A. Data

First, this study analyzes the distribution of transaction types in the domestic retail industry. In the absence of comprehensive data categorizing all transactions by contract type, it relies on the 2018 Supplier List for the Written Survey on the Distribution Sector (hereinafter the Supplier List), obtained with the cooperation of the Korea Fair Trade Commission (KFTC).

As shown in Table 2, the Supplier List dataset covers seven distribution sectors, from large supermarkets to outlets, detailing the top retailers by market share in each sector and the number of their suppliers.

TABLE 2

NUMBER OF COMPANIES INCLUDED IN THE SUPPLIER LIST DATA

Note: Some suppliers have contracts with multiple distribution companies (95 suppliers have signed 199 distribution and supply contracts).

Source: Korea Fair Trade Commission, Supplier List for the Written Survey on the Distribution Sector, 2018.

Table 3 presents detailed information from the Supplier List, including basic identifiers for retailers and suppliers, product categories, transaction types, the initial transaction year, and the transaction volume. A key advantage of this dataset is the ‘transaction type’ variable, which allows for identifying the contract types associated with each transaction.

TABLE 3

INFORMATION RECORDED IN THE SUPPLIER LIST DATA

Source: Korea Fair Trade Commission, Supplier List for the Written Survey on the Distribution Sector, 2018

It is essential to assess how well this dataset represents the domestic distribution industry. For large supermarkets, the 1,500 suppliers listed account for approximately 30% of all suppliers to Emart, Lotte Mart, and Homeplus. Moreover, because the list primarily includes top suppliers with high transaction volumes, the total transaction value is likely to exceed 30% of the market. While the Supplier List does not cover all large-scale retailers in Korea or every supplier working with the 26 listed retailers, it encompasses major retailers each with a significant market share in each sector and over 30% of their suppliers, making it a valuable resource when conducting such an analysis.

Tables 4 and 5 show transaction volumes and supplier counts by distribution sector and product category. Large supermarkets (23%), convenience stores (22%), and department stores (19%) each account for around 20% of all transactions, while other sectors hold approximately 10%. The supplier distribution closely mirrors transaction share levels, but in convenience stores and for TV home shopping, the transaction share is significantly higher, suggesting larger average transaction volumes per supplier.

TABLE 4

TRANSACTION AMOUNTS AND NUMBER OF COMPANIES BY DISTRIBUTION TYPE

Source: Korea Fair Trade Commission, Supplier List for the Written Survey on the Distribution Sector, 2018.

TABLE 5

TRANSACTION AMOUNTS AND NUMBER OF COMPANIES BY PRODUCT CATEGORY

Source: Korea Fair Trade Commission, Supplier List for the Written Survey on the Distribution Sector, 2018.

B. Analysis of Transaction Type Distribution: By Retail Sector

An overview of transaction types (Figure 1) shows that direct purchases account for 47% of the 20.3 trillion KRW in transactions, making up nearly half of the total. This is followed by special contract purchases at 21%, consignment transactions at 18%, and store lease transactions at 14%.

FIGURE 1.

SHARES OF TRANSACTION TYPES : OVERALL AND BY RETAIL FORMAT

Source: Korea Fair Trade Commission, Supplier List for the Written Survey on the Distribution Sector, 2018; Compiled by the author.

By sector, direct purchases are the dominant transaction type in large supermarkets, SSMs, and convenience stores, accounting for 67%, 90%, and nearly 99% of transactions, respectively. These retail formats primarily handle food and essential goods, which exhibit stable demand and strong consumer pull, making direct purchasing the preferred contractual arrangement. From the supplier’s perspective, products with stable demand require less need for dedicated sales personnel or the monitoring of the retailer’s sales activities. As a result, suppliers can focus on securing stable payments, making direct purchases the preferred transaction method. In large supermarkets, special contract purchases (21%) and store lease transactions (12%) together make up a third of total transactions alongside direct purchases. This likely reflects cases where suppliers’ sales representatives operate dedicated sections for apparel, furniture, cosmetics, and baby products.

