The Korea Herald

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Lotte, Shilla to cut duty-free commission fees

By Korea Herald

Published : April 1, 2012 - 20:54

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The nation’s top two duty free chains Lotte and Shilla have agreed to lower their commission fees for vendors by 3-11 percentage points from April, the Fair Trade Commission said Sunday.

Early this year the antitrust watchdog found that major travel retailers had charged some 30 percent of local vendors more than 55 percent of their profits as fees for using their floor space.

Even considering the 15 percent brokerage commission for travel agencies and guides, the rate was higher than the average 32 percent among department stores, the FTC said.

Following a recent agreement among department stores and supermarket chains, Lotte and Shilla also decided to offer a moderate commission cut to their combined 81 local contractors, about 63 percent.

As the result, their commission rates on average are expected to decrease for Lotte from 40.7 percent to 35.1 percent and for Shilla from 34.2 percent to 28.6 percent.

“We hope other duty free chains follow the lead of the leading companies, prompting a gradual decrease in their commission fees,” an FTC official said.

“We will continue surveillance on whether companies impose additional costs for interior renovation or promotional activities to fill up the loss.”

According to the FTC, the highest commission rate of 66 percent was charged on makers of kimchi and seasoned laver, both popular shopping items among travelers here.

Meanwhile, foreign luxury handbag brands were paying the lowest 14 percent.

Last year, the nation’s travel retail industry posted $4.52 billion in sales, with the top two Lotte and Shilla marking $2.23 billion and $1.38 billion respectively.

Over the past 10 years, the market dominance of the two companies surged from 61 percent in 2001 to 85.2 percent in 2011.

Of the total duty free sales, foreign brands made up 81.2 percent, while local brands enjoyed the remaining 18.8 percent.

Local companies, however, showed a higher growth rate, largely driven by the soaring popularity of K-pop.

They saw a 54.1 percent annual increase in sales over the past four years compared to the 27 percent rate among foreign brands.

By Lee Ji-yoon
 (jylee@heraldcorp.com)