Gucci, Louis Vuitton domineer

By Kim Da-ye

Luxury brands may be often dealing with fussy customers, but they are known to be picky, demanding clients to domestic distributors.

Many luxury brands recently came under spotlight for too a little rent they pay to department stores and duty free retailers.

Louis Vuitton’s Korean unit, for instance, made 427.31 billion won of revenue in 2010, but paid 41.08 billion won in rent to department stores, which represents less than a 10 percent of the revenue, according to its public disclosure of the audit report.

In Korea, department stores collect a portion of the sale price as the sales commission, which is, in fact, a rent. Brands have to spend separately on decorating and marketing the branches.

In case of Gucci Group Korea, the firm earned 273.09 billion won in sales, and paid a rent of 33.84 billion won, slightly above a 12 percent of the sales.

Prada Korea earned 175.70 billion won in revenue, and paid a rent of 19.28 billion won, an 11 percent of the revenue.

The sales commission paid by luxury brands is tiny compared to what domestic fashion companies pay.

The Fair Trade Commission (FTC) recently unveiled for the first time how much sales commission, basically a rent, department stores collect from local fashion brands.

The anti-monopoly watchdog surveyed 300 companies with branches in department stores, and the result showed that three largest department stores chains, Lotte, Hyundai and Shinsegae, collected more than 34 percent of the revenue from leather goods as the sales commission. The rate ranged between 22.5 percent and 39 percent.

For women’s clothing, the average sales commission was 33.1 percent of the revenue while the rates varied between 19 percent and 37.5 percent.

The commission rates for shoes ranged between 25 percent and 33 percent, compared to those for cosmetics between 25 percent and 34 percent.

The FTC said that the gap between commissions collected on women’s clothing is large because of different brand power ― famous brands and firms with licenses to world-renowned brands pay less rent.

“Considering we surveyed mostly small and medium companies, the gap will widen even more when large companies and foreign luxury brands are counted,” the FTC said.

Luxury brands can be a little bit of diva to distributors because their brand name alone can bring a department store prestige.

A recent spat involving the country’s largest duty free retailers and major luxury brands shows that things could become unpretty.

The tussle between Hotel Shilla and Lotte Duty Free to host Louis Vuitton’s first airport duty-free outlet at Incheon International Airport ended last November with the former’s victory.

Hotel Shilla had bent over backwards to secure the center of the passenger terminal between Gate 27 and 28 for the Louis Vuitton outlet which is already occupied by a small Shilla Duty Free shop, about 200 seats in the waiting area, a book shop and a cafe.

Amid the controversy over Shilla given special favors at the expense of the public’s comfort, Lotte Duty Free filed in January at Incheon District Court an injunction against the Louis Vuitton deal between Hotel Shilla and the Incheon airport.

The injunction was dismissed, but the case is known to have affected the relationship between the French luxury brand and Lotte.

When Louis Vuitton decided in July to withdraw from Lotte Coex Duty Free Shop in southern Seoul, the media speculated if the move is symbolic of the soured relationship.

Furthermore, an industry source said that the Louis Vuitton’s airport outlet is expected to pay as little as a quarter of the sales commission that other luxury brands do to duty free retailers and the airport.

Up to a 40 percent of the revenue is collected as a sales commission or a rent, and Gucci allegedly sent an official letter to Hotel Shilla complaining about the discrimination and threatening to withdraw from the Incheon airport, the source said.

Hotel Shilla did not accept Gucci’s demand to cut the sales commission, and the Italian brand recently left Shilla and moved into Lotte’s duty free turf within the airport.

It is known Chanel was also upset about Shilla’s special treatment of Louis Vuitton. Lotte was chosen last month as an exclusive duty free retailer to sell Chanel’s cosmetics products online.