In department stores and outlets, over 95% of sales are conducted through special contract purchases and store lease transactions. Due to the seasonal and trend-sensitive nature of high-end apparel, jewelry, and fashion accessories, supplier-trained sales specialists play a critical role in the sales process. To minimize fixed costs, retailers often delegate sales activities to suppliers instead of investing in in-house merchandising teams.

In online and TV home shopping, consignment transactions dominate, accounting for 66% and 75% of sales, respectively. Given that product exposure and promotions are handled by the retailer’s merchandising team or show hosts, suppliers have little direct involvement, making consignment the preferred model. Notably, direct purchases account for 33% of online shopping transactions. This reflects a strong strategy of stocking frequently purchased and easily stored items in the retailer’s logistics centers to enable same-day or next-day delivery.

Figure 2 shows the average transaction value between retailers and individual suppliers, with direct purchases averaging 4.01 billion KRW—1.5 to 1.8 times higher than other transaction types. Analyzing the top five suppliers by transaction value for each retailer reveals that direct purchases are the most common, not only in large supermarkets, convenience stores, and SSMs but also for online and TV home shopping, where consignment transactions are prevalent. Given the higher average transaction value, direct purchases likely involve less of an imbalance in bargaining power and negotiating leverage.

FIGURE 2.

AVERAGE TRANSACTION AMOUNT PER SUPPLIER BY TRANSACTION TYPE

Source: Korea Fair Trade Commission, Supplier List for the Written Survey on the Distribution Sector, 2018.

C. Analysis of Transaction Type Distribution by Product Category

As previously noted, the predominant transaction types differ across distribution sectors. While these differences are largely driven by the unique sales environments of each sector, they may also reflect the varying characteristics of the products sold, which in turn influence the appropriateness of specific transaction types.

Figure 3 presents the marked differences in transaction types by product category. Direct purchases are most prevalent for essential consumer goods—such as fresh & perishable foods, processed foods, office supplies & toys, and kitchen & bathroom supplies. These categories represent 69% of sales in large supermarkets and 56% and 87% in convenience stores and SSMs, respectively. This highlights how a sector’s core product composition can shape its preferred transaction structure, with product attributes playing a key role in determining the type of contract.

FIGURE 3.

SHARE OF TRANSACTION TYPES BY PRODUCT CATEGORY

Source: Korea Fair Trade Commission, Supplier List for the Written Survey on the Distribution Sector, 2018; Compiled by the author.

In contrast, special contract purchases dominate in baby products (46%), cosmetics (41%), sports & leisure (45%), clothing & accessories (33%), and furniture & interior items (32%). These products require specialized sales assistance, have high demand volatility, and are sold in limited varieties and smaller quantities. They account for 64% of department store sales and 75% of outlet sales.

Table 6 analyzes transaction types by distribution sector for processed foods. Despite typically being dominated by direct purchases, department stores and outlets rely more on special contract purchases, while online and TV home shopping favor consignment transactions. This highlights how transaction types are shaped by sector characteristics, product attributes, and their interaction.

TABLE 6

PRIMARY TRANSACTION TYPES FOR PROCESSED FOOD PRODUCTS

Source: Korea Fair Trade Commission, Supplier List for the Written Survey on the Distribution Sector, 2018.

A. Overview of the Survey

The supplier list analyzed in Section III provides limited data on transaction amounts by contract type and lacks comprehensive supplier information, rendering it unsuitable for the analysis presented in this section. Furthermore, neither public nor private datasets systematically capture supplier-level information on market conditions, production factors, or transaction characteristics.

To address these data limitations, this study conducted a survey of firms listed in the supplier database. A sample of 1,000 companies was selected to reflect the regional, product category, and distribution channel composition of the broader population of 7,000 firms. The survey was carried out between June and September of 2019.

