I see no practical way South Korea can retaliate without risking all-out war on the peninsula. As we've discussed earlier, the concentration of much of the South Korean populace within artillery range of North Korea makes such retaliation impractical, and the North knows this.
Sanctions are of little value against a rogue state, run as North Korea is run by megalomaniac autocrats. Perhaps the South could try to run the same kind of underground movement against the North that Ho Chi Minh ran against South Vietnam. It is best to fight on the other guy's soil, using mostly his citizens as your soldiers.