By Kim Tae-jong
Lotte Duty Free Shop is under scrutiny by the antitrust regulator over alleged policies that discriminate against local vendors while offering business favors to international luxury brands.
The Fair Trade Commission (FTC) said Thursday they are now examining contract terms between duty-free shop chains and their vendors.
The move came amid criticism that domestic retail giants such as Lotte and Shilla have adopted unfair practices against local vendors, charging much higher sales commissions than international luxury brands.
Currently, the duty free business is dominated by hotel chains such as Lotte and Shilla. Hotel Lotte is the country’s largest duty free seller by sales with a 47.2 percent market share in 2010, followed by Hotel Shilla with 26.8 percent.
They are often criticized for using their dominant position to take advantage of smaller entities.
According to industry insiders, about 80 percent of vendors at the major duty-free shops are international brands. The problem is such duty-free chains explicitly favor luxury brands such as Chanel, Gucci and Louis Vuitton, charging them a much lower sales commission than those selling local products.
The average rate of commission collected from international brands is estimated at 30 to 40 percent of their sales while local brands have to pay 40 to 60 percent.
Depending on the probe results, the FTC will take due legal action against duty-free chains and order them to lower sales commissions on local companies.
Declining to either admit or deny the allegations, major duty-free chains are avoiding giving a prompt response.
“I would say it’s not true, but we will see what the FTC investigation will find,” said Lee Seung-gyu, an official from Lotte, in a very ambiguous manner.
Another official from Shilla confirmed that they were recently investigated by the FTC, but avoided elaborating on the issue.
“At the moment, we don’t have anything to say,” an official from Shilla said. “We will clarify our position after the FTC announces its results.”