FTC to penalize North Face for flouting fair trade rules

South Korea’s trade watchdog is set to take punitive measures against outdoor brand The North Face Korea for engaging in unfair practices.

The Fair Trade Commission is planning to review the issue concerning the American brand and decide the penalty fee.

The key charge against The North Face is that it violated fair trade rules by pushing department stores and other sales outlets to keep the prices set by the company, keeping them artificially high.

“The North Face forced department stores and sales outlets to sell its products at higher prices, which violates the fair trade rules, and punitive measures are going to be decided soon,” said an official at the FTC.

Under fair trade rules, retailers in the distribution channels are allowed to adjust the prices to compete freely and offer more options to consumers. Companies are barred from asking distribution outlets and retailers to maintain their prices.

The penalty would be less than 2 percent of The North Face’s annual revenue and the FTC is expected to send a formal order to The North Face concerning its illegal act of fixing prices. Given that The North Face generated revenue of 600 billion won, the penalty could reach as high as 1.2 billion won.

The FTC made similar moves toward camera maker Canon Korea, cosmetics firm Amore Pacific and noodle maker Ottugi for violations of fair trade rules. The penalty for Ottugi was a record 690 million won.

The planned punishment by the FTC was initiated by a press conference held in February by the Young Men’s Christian Association, which brought the issue to public attention. At the time, YMCA claimed that The North Face was keeping the same prices at department stores, specialty stores, franchise outlets in Seoul and other regions. According to YMCA, Korean consumers paid 50 percent more for The North Face due to the price-fixing.

The North Face, however, protested the claim strongly and sent a formal notice to YMCA, asking the organization to retract the announcement it made at the news conference.

The North Face’s outdoor clothes, many of which are expensive, are hugely popular among Korean students and the company is regarded as a frontrunner in the market segment.

YMCA said it has not received any formal notification from the FTC yet and is still waiting for the trade watchdog’s decision on the case of The North Face.

By Yang Sung-jin (insight@heraldcorp.com)