salons fell 1,124, or 20.93%, to 4,247 from 5,371, and mobile phone shops fell 1,175, or 16.06%, to 6,141 from 7,316.
Real estate brokerages, hit directly by government property market rules, also contracted sharply. Brokerage storefronts fell 7,779, or 17.77%, to 36,005 from 43,784 over the same period. One licensed broker said a prolonged slump in property transactions caused by high interest rates and lending restrictions had intensified competition among offices while cutting commission income, adding that keeping an office open is no longer easy in most neighborhoods.
Analysts also point to a shift in leisure spending away from drinking and entertainment toward health and personal care. Skin care salons rose 3,047, or 39.71%, to 10,720 from 7,673 during the period, with increases in all 25 districts. Sports clubs rose 829, or 18.42%, to 5,330 from 4,501, and pet-related businesses rose 542, or 24.94%, to 2,715 from 2,173. In Mapo District, home to bar-lined streets in Hongdae, Yeonnam and Hapjeong, pubs and small bars fell by 342, or 23.05%, while skin care salons surged 254, or 50.80%, to 754 from 500, taking their place.
Choi, who runs a bar in Gwangjin District, said far fewer customers stay out for a second or third round of drinks, and that each table now orders less alcohol and fewer dishes. "Rent, wages and food costs keep rising, so the more I sell, the deeper the losses," Choi said, adding that the main commercial strip near Konkuk University is still crowded but no longer translates into sales the way it once did.
Business conditions for the self-employed look set to worsen. The Bank of Korea raised its base rate last month by 0.25 percentage point to 3.00% from 2.75%. It was the second straight monthly increase after July, lifting the rate back above 3% for the first time in one year and nine months. Higher rates raise interest costs for small business owners carrying loans while eroding household spending power, compounding the squeeze of higher costs and falling sales.
The burden of essential spending is rising fastest for low-income households. Average monthly food spending across all households was 891,000 won in the second quarter, up 3.3% from a year earlier. Households in the bottom 20% to 40% of the income distribution and those in the bottom 20% saw increases of 6.9% and 6.1%, respectively, outpacing the 1.8% rise among the top 20%. When essential spending such as food rises, households have less room for discretionary purchases like dining out and clothing, adding pressure on neighborhood commerce.
Experts say South Korea faces a structural problem of an outsized self-employed sector and a recurring cycle of businesses started out of necessity. Labor market policy, they argue, should be redirected so that retired middle-aged workers and those who have closed businesses move into other industries rather than back into self-employment.
Kim Sang-bong, a professor of economics at Hansung University, said the country's share of self-employment is excessively high and that the ranks of the self-employed swelled during the COVID-19 period, so part of the recent decline in storefronts reflects an unwinding of oversupply. "Rather than pushing people back into the self-employment market through indiscriminate cash support for startups, support for re-employment and vocational training should be strengthened so that those who have closed businesses can move into other industries," Kim said. Kim added that as self-employed owners cut hiring under wage cost pressure, the most vulnerable jobs such as temporary and daily-hire work are being affected first, and said unemployed people in their 20s and those in their 30s and 40s who left salaried jobs face different circumstances, requiring re-employment and career-change training tailored to age and prior experience.
Ahn Dong-hyun, a professor of economics at Seoul National University, said middle-aged workers who cannot find jobs after retirement keep flowing into an already oversupplied self-employment market. "Even if wage levels have to be adjusted, we need to create employment conditions that let people keep working after retirement in order to reduce startups launched out of necessity," Ahn said.