Table 7 outlines the survey questionnaire, which covers supplier profiles (such as name, establishment date, and location), main product distribution (including product details, sales, costs, PB supply, and distribution by retail channel and transaction type), and key business characteristics. It also addresses market and production conditions, retailer-supplier relationships, product and sales attributes, consumer behavior, experiences with unfair trade practices, and financial information.

TABLE 7

ITEMS IN THE SUPPLIER SURVEY

Source: Compiled by the author based on the Korea Development Institute’s Corporate Survey on Transaction Types in the Large-Scale Retail Sector (2019).

The section on other key characteristics incorporates variables grounded in transaction cost theory. To assess market uncertainty, the survey captured the volatility and uncertainty of market demand. To evaluate the potential for opportunistic behavior, the trust of suppliers in retailers was measured. In relation to transaction-specific assets, the survey examined the extent of transaction-specific investments, the necessity for customized in-store interiors, and the requirement of dedicated sales staff. These variables were analyzed to evaluate the relevance and applicability of transaction cost theory within the domestic retail context. Measures related to key product characteristics were assessed using a seven-point Likert scale.

Supplier bargaining power can significantly shape transaction types and contractual terms. To capture the extent of bargaining power asymmetry, the survey included variables such as the decision-making process for transaction types; the profit margins, sales commissions, and rental rates; the product market share ranking; the firm’s ability to change retail partners; the perceived bargaining power gap between the retailer and supplier; and the number of distribution partners across sales channels.

Table 8 presents the descriptive statistics of the key variables used in the regression analysis. The distribution of transaction types shows that direct purchases account for 41 percent, special contract purchases for 10 percent, consignment transactions for 23 percent, and store lease transactions for 21 percent. In 2018, the average sales revenue of main products was 21.37 billion KRW, equivalent to 77.9 percent of the overall average sales revenue for that year (27.44 billion KRW), indicating that main products amounted to approximately three-quarters of the suppliers’ total revenue. Additionally, 15 percent of firms had supplied private-brand (PB) products over the previous three years, with PB sales accounting for an average of 3 percent of total supplier revenue.

TABLE 8

SUMMARY STATISTICS

Source: Based on survey data.

B. Empirical Model

To analyze the factors influencing the choice of contract type, this study establishes the following empirical model:

The dependent variable y_i is the proportion of direct purchase supply provided by supplier݅ i in region s, who specializes in product category j. Using a proportion instead of sales volume accounts for variations in supplier size, preventing larger firms from disproportionately influencing coefficient estimates and significance levels.1

X_i is a vector representing the key characteristics of suppliers. It includes the proportion of deliveries by retail format to account for supply format effects and reflects PB supply experience over the past three years (or PB product share), given that PB products are primarily transacted through direct purchases. It also captures core product attributes, classified into six groups in Table 7. Additionally, it includes control variables reflecting the supplier’s fundamental characteristics, such as sales, years in operation, vendor status, and total transaction duration with the retailer.

I_i is a product category dummy to control for fixed effects, while D_s is a regional dummy used at the metropolitan and provincial levels. Finally, u_ijst is the error term, satisfying standard assumptions.

This section employs ordinary least squares (OLS) estimation, considering the single-year cross-sectional nature of the survey data. In Section 5, instrumental variables (IV) estimation will be incorporated to address potential endogeneity concerns with regard to certain variables.

C. Estimation Results: Factors Influencing Transaction Type Selection

Table 9 presents the regression results on the determinants of transaction types. Model 1 analyzes the relationship between the distribution of deliveries across retail formats and the proportion of direct purchases. Using department stores as the reference category, a 1 percentage point increase in the share of deliveries to large supermarkets is associated with a 0.36 percentage point increase in direct purchases. While this positive and statistically significant effect is consistent with the strong preference for direct purchasing in large supermarkets, the magnitude of the coefficient appears somewhat lower than anticipated.

