FTC to order retailers to cut commissions

Home-shopping firms charge vendors up to 55 percent of sales as fees: FTC


The Fair Trade Commission is speeding up its efforts to lower commission fees for major retailers following an agreement reached after months of tug-of-war with the nation’s top three department stores early this month.

In the latest move to do so, the antitrust regulator on Tuesday released the results of its survey on transactions among major home-shopping TV channels and supermarket chains.

The FTC said that the nation’s big five home-shopping channels GS, CJO, Hyundai, Lotte and NS have demanded from vendors 37 percent of their sales as commission fees on average.

The channels have also charged companies 48 million won ($42,000) in discount benefits offered to ARS customers and another 360 million won for the purchase of a no interest monthly installment plan.

“Discounts for ARS customers were introduced to reduce labor costs for home-shopping channels. But more than half the expense was shouldered by contractors,” said Jeong Jin-wook, a FTC official.

“Smaller vendors accept the proposal to promote their products even though they have to shoulder some financial losses.”

Large supermarket chains E-Mart, Homeplus and Lotte Mart were also found to have received an additional 10 percent of wholesale profits for promotional activities, the FTC said.

“I know retailers may also need to spend a lot. But I feel they just want to profit from vendors without making any efforts to improve their management,” said an owner of a manufacturing company on condition of anonymity.

He said his company has paid 18-20 percent of its profits to supermarket chains and 35-55 percent to home-shopping channels over the past five years.
“The fee rate has continued to increase over the past five years but it’s not an issue for negotiation,” he said, adding that even large companies are sometimes forced to withdraw their products when they complain too much about the fees.

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

Over the past five years, the operating profits of major home-shopping channels increased 10.5 percent on average, while the top three retail giants have seen a 14.5 percent increase in sales, FTC data found.

The FTC plans to encourage retailers to lower the fee rate within the month while strengthening surveillance on unfair activities.

Retailers, however, protested the FTC’s investigation, claiming that the survey results did not consider the fees they have to pay to TV network operators.

“When the airtime fees are considered, the actual profits that individual channels achieve are 10-14 percent lower than the average released by the FTC,” said an industry source.

Amid complaints growing among smaller businesses, the FTC reached an agreement with Lotte, Shinsegae and Hyundai department stores to lower their commission fees by 3-7 percent on Nov. 8.

The agency predicted that 1,054 companies will benefit from the cuts immediately.

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