Luxury brands far from socially responsible

This is the first in a series highlighting operations of foreign luxury brands in Korea. ― ED.

Bulgari, Omega draw criticism

By Park Jae-hyuk

Imported luxury brands such as Chanel, Hermes and Louis Vuitton are highly coveted here, often promoted as “masterpieces” by home shopping channels.

Korean consumers adore luxury brands. They are must-have items for many.

However, the companies have long been negligent in corporate social responsibility (CSR) in a market where they rake in huge profits.

They have failed to live up to their high standing given their lack of respect toward the country.

Despite Korea’s prolonged slump in consumption, sales of overseas luxury brands at the nation’s top three department stores — Lotte, Hyundai and Shinsegae — rose 9 percent in 2016 from a year earlier, according to the Ministry of Trade, Industry and Energy.

Yet, the firms are also poor in terms of transparency in management and pricing policy.

Lack of social contribution

Most imported luxury brands in Korea have not been “luxurious” at all when it comes to CSR activities. Although they have posted billions of won in operating profit here, the amount of money they spent for Korean society has been almost zero.

For instance, Bulgari Korea chalked up an operating profit of 12.5 billion won ($10.9 million) in 2015, but its financial statements don’t have a donation category.

Swatch Group Korea, which operates the famous Omega watch brand, lacks a donation category on its financial statements as well. The watchmaker’s Korean branch posted a 19.3 billion won operating profit in 2015.

Both companies distributed most of their net profits to their shareholders. Burberry Korea and Ferragamo Korea had donation categories on their financial statements, but the two put less than 1 percent of their operating profits toward CSR activities.

Chanel and Louis Vuitton even changed themselves into limited liability companies here to avoid their duty to post the amount of sales and donations, as their lack of CSR has been criticized every year. The government therefore is trying to amend the law so the imported luxury brands will be subject to external audits for management transparency.

Discriminatory pricing policy

The annual price hikes of imported luxury brands in Korea have come under criticism as well, as some companies cut their prices in Japan and China.

Last month, Chanel and Hermes raised prices of some of their products by 1 to 5 percent at department stores and duty free shops here. Louis Vuitton raised prices of its products by 7 percent on average last year.

They have made the excuse that the price hikes were due to rising production costs and exchange rate fluctuations this year. But most imported luxury brands also raised their prices by 7 percent on average despite declining production costs in 2014 and the government’s introduction of new tax benefits the following year.

Those brands act totally differently in Korea’s neighbor countries — China and Japan.

In Japan last September, Cartier, Gucci and Bottega Veneta cut their prices by up to 8 percent. They attributed the move to the stronger yen, but most observers said the lower prices were caused by decreases in consumption.

In China, the famous Estee Lauder cosmetics brand slashed the prices of hundreds of its products by up to 18 percent last month, citing a decline in customs duties last year as the reason, but a stronger anti-corruption policy and the resultant plunge in demand for luxury products were mentioned as the real reasons.

Although some brands including Burberry recently cut prices of some products by 9 percent on average in Korea over the weakness of the pound, the drop was far smaller than in other Asian countries. Plus, Chanel’s recent discount event here was suspected to be a mere clearance sale by the retail industry.

Experts point out that Korean consumers’ obsession with luxury brands and poor regulations have enabled the “arrogant” management of imported luxury brands.