Korea’s best-selling U.S. outdoor clothing brand, The North Face, was slapped with a fine of 5.24 billion won ($4.62 million) for fixing prices of products available at its retail stores. It is the largest fine levied on a company for retail price fixing.
The Fair Trade Commission (FTC) said Sunday that the brand’s Seoul representative had hindered free price competition among retailers. Its actions “directly and comprehensively” affected local consumers, it said.
The anti-trust regulator said the firm had forced its sales outlets and agents to sell its products only at the prices it sets for as long as 14 years (between November 1997 and January 2012).
The company had regularly distributed booklets explaining its compulsory pricing policy to retailers around the country and monitored their prices in real time through a data-sharing program, according to the FTC. There were 151 retailers dealing with North Face products as of January.
The company punished sales outlets refusing to follow its sales guideline through contract termination, product supply suspension and other disadvantageous measures, it said.
According to the FTC, a local retailer had its contract with the outdoor brand unilaterally terminated in 2003 for selling goods 15 percent lower than the guideline. Another retailer, caught selling products at 20 percent lower than demanded, had to pay North Face 10 million won in a punitive measure.
“Retailers have the right to adjust product prices freely,” the FTC said in a statement. “But The North Face restricted their freedom with the policy, which is illegal.”
The FTC’s decision is legally binding, which means to overturn the ruling, the company must take the case to the court. North Face denies all charges against it and is considering appealing to the court. The FTC’s ruling will be delivered to the company later next month and the company has to determine whether or not to appeal within 30 days.
“The FTC’s judgment was made on the wrong grounds,” Lee Young-ran, a PR agent representing external affairs at North Face, told The Korea Times. “The company has never had policies restricting the free competition of retailers.”
North Face is the unquestionable leader in the country’s growing outdoor product market. It has controlled more than 30 percent of the market since 2000, outperforming other rival brands such as Kolon Sport, K2, Black Yak, Columbia Sportswear, and Lafuma.
It’s unclear how much revenue the firm has generated under the policy, but last year it reached a record high of 600 billion won ($526 million), widening the gap with runner-up Kolon Sport.
The FTC’s investigation started in February at the request of Seoul’s Young Men’s Christian Association (YMCA).
The association claimed in a statement the company breached the fair trade law by implementing sale price restrictions, citing its own survey of 23 shops in Seoul.
“Every single store offers the same deal within a specific discount range, which is illegal,” the YMCA said in the statement.
The YMCA’s move came shortly after it criticized major foreign outdoor brands including North Face for inflated pricing policies in Korea, which charge local consumers an average of 50 percent more for overseas brands.
Korea’s outdoor product market has rapidly grown in recent years on the back of increasing popularity of mounting climbing and other outdoor activities. The market is estimated to be worth three trillion won last year, the FTC said. <Korea Times/Park Si-soo>
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