Department stores charge small vendors double

The Fair Trade Commission said Tuesday that smaller vendors pay almost 32 percent of their profits as commission fees for using the floor space of three major department stores.

The antitrust regulator over the past two weeks surveyed 73 small- and medium-sized companies that supply products to Lotte, Shinsegae and Hyundai department stores.

Shirt and tie vendors were found to have paid the highest rate of 37 percent, followed by those selling children’s clothes with 36.7 percent, men’s clothes with 34 percent and women’s clothes with 33.8 percent.

In a similar survey on luxury brands released last week, one-third of them were paying less than 15 percent of profits as commission fees, while the upper limit did not exceed 25 percent.

According to the FTC, smaller vendors said they considered the compulsory hiring of three to five sales people at a store as most burdensome.

The labor costs that individual companies paid amounted to 410 million won ($363,000) at one department store, almost 10 percent of the annual sales, the vendors said.

The costs for renovation also added financial burden of small vendors, while department stores cover the costs for foreign or domestic luxury brands.

They also have to pay the special promotional activities offering their products at bargain prices. But luxury brands enjoy cuts in commissions when they show sales growth.

“Smaller businesses have to pay higher commission fees that leads to a decline in profits. They cannot invest more on new products. It is a vicious circle,” said a FTC official.

The FTC said it will complete the stalled discussions on commission cuts with major retailers and take follow-up measures to improve the unfair structure.

By Lee Ji-yoon (jylee@heraldcorp.com)