FTC finds stores riding roughshod over vendors

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FTC finds stores riding roughshod over vendors

The Fair Trade Commission announced the results of its investigation into commissions charged by three local department stores on small- and mid-sized companies who have boutiques in their stores.

The average commission was 32 percent of their sales.

According to the watchdog yesterday, the commission charged on foreign high-end brands such as Louis Vuitton and Chanel is 17 percent on average.

The FTC added in a release that small vendors are also required to spend more on operations by the three department stores: Lotte, Shinsegae, and Hyundai. In particular, the stores pressure them to use three to five sales personnel who work for the stores and to pay their salaries. If they don’t, they can lose their contract and space in the store.

Those expenses add up for the small vendors and the department stores themselves. The FTC’s study concluded that 10 percent of the department stores’ annual revenues came from the payments by the vendors to the store employees.

The FTC has been cracking down on alleged unfair practices by department stores. Small vendors have complained that they pay higher commissions than luxury brands. The FTC also said that the stores give preferential treatment to foreign luxury brands by offering them longer contracts and cheaper renovations of their spaces.

“It’s a vicious cycle for small- and mid-size vendors as they are charged higher commissions, which means they will make less profit, which will lower their investment on product development,” said an FTC official. “This will deter them from improving their product quality, which will lead to lower sales.”

The FTC said it will come up with measures to support small vendors, including lowered commission, and continue investigating unfair practices by department stores.

By Lee Eun-joo [angie@joongang.co.kr]

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