North Face distributor fined for rigging prices

The Fair Trade Commission imposed a 5.2 billion won ($4.6 million) fine on Goldwin Korea, a local distributor of The North Face products, for prohibiting stores from setting their own retail prices for the last 15 years.

From 1997 to this January, the distributor was found to have threatened to stop supplying any independent retailers that exceeded its recommended discounts.

U.S. outdoor apparel maker The North Face ranks as the most popular brand in this segment in Korea.

“It seems [Goldwin Korea] wanted to prevent fierce price competition among independent stores of outdoor apparel,” said Kim Joon-ha, director of the FTC’s antimonopoly division for manufacturing.

“This is because greater competition increases the likelihood of the stores asking [it] to lower its prices as a supplier.”

This effectively meant that consumers had to pay for what would have been Goldwin Korea’s loss of profit, Kim added.

The North Face, the top outdoor products maker in Korea, owns 35.5 percent of the domestic market.

It distributes about 60 percent of its products through independent outdoor products shops.

Goldwin Korea had not allowed stores to give discounts bigger than 10 percent from the retail price it had set.

It regularly checked to see if the stores were toeing the line by sending people there posed as shoppers.

The company saw total sales of 392.1 billion won in 2010 and an operating profit of 107.7 billion won, according to the FTC.

The individual stores were able to take a 42 percent margin on The North Face products.

Apart from supplying to directly managed stores, the distributor also has contracts with over 150 independent outdoor stores nationwide.

But as early as 2002, it banned them from selling the products online.

The FTC saw this as an even stronger step to prevent prices being lowered due to the more frenzied price competition typically seen online.

“The discount ban on The North Face products had a domino effect,” said Kim after the commission conducted an investigation on stores nearby those selling the popular apparel.

“As The North Face was the No. 1 brand in the local market, the brands just below it also set their prices accordingly.”

By Lee Sun-min [summerlee@joongang.co.kr]