Shinsegae fined after favoring its own unit

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Shinsegae fined after favoring its own unit


Vecchia and Nuovo, run by Shinsegae Group’s restaurant and bakery affiliate Shinsegae SVN, opened one of its branches at Shinsegae Department Store’s Gangnam branch in Seocho District, southern Seoul last October. [JoongAng Ilbo]

The Fair Trade Commission slapped a 4.06 billion won ($3.6 million) fine on three Shinsegae Group retail affiliates on charges of unfairly giving commission discounts to bakeries and restaurants run by a non-listed affiliate that is linked to the group owner’s daughter.

The subsidiaries have also been ordered to stop the practice.


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Under the decision, which was announced Friday but was embargoed until noon yesterday, the FTC gave a fine of 2.34 billion won to Shinsegae, which runs Shinsegae Department Store; 1.69 billion won to E-Mart, which operates E-Mart discount chains; and 27 million won to Everyday Retail, which operates E-Mart Everyday, a smaller supermarket chain.

Its restaurant and bakery unit, Shinsegae SVN, had a name change from Chosun Hotel Bakery last January.

Shinsegae SVN, a non-listed affiliate, runs bakery chains Day and Day and Dalloyau; restaurant chain Vecchia and Nuovo; and pizza chain Super Prime Pizza. The unit’s second largest shareholder is Chung Yoo-kyeong, vice president of Shinsegae Group and daughter of the group’s owner and largest shareholder, Lee Myung-hee.

The FTC found that Shinsegae SVN’s business turned sluggish in 2009, and Shinsegae Group decided to help it out by lowering the ratio of the commission fees on total sales that its outlets renting space at department stores and discount stores were supposed to pay by as much as 13 percentage points. That caused unfair competition, said the FTC.

After Shinsegae Department Store slashed commissions to 15 percent from 25.4 percent for Vecchia and Nuovo in March 2008, the outlet saved 12.8 billion won.

“As the group’s family members own shares in the bakery subsidiary, giving commission discounts is pursuing profits for the family’s own interest,” said an official with the FTC’s market surveillance bureau.

The FTC said total discounts given to Shinsegae SVN from March 2009 until recently have totalled 62.2 billion won. In the two years after the discounts began, 2009 and 2010, Shinsegae SVN’s sales doubled to 257 billion won from 137 billion won in 2009.

Every Retail, who charges more than 23 percent commission to other outlets in their super supermarkets, only charged 10 percent commission to Shinsegae SVN’s bakery chain Day and Day from July 2010.

From the same time in 2010, E-Mart charged a 1 percent commission to Shinsegae SVN’s Super Prime Pizza. The standard commission would be between 5 and 10 percent.

In a document written in September 2010 and released by the FTC last Friday, Shinsegae SVN said it recovered its sales in July thanks to the group’s support after it struggled in the first half of the year. The document also states that the subsidiary will continue seeking help from the group.

The FTC said that the special treatment given to Shinsegae SVN pushed competitors out of business. While Shinsegae SVN was thriving, competing chains, including Daehan Flour’s Cafe Artisee and local bakeries, closed down around 200 stores nationwide.

“It’s not fair for large companies to help operations of its subsidiaries, especially the ones run by the group owner’s family, and hurt the sales of local stores,” said the FTC’s official.

A week before the FTC’s embargoed announcement last Friday, Chung said she will sell her 40 percent shares of Shinsegae SVN.

Although Shinsegae has continued operations of its bakery unit, the nation’s other major conglomerates have sold pet projects of their relatives earlier in the year.

Hotel Shilla’s CEO and president Lee Boo-jin, who is the eldest daughter of Samsung owner Lee Kun-hee, sold Cafe Artisee to Daehan Flour in April.

Shinsegae Group said in a statement yesterday that it did not provide any “excessive” support and it will review the legal options to avoid paying the fine.

By Lee Sun-min, Seo Ji-eun []

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