FTC fines LG Household for cheating stores

LG Household & Healthcare is accused of abusing its power over franchise branches of The Face Shop by failing to keep commitments about discount events.

LG Household & Healthcare's The Face Shop in Myeong-dong, Seoul in 2018. [YONHAP]

The Fair Trade Commission (FTC) on Sunday slapped a fine of 307 million won ($262,400) on LG Household & Healthcare, which makes household products such as shampoos, toothpastes and cosmetics.

LG Household & Healthcare is accused of abusing its power over franchise branches of The Face Shop by failing to keep commitments about discount events.

According to the FTC, during discount events held between March 2012 and 2016, LG Household & Healthcare promised to compensate The Face Shop Stores for its products sold at steep discounts. If this discount was 50 percent, LG Household & Healthcare promised to pay the shop 70 percent of the discounted price.

In other words, if a product with a retail price of 20,000 won was sold for 10,000 won, LG Household & Healthcare was supposed to pay The Face Shop store 7,000 won.

That ratio was lowered to 50 percent for products with discounts of less than 50 percent.

According to the FTC, LG Household & Healthcare paid half of what it promised.

The FTC said during the four years, discount events went on for 405 days in total.

LG Household & Healthcare owes The Face Shop stores 49.5 billion won, according to the FTC.

The issue is for The Face Shop stores run by franchisees.

In 2015, there were 1,204 The Face Shop stores, of which 48 percent or 576 were franchised stores. The rest were directly managed by LG Household & Healthcare.

That year, total revenue of The Face Shop chain amounted to 540.3 billion won. It held the second largest market share among stores selling personal hygiene products and cosmetics, with 20.7 percent.

The No.1 spot was held by Innisfree with 22.7 percent.

Since peaking in 2015, the number of The Face Shop branches has declined with more shopping being done online.

By 2019, there were only 598 The Face Shop stores, and only 129 were franchises.

The Face Shop was fully merged with LG Household & Healthcare in November 2020.

The accusation against LG Household & Healthcare came after it faced problems with abuse of power by online shopping platforms.

Last month, the FTC fined the online shopping platform Coupang for abusing its dominant position in the market to force suppliers to lower prices to match competing online shopping malls.

LG Household & Healthcare was among the companies that were forced to lower prices of products sold on Coupang.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]