FTC fines AmorePacific for subcontractor abuse

The Fair Trade Commission (FTC) yesterday slapped a 500 million won ($490,941) fine on AmorePacific, Korea’s largest cosmetics company, for abusing its power by forcing door-to-door sales agencies to send high-performing employees to new or struggling agencies.

AmorePacific subcontracts with independent agencies to sell its products door to door. The company contended its actions were part of a corporate strategy to boost sales at low-performing agencies.

According to the FTC, AmorePacific ordered agencies to move about 3,480 sales ajummas (Korean for middle-aged women) from 2005 through June 2013.

Their total sales record during the three months before being transferred added up to 8.2 billion won.

The reshuffle resulted in financial damages to subcontractors who lost top-performing sales agents. About 2,160 agents were moved to other agencies and 1,325 agents transferred to retail shops managed by AmorePacific.

In 1964, AmorePacific was the nation’s first cosmetics maker to launch a door-to-door sales system in which ajummas - hired under an authorized distribution agency - visit homes, offices and stores to promote and sell AmorePacific products.

The distribution agencies are under contract with the company to sell only high-end products like Sulwhasoo and Hera targeting women of similar ages as the ajummas.

The ajummas were responsible for about 30 percent of AmorePacific’s sales in 2011. Last year, that level dropped to 19.6 percent, according to the FTC.

Kim Sung-sam, director of the FTC’s Seoul office, explained this was largely due to a shrinking door-to-door sales market linked to increasing sales at duty-free and online stores.

The FTC said the 500 million won fine was the highest it could impose, because it couldn’t obtain any documentation for door-to-door sales. The FTC regulation designates the commission to fine up to 2 percent of sales.

This is not the first time that AmorePacific has been accused of abusing its power.

The National Assembly inspection committee from last October revealed the FTC had investigated the company after a report that AmorePacific unilaterally breached contracts and forced the agencies to meet specified sales goals.

“I hope this brings awareness to the entire door-to-door sales industry, in which many company headquarters abuse their power over sales agencies,” Kim said.

BY KANG BYUNG-CHUL, KIM JI-YOON [jiyoon.kim@joongang.co.kr]