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The North Face fined for abusing Korean retailers
Publication Date : 30-04-2012
South Korea's antitrust watchdog said Sunday that it has fined The North Face Korea 5.2 billion won (US$4.6 million) for pushing its sales outlets to maintain prices high with an aim to continue its premium image here.
The penalty fee is the highest-ever amount imposed by the Fair Trade Commission on the unfair business practice that limits discount rate of product prices, officials said.
Under fair trade rules, retailers in the distribution channels are allowed to adjust their prices to compete freely and offer more options to consumers.
However, Goldwin Korea, the exclusive importer of the American outdoor brand, was found to have set the same discount rate of products at all 151 retailers and asked them to maintain 10-15 per cent higher prices than rivals since its entry in 1997.
The company took harsh punitive measures for those violating related contract conditions such as suspending the provision of products, nullifying business contracts or imposing fines, the FTC said.
Despite some complaints, retailers were willing to bear the possible damage from stocked goods as they enjoyed a high margin rate of 42 per cent.
The company also has banned the sale of products via Internet distribution channels, rooting out the usual price competition among online retailers. “The company’s long business practices resulted in the same effect of price fixing,” said a FTC official.
With the local outdoor industry fast growing into a three-trillion won market, The North Face has become the market leader with its annual revenue amounting to 600 billion won (US$529 million).
The FTC said that the unfair business of the No. 1 player with more than 30 per cent shares also affected other rival companies such as Kolon Sports, K2 and Columbia that have taken a premium pricing policy as well.
“The North Face banned discount deals to secure premium image, while rival companies followed suit maintaining the price difference with the market leader,” the official said.
According to YMCA, Korean consumers paid 50 per cent more for The North Face due to the prevalent “price-fixing” practice.
Meanwhile, the company strongly protested the FTC’s decision, claiming that it did offer discount deals to customers in some 2 million occasions between 2008 and 2011.
A spokesperson hinted at legal action against the watchdog, pointing out that the FTC’s standards for a “high-end brand” were not clear, and it imposed an unfair amount of penalty fees.