Lotte, Shinsegae sanctioned for deceptive labeling

Antitrust regulator slaps only 45 million won in fines on 9 online malls


The Fair Trade Commission said Sunday that it has sanctioned some conglomerate-based online shopping malls for fabricating product labels in violation of laws on electronic commerce.

They included the cyber shopping malls for the nation’s big three department stores ― Lotte (lotte.com), Hyundai and Shinsegae ― and four home-shopping operators ― GS, CJ, NS and Lotte (lotteimall.com).

Two other players were the Interpark INT and AK Plaza-based online malls, the antitrust regulator said.

According to the FTC, the nine businesses sought to let consumers mistake furniture products, such as beds and couches, of smaller enterprises for those of large-sized manufacturers via rigging advertisements.

“The large furniture firms allowed subcontractors to use their well-known trademarks for sales over cyberspace after receiving commissions,” the FTC said in a statement.

“But the big firms neither participated in any manufacturing process nor after services for the products, which was fully manufactured by the subcontractors,” it stressed.

While the big furniture firms involved were Lady, Wooami, Paroma and Innocent, the regulator alleged that the nine shopping operators took the initiative in the false online labeling practices.

“Over the past three years, the shopping malls’ deceptive furniture product sales have reached 7 billion won ($6.2 million),” the FTC said.

In contrast, the total fines levied by the antitrust regulator on the nine rule-violators stood at 45 million won (5 million per shopping mall), which is equivalent to only 0.64 percent of their irregular sales.

The relatively mild penalties were due to laws on electronic commerce, according to market observers.

The law stipulates that the upper ceiling of a regulatory fine is 5 million won when a business exaggerates advertisements or manipulates labels on the internet. Meanwhile, five major home-shopping operators have also been under criticism for charging excessive service fees to companies that sell their products via the five TV channels.

According to the FTC, the home-shopping channels ― GS, CJO, Hyundai, Lotte and NS ― have demanded 37 percent of sales from venders as a service (or brokerage) charge on average.

Since the fourth quarter of 2011, regulatory officials have been speeding up their efforts to lower the service fees.

The channels have also charged vendors 48 million won in discount benefits offered to ARS consumers and another 360 million won for interest-free installment purchases.

An FTC official said that discounts for ARS customers were introduced to reduce labor costs for home-shopping channels. “But more than half the expense was shouldered by the contractors.”

Smaller vendors had no choice but to accept the TV channels’ proposal to promote their products, though they would have to bear a certain portion of financial losses, he said.

Despite continuous growth of the retail industry, the FTC said, the market dominance of some powerful retailers has put more financial pressure on smaller businesses.

Government data showed that the yearly operating profit of home-shopping channels climbed by 10.5 percent on average, compared to the level five years earlier.

By Kim Yon-se (kys@heraldcorp.com)