The Fair Trade Commission plans to intensify its crackdown on major department stores for alleged irregularities in transactions with smaller vendors, its top regulator said Thursday, exerting further pressure for retailers to cut commission fees.
“We intend to look into details of dealings between department stores and small- and mid-sized suppliers,” FTC Chairman Kim Dong-soo told a local news outlet. “By doing so, we could see if they have violated the country’s competition laws.”
Korean retail giants led by Lotte, Hyundai and Shinsegae have been under close watch from the antitrust regulator since April, when it launched a probe into potential wrongful practices chiefly involving commission charges.
Kim’s remarks highlight the FTC’s findings on Tuesday that the large retailers have given favors to foreign luxury goods makers with lower commission rates while charging smaller local contractors much higher fees.
According to the watchdog, 55 out of 169 posh fashion boutiques paid a commission rate of 15 percent or lower to the department stores and received additional discounts of up to 8 percentage point if they meet sales targets.
In stark contrast, 196 out of 315 small local vendors, or 62 percent, shelled out more than 30 percent in commissions with no extra benefits.
Subject to the months-long probe were eight luxury powerhouses including Louis Vuitton, Chanel and Gucci and the eight largest Korean fashion companies led by Cheil Industries, LG Fashion and Kolon Industries, according to the FTC.
The regulator’s tougher stance was also seen as a move to push major department stores to slash commission fees as agreed in September.
Chief executives of 11 companies promised to the FTC to lower the rates by 3-7 percent points starting this month but they have made little progress since then.
“The longer the process takes, the weaker their will proves to be to realize mutual growth,” Kim said. “I hope we would be able to put an end to this issue within this month as planned.”
However, industry officials have complained that the regulator’s demand is unachievable and their opinions are not taken into account during following discussions.
“The FTC insisted we should share 10 percent of operating profits (with suppliers), which is unacceptable,” an official at a major department store chain said late last month. “It would be difficult to execute the shared-growth initiative starting in October.”
The antitrust probe also coincides with the government’s drive to cultivate co-prosperity between conglomerates and their smaller partners.
Many leading players across all industries have come under fire as they block smaller competitors from growing and disable competition by coercing price cuts for supplies and giving money-spinning orders to their own subsidiaries.
Retail giants added fuel to the fire when critics slam their favors to the luxury brands, which help keep stores crowded and the business lucrative yet barely make social contributions despite their eye-popping price tags.
Protests broke out last year against the rapid expansion of large convenience stores known as super-supermarkets, which have been criticized for squeezing small neighborhood businesses.
In a separate probe, the FTC said it will pick several specific items from smaller and medium-sized vendors and examine commission rates and other business terms.
By Shin Hyon-hee (email@example.com