Olive Young fined $1.4 million for unfair treatment of suppliers

An Olive Young store [CJ OLIVE YOUNG]

Korean drugstore operator CJ Olive Young was slapped with a 1.89 billion won ($1.4 million) fine by Korea's antitrust regulators Thursday for alleged unfair practices in dealing with suppliers.

Yet the financial penalty turned out to be just 0.3 percent compared to earlier concerns of up to 580 billion won, as recent trends in the Korean cosmetics market — marked by dynamic changes both online and offline over the past decade — led authorities to view Olive Young's competitive landscape as extending beyond traditional brick-and-mortar stores to encompass ecommerce channels.

In the realm of physical drugstore chains, Olive Young boasts a market share of nearly 80 percent, as competitors like Lalavla and Boots exit the scene, according to industry insiders. Yet, if online platforms and online shopping malls, including Coupang, are factored, Olive Young's market share dwindles to less than 20 percent.

The Fair Trade Commission (FTC) on Thursday outlined accusations against Olive Young, including coercing suppliers to abstain from sales promotion events organized by rival malls, violating the country's large-scale retail business act. It also referred the health and beauty (H&B) store chain operator to the prosecution for further investigation and called on it to take corrective measures.

The company is also alleged to have pocketed 800 million won by obtaining goods at lower prices during events and selling them at normal prices afterward.

Furthermore, the company was found to have unfairly collected information processing fees after sharing product sales-related information through its in-house computer system, irrespective of the supplier's consent.

Olive Young's dominance, however, was not acknowledged as the Korean regulators wrapped up their deliberation process, citing challenges in verifying facts and forecasting future market situations. Olive Young has implemented a so-called exclusive brand policy, which gives financial advantages to suppliers, such as cheaper advertising costs, on the condition they do not do business with rival retailers.

"Taken into comprehensive consideration of the strengthening competition between offline and online sales channels, the relevant market should expand beyond offline, and it is uncertain whether Olive Young is a dominant operator [in the H&B market]," an FTC official said.

In response, the Korean H&B operator expressed that FTC's decision "provided an opportunity for reflection on overlooked aspects while nurturing a K-beauty distribution platform centered on smaller-sized suppliers," and conveyed it does not plan additional responses.

"Internal system improvements are already completed or under way, and we will transparently share all future processes with our partners," the company said in a statement Thursday.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]