TABLE 9

REGRESSION RESULTS ON THE DETERMINANTS OF THE SHARE OF DIRECT PURCHASE TRANSACTIONS (1)

Note: Standard errors are in parentheses. *, **, and *** denote statistical significance at the 10%, 5%, and 1% level, respectively.

As shown in Figure 1, the average direct purchase share is 67% for large supermarkets and 4% for department stores. If the survey data accurately reflected the population distribution, the estimated coefficient would be expected to approach 0.63.

Several factors may account for the observed discrepancy. First, the Supplier List dataset aggregates all retailer-supplier transactions into a single transaction value, whereas the survey dataset in this study is limited to suppliers’ core products. Variations in transaction types between core and non-core products could contribute to this difference. Second, the survey data report an average direct purchase share of 41.3%, which is lower than the Supplier List average of 47%. This suggests that the surveyed suppliers may have a lower propensity for direct purchase transactions compared to the overall population. Furthermore, while the Supplier List is compiled from retailer-submitted data, the survey responses are provided by suppliers, potentially leading to differences in the classification of transaction types. Given these considerations, the interpretation of the results should focus on the significance and relative magnitude of the coefficients rather than their absolute values.

An increase in transactions with SSMs or convenience stores was also associated with a significant rise in the direct purchase share. A 1 percentage point increase in the sales share to SSMs and convenience stores led to a 0.81 and 0.73 percentage point increase in direct purchases, respectively. This effect was larger than for large supermarkets, likely due to the predominance of direct purchasing for processed and fresh products sold through these channels.

Similarly, increased transactions with online shopping platforms are positively associated with a higher share of direct purchases. This trend is driven by several factors, including the expansion of online sales for both processed and fresh foods, a shift in consumer behavior away from large supermarkets and SSMs toward online channels following the introduction of mandatory bi-weekly store closures, and the growing preference among online retailers to secure inventory through direct purchasing in order to enable faster delivery services.

Model 1 analyzes the effect of the retail format delivery share on the proportion of direct purchases, controlling for firm age, vendor status, total transaction duration with retailers, and regional fixed effects. Given the potential correlation between retail format delivery share and other factors, the estimated coefficients may be subject to bias.

To mitigate this, Model 2 introduces core product categories and PB supply experience over the past three years as additional controls. These results indicate that transactions with large supermarkets, SSMs, and convenience stores remain statistically significant and positive, though their coefficients decrease to 70–80% of those in Model 1. Conversely, the effect of online shopping transactions becomes statistically insignificant, while core product categories and PB supply experience explain a substantial portion of the model’s variance.

By core product category, the direct purchase share for processed foods was 16.8 percentage points lower than for fresh and perishable foods, which had the highest direct purchase share. This difference closely aligns with their respective average direct purchase rates (87% vs. 71%).

In contrast, categories with a higher prevalence of special contract purchases exhibited even stronger negative effects. The direct purchase share was 29.0 percentage points lower for clothing and accessories, 24.9 percentage points lower for furniture and interior goods, 37.0 percentage points lower for sports and leisure products, and 30.0 percentage points lower for baby products. These findings provide robust empirical support for the systematic relationship between retail format, product category, and transaction type distribution, reinforcing the causal link between product characteristics and contract selection.

PB products are typically contract-manufactured and sold exclusively through retailers’ proprietary stores, making direct purchases the predominant transaction type. The analysis above confirms this pattern, indicating that suppliers with PB supply experience over the past three years exhibit an 18.4 percentage point higher share of direct purchases.

To investigate this relationship further, Model 3 specifies PB transaction share as a continuous variable, revealing that a 1 percentage point increase in the PB share is associated with a 0.34 percentage point increase in direct purchases.

Models 4–6 in Table 10 extend the analysis by incorporating additional determinants of transaction type selection. These variables were measured using a seven-point Likert scale, and the estimation was conducted using standardized values within each product category to ensure comparability.

