Retail giants agree on commission cut

The Fair Trade Commission said Tuesday that major retailers have agreed to lower the commission they charge traders who use their floor space from October.

According to the antitrust regulator, FTC chairman Kim Dong-soo and 11 CEOs of department stores, discount chains and home-shopping channels reached an agreement on a 3 to 7 percent reduction in a meeting held Tuesday.

Specific reduction plans and suppliers subject to the cut will be decided by individual companies depending on their situation, the FTC said.

“The benefits from the burgeoning retail industry have been concentrated in retail giants, while weakening the competitiveness of smaller retailers and suppliers,” said the FTC chairman.

“With an aim to seek shared growth between large and small companies, we need real discussions for cooperation such as a major cut in commission.”

Major retailers have charged high commission fees, about 30 to 40 percent of wholesale costs, compared to the industry norm of 20 to 25 percent.

Following Tuesday’s agreement, companies who supply products worth less than 5 billion won ($46 million) will benefit from a three to seven percent reduction in fees starting October, the FTC said.

In line with the agreement, the normally one-year contract period also will be extended to two years or longer, while unfair demands such as unreasonable return of products and forced purchase of gift cards will be banned.

Despite the FTC announcement, retailers still seemed reluctant to accept all the suggestions made by the FTC even though they said they agreed to the government’s initiative to seek shared growth.

“If we accept the proposals by FTC as they are, we would lose more than 5 percent of operating profits. That would threaten our survival base,” said an official of a retail company.

Industry sources predicted that following the agreement, Lotte Department Store will see a 50 billion won reduction in sales, while Hyundai and Shinsegae will lose 25 billion won, respectively. 

By Lee Ji-yoon (jylee@heraldcorp.com)