Department stores give foreign brands best deal

Luxury brands such as Louis Vuitton and Chanel are charged less to use premium spots in Korean department stores than domestic brands, according to the nation’s antitrust agency yesterday. Moreover, evidence suggests that foreign high-end brands receive preferential treatment compared to domestic brands in other areas, such as a longer contracts and waived renovation costs.

The Fair Trade Commission yesterday announced the result of its first investigation into how much local department stores charge foreign high-end brands to rent space on a monthly basis. The contracts between local department stores and 16 clothing and accessories companies were also examined, including eight local units of foreign luxury giants.

Of the eight global brands, including Gucci and Prada, the FTC found that one-third were charged less than 15 percent of their total revenue to sell their wares. Not a single foreign high-end brand paid more than 25 percent.

On the other hand, more than 60 percent of stores selling brands by domestic clothing manufacturers, such as Cheil Industries, LG Fashion and Kolon Industries, paid 30 percent of their revenues or higher to rent space.

Only one domestic brand surveyed nationwide paid 15 percent of its revenue to the department store.

The fine print revealed more disparities. While foreign luxury brands were contracted to set up shop in a department store for a minimum of three, or in some cases five years, domestic brands were “mostly contracted on a yearly basis,” according to the report.

In the case of foreign high-end goods companies, the cost of renovating store space was all or almost completely borne by department stores. In contrast, they offered subsidies to domestic companies of between 45 percent and 91 percent depending on the respective brand’s power.

Yesterday’s disclosure follows a report in June showing that department stores charge small- and mid-sized suppliers 30 percent of their monthly revenue or higher to use their premises.

The FTC is now in talks with department stores to lower their fees for small- and mid-sized suppliers.

“We plan to analyze in detail why there is a widening discrepancy between department store fees,” said Jeong Jin-wook, an FTC official. “We will conduct another investigation into the additional costs small- and mid-sized suppliers must bear.”

By Lee Jung-yoon [joyce@joongang.co.kr]