(Yonhap Editorial) Retail giants should stop squeezing in-house vendors

SEOUL, Sept. 6 (Yonhap) -- Department stores, big retail chains and home shopping networks saw their net profits increase sharply compared with the moderate growth of their sales, according to the Fair Trade Commission. The combined sales of the "big three" department stores, including Lotte, and the three biggest discount chains, including E-mart, in 2010 amounted to 31.8 trillion won (US$29.7 billion), 2.7 times their sales 10 years ago. However, their yearly net profits last year were 7.1 times higher, reaching 2.6 trillion won. The sales revenue of five home shopping channels expanded by 1.5 fold during the same period while their net profits skyrocketed 11.2 times. Such big jumps in net profits relative to sales growth is chiefly because of abnormally large growth in the commissions the retail giants charge the vendors who sell products in the department stores and retail chains and via home shopping networks. Vendors pay a contracted percentage of their sales revenue to department stores in the name of commission in return for space in stores and promotional activities aimed at helping to sell their products.
The vendors and commodity suppliers -- most of them small and medium-sized industries -- have to be low-profile in their dealings with the powerful retailers and endure the tyrannical charging of hefty commissions. They claim some retailers even force them to cover the expenses for various promotional activities.
Survey results showed the commission rate was about 20 percent 10 years ago but it has jumped to more than 30 percent recently. Vendors and suppliers can hardly reap profits from their sales in department stores and other retail chains.
The FTC sees such unfair practices of the big retailers could be related to the oligopoly in the nation's retail market. The market share of the three biggest department stores surged to 81 percent in 2009 from 61 percent in 2001. The three largest retail chains also saw their market share rise from 52 percent in 2002 to 80 percent in 2009 while that of home shopping TV channels rose from 52 percent to 72 percent in the corresponding period.
Department stores and other retail giants said Tuesday that they agreed to cut sales commissions imposed on small vendors in line with the government's request for cooperation in achieving "shared growth."
The agreement to lower sales commissions by up to 7 percentage points came at a meeting between FTC Chairman Kim Dong-soo and the heads of 11 retail giants including department stores and TV home shopping companies in Seoul.
It is encouraging that the retailers agreed to cut the commissions imposed on vendors by 3-7 percentage points. Though the small and medium-sized industries welcomed the agreement, some worried that all the retailers would reduce their commissions by the minimum of 3 percentage points.
An FTC official said it is urgent that retailers reduce the commissions and map out measures to eradicate unfair practices.
The retail giants should stop squeezing every penny out of small vendors and goods suppliers in order to realize the co-prosperity and shared growth the government is advocating.
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