The estimates in Table 10 can be interpreted through transaction cost theory and supplier bargaining power. From a transaction cost perspective, the development level of the retailer’s purchasing system is associated with a higher share of direct purchases. Structured systems streamline supply, distribution, and ownership transfer, improving efficiency. In contrast, underdeveloped systems often require suppliers to retain ownership and monitor sales closely. Therefore, advancements in retail purchasing systems are likely to have a significant positive effect on direct purchasing.

TABLE 10

REGRESSION RESULTS ON THE DETERMINANTS OF THE SHARE OF DIRECT PURCHASE TRANSACTIONS (2)

Note: 1) Due to space constraints, coefficients for the share of sales by retail format and main product category are not reported. Their significance levels and coefficient magnitudes are broadly consistent with those presented in Table 10.

2) Standard errors are in parentheses. *, **, and *** denote statistical significance at the 10%, 5%, and 1% level, respectively

Moreover, greater supplier trust in the retailer is positively linked to a higher share of direct purchasing transactions. According to John and Weitz (1988) and Anderson and Schmittlein (1984), when suppliers struggle to monitor retailers’ opportunistic behavior or evaluate sales performance, they often adopt direct selling to reduce transaction costs. Among indirect sales methods, suppliers tend to prefer consignment or store lease agreements, which offer more control over distribution and sales. Increased trust, however, reduces concerns over behavioral uncertainty, thereby strengthening the preference for direct purchasing.

Regarding sales characteristics, the greater the need for specialized store design or dedicated sales personnel, the lower the proportion of direct purchasing transactions. This effect is more pronounced than that of relational factors such as the advancement of the retail purchasing system or the supplier’s trust in the retailer. Products requiring dedicated sales personnel are often non-standardized and necessitate additional consumer guidance. In such cases, transaction models that fully delegate sales activities to retailers, such as direct purchasing or consignment sales, may be less effective. Additionally, investments in sales personnel recruitment and training, store design, and fixture installation constitute transaction-specific assets, as their value diminishes significantly if the relationship with the retailer is discontinued. To mitigate the risk of asset devaluation, suppliers are more likely to prefer transaction models that allow for greater oversight, thereby increasing the likelihood of selecting special contract purchase or store lease agreements.

Regarding production conditions, greater stability in a supplier’s production and delivery processes is associated with a lower share of direct purchasing transactions. While stable order volumes can be expected to improve forecasting and promote direct purchasing, retailers view reliable suppliers as enabling more flexible procurement, reducing the need for advance stockpiling. As a result, direct purchasing declines, with the estimated coefficient suggesting that this negative effect outweighs the positive.

In Model 6, supplier bargaining power variables were added as independent variables. The results show that the share of direct purchasing increases with the number of retail partners and when the transaction type is determined by the supplier’s proposal. This aligns with theory, as a broader retail network reduces dependence on any single retailer, lowering the opportunity cost of transaction termination. With greater bargaining power, suppliers can negotiate more effectively and tend to prefer direct purchasing to ensure timely and reliable payments.

Conversely, when key financial terms—such as direct purchasing margins, consignment commission rates, and rental fees for store leases—are determined by the retailer, the share of direct purchasing transactions decreases significantly by 15.7 percentage points. This suggests that greater retailer bargaining power, coupled with a preference for minimizing inventory risk, plays a decisive role in determining the transaction type.

Ultimately, the choice of contract type between retailers and suppliers is shaped by factors such as the retail format, product category, transaction cost considerations, and bargaining power dynamics. As such, policy interventions that attempt to alter transaction types exogenously risk disrupting industry practices and the broader market order.

Nonetheless, increasing the share of direct purchasing could address issues such as excessive inventory risk for suppliers or disputes under special contracts. Rather than mandating specific contract types, a more effective and sustainable approach would be to strengthen suppliers’ bargaining power—encouraging a natural shift toward direct purchasing while promoting long-term market stability.

