Department stores, luxury brands under probe for deal terms

SEOUL, Oct. 11 (Yonhap) -- South Korea's antitrust watchdog is investigating luxury brands for their contracts terms with leading department stores amid criticism that they are enjoying significantly lower sales commissions and other business favors than smaller vendors from domestic retail giants, officials said Tuesday.
The Fair Trade Commission (FTC) recently sent investigators to the offices of eight luxury brands -- Chanel, Gucci, Louis Vuitton, Cartier, AmorePacific, Cheil Industries, LG Fashion and MCM -- to secure documents and materials related to the investigation, according to the officials.
The focus is on their overall contract terms with the nation's three major department stores, and to find out whether they are given extra favors for selling their products through the chains, the officials said. The chains are Lotte, Shinsegae and Hyundai.
"It is a fact that we started the investigation into both domestic and foreign luxury brands that sell products in department stores yesterday," an FTC official said. "We are looking into their overall business terms with those departments stores."
All vendors pay a contracted percentage of their sales revenue to department stores as commission in return for space in the stores and promotional activities aimed at helping sell their products.
Critics have claimed that major department stores impose excessively high sales commissions on smaller vendors, while offering much lower rates and many other favors to designer brands to lure what they see as more lucrative business partners.
Experts say the commission rates for small vendors stand at about 30 to 40 percent while luxury brands are only charged around 10 percent.
The FTC has been looking into such retail business practices that it considers counter to the government's pursuit of establishing a "fair society" with "shared growth" between small and large companies.
Last month, major department stores and other retail giants agreed to cut sales commissions on smaller vendors by up to 7 percentage points, apparently in the face of the government's mounting pressure.
Based on the outcome of the ongoing investigation of the eight luxury brands, the FTC will decide whether to expand its probe into other large-scale vendors, according to the officials.