Shopping channels to lower fees

The nation’s fair trade watchdog said it will lower the commission fees that television shopping channels levy on small vendors and order large discount stores to trim their sales-fee margins for certain suppliers this month.

The Fair Trade Commission announced yesterday the results of its month-long investigation into commissions charged by five television shopping channels to small- and mid-sized vendors. It also revealed the high sales fees charged by three major discount stores to their suppliers.

According to the FTC, small- and mid-sized vendors that sell their products via the country’s five television channels - GS, CJO, Hyundai, Lotte and NS - are required to pay an average of 37 percent of sales to the retailers.

One small-sized manufacturer of health care products including massaging machines raised 7 billion won ($6.1 million) in sales last year by selling items through one of the five television shopping channels.

But the company paid more than half of its total sales - 3.85 billion won - in commission charges. The company also handed over 350 million won to the retailer to compensate for discounts on orders received by an automated response system (ARS).

This left the vendor with 40 percent of its total sales.

Yesterday’s report by the FTC showed that commission charges were particularly high for women’s casual apparel (41.3 percent) and women’s formal apparel (40 percent).

The investigation also proved that TV shopping channels require vendors to cover ARS discounts as well as interest-free installment fees.

The average commission fee was higher than the 32 percent rate that the country’s three major department stores - Lotte, Hyundai and Shinsegae - charge small vendors, which was publicly unveiled last month by the FTC.

The watchdog’s latest investigation was based on a structural survey via phone and fax conducted on 69 vendors that sell products at television shopping channels, and on 87 suppliers that furnish large discount stores with products. The poll took place from Oct. 17 to Nov. 15.

The FTC also said that the country’s large discount stores - E-Mart, Homeplus and Lotte Mart - charge high sales fees to their small- and mid-sized suppliers.

The survey showed that suppliers pay 10 percent of their sales on average as sales fees, of which the highest rate was paid by suppliers of sanitary items.

“Most suppliers seem to complain that it is unfair that they are pressured to pay sales fees to large discount stores in addition to the high margins they are required to pay,” said Jung Jin-wook, an FTC official. The margin was not included in the investigation.

According to the FTC survey, suppliers are also asked to pay distribution fees, hire sales personnel for the stores and pay their salaries. They are also pressured to purchase gift certificates.

“Suppliers are heavily burdened because from time to time they are pressured to supply products using the distribution channels of retailers instead of their own, which ends up costing them double the amount,” said another official from the FTC.

“The investigation showed that the monopolistic structure in the retail industry puts small suppliers and vendors under a lot of pressure,” the official said, noting that the benefits go to retailers.

The announcement comes as the watchdog has been cracking down on alleged unfair practices by the country’s large retailers including department stores and discount stores.

Small vendors have complained that they pay excessive commissions and are asked to pay fees in order to use the retail channel.

The three department stores were eventually forced to lower their commission rates by 3 to 7 percentage points for more than half of all their small- and mid-sized suppliers.

TV shopping channels and large discount stores expressed their dissatisfaction with the FTC’s decision.

“We also pay 10 percent to 14 percent of total sales to system operators as broadcasting transmission fees,” moaned a TV shopping channel staffer.

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