A. Summary of Findings

The key findings of the study are as follows. Among transactions conducted among 26 large-scale retailers and approximately 7,000 suppliers, direct purchases accounted for the largest share (47%), followed by special contract purchases (21%), consignment transactions (18%), and store lease agreements (14%). The distribution of transaction types varied significantly by retail format: large supermarkets, convenience stores, and super supermarkets (SSMs) predominantly employed direct purchase models, whereas department stores and outlet malls relied almost exclusively (over 95%) on special contract purchases and store lease arrangements. In contrast, consignment transactions emerged as the dominant model in online and TV home shopping platforms. From a product category perspective, direct purchases were primarily used for essential goods, while special contract purchases were preferred for products characterized by high demand volatility—a pattern further supported by a regression analysis.

Second, transaction costs and bargaining power were key determinants in the selection of transaction types. Direct purchases were more prevalent in cases where retailers possessed advanced procurement systems and maintained high levels of trust with suppliers. Conversely, when sales involved specialized store infrastructure or the deployment of dedicated sales personnel, the proportion of direct purchases declined, with a corresponding increase in special contract purchases and store lease arrangements. From the perspective of bargaining power, direct purchases were more likely when suppliers had access to multiple retail partners and held greater leverage over transaction terms and profit margins. These findings indicate that suppliers tend to prefer direct purchase arrangements when the costs associated with terminating a relationship with a specific retailer are relatively low.

Third, as the imbalance in bargaining power between retailers and suppliers widened, a corresponding decline in supplier sales was observed. Specifically, a 1 percentage point increase in the share of special contract purchases was associated with an average decrease of 259 million KRW in core product sales. This decline is largely attributable to the diminished negotiating position of suppliers in special contract arrangements, which are typically characterized by higher commission rates, making them the least preferred transaction type among suppliers. These results suggest that special contract purchases contribute to an inequitable distribution of value in supplier–retailer relationships.

Finally, more than 75% of unfair trade practices were concentrated in direct and special contract purchases, with special contract purchases exhibiting the highest incidence of violations per transaction unit. Moreover, such violations have shown an upward trend over time, particularly within consignment and store lease transactions. When disaggregated by transaction type, unfair disadvantageous practices—prohibited under Article 17 of the Large-Scale Distribution Act—were most frequently observed in special contract purchases, whereas violations of the product return prohibition (Article 10) were most common in direct purchases.

B. Policy Recommendations

While ongoing efforts aim to reduce unfair practices in special contract purchases and to promote the adoption of direct purchase models, policymakers should exercise caution with regard to mandating specific transaction types. This study demonstrates that transaction structures are shaped by a range of factors—including the retail format, product category, transaction costs, and the dynamics of bargaining power. Imposing a uniform transactional model may inadvertently distort market mechanisms and constrain trade. A more sustainable approach to expanding direct purchases would involve strengthening suppliers’ bargaining power, particularly through the diversification of retail partnerships. Narrowing the power asymmetry between retailers and suppliers is likely to encourage direct transactions naturally, fostering a more equitable and transparent contracting environment.3

Second, regulatory bodies such as the Fair Trade Commission should examine more closely the relationship between transaction types and unfair trade practices. Although special contract purchases in department stores have been a primary focus of scrutiny, other retail sectors remain comparatively under-examined. For example, private brand (PB) transactions exhibit unfair product returns and arbitrary payment decisions at rates two to three times higher than those found in manufacturing subcontracting, indicating heightened risks even within direct purchase arrangements. To improve regulatory oversight, sectoral surveys should be refined to better reflect the nuances of transaction types, thereby enabling more effective monitoring and enforcement of relevant legal provisions.4

Finally, the retail industry itself must take a proactive role in driving innovation. Although minimizing inventory risk has become a widespread strategy, transferring this risk to suppliers—while prioritizing high distribution margins—may undermine long-term sustainability. The recent decline in profitability across offline retail channels suggests that the traditional margin-centric model may be approaching its structural limits. To remain competitive, retailers should invest in in-house merchandising capabilities, enhance procurement competencies, and focus on delivering differentiated products and services that elevate consumer welfare.