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Korea antitrust regulator to monitor Chanel's alleged breach of Fair Trade Act

People wait in line to purchase Chanel products at Lotte Department Store in Myeong-dong, Seoul, May 13. Korea Times photo by Lee Han-ho
People wait in line to purchase Chanel products at Lotte Department Store in Myeong-dong, Seoul, May 13. Korea Times photo by Lee Han-ho

By Kim Jae-heun

The Korean Fair Trade Commission (KFTC) said it will look into French fashion house Chanel following allegations the luxury brand has been forcing restrictions onto local duty free firms regarding the pricing of its items, a violation of the Fair Trade Act.

Last month, the Korea Customs Service (KCS) decided to loosen regulations that previously restricted duty free companies from selling and distributing their inventory to local retailers, after the tax-free businesses were hit hard by the COVID-19 pandemic, which has place huge restrictions on international travel, deeply affecting duty free shops.

Duty free shops saw an 85.7 percent decline in customers in the wake of the COVID-19 outbreak and their sales have halved this year to a record-low 1.08 trillion won ($885 million) from 2.17 trillion won ($1.76 billion) in 2019.

The KCS extended the deadline until Sept. 29 for firms to clear customs on imported inventory worth nearly 3 trillion won ($24.42 billion) that has been in stock for over six months.

Duty free retailers here have struggled to set prices for their luxury items though, especially those produced by Chanel.

Chanel is notorious for its no-discount pricing policy and this time is no different as the French brand is insisting that it will not allow local duty free firms to sell its luxury items at reduced prices.

"If a firm does not allow a business partner to sell its products at a certain price and threatens to cut supplies or impose a penalty in any future business relations, this is a contravention of the Fair Trade Act," a KFTC official told the Korea Times recently. "If Chanel violates the act, then we can bring a case for possible judicial review and apply administrative actions accordingly, from imposing fines through to issuing a correction order or even prosecuting the brand, in the worst-case scenario."

The KTFC official added that when a company's restrictions on price setting promote healthy competition in the market and consumers are benefiting from it, the antitrust watchdog does not see the case as a violation of the act on resale price maintenance.

However, Chanel's case does not reflect this condition.

Unlike department store businesses that only lease space for luxury brands to conduct their business and take a commission based on sales profits, duty free operators have to buy the luxury merchandise and sell at prices set by the brand.

This is already a breach of the Fair Trade Act, but domestic duty free firms aren't ideally positioned to complain about the matter for possible fear of Chanel's departure and the termination of business contracts.

Travelers walk by Louis Vuitton's duty free store at Incheon International Airport in this 2011 file photo. / Yonhap
Travelers walk by Louis Vuitton's duty free store at Incheon International Airport in this 2011 file photo. / Yonhap

The situation differs dependent on a brand's name value and their position in the global luxury market and these factors have put Chanel on top of not only duty free operators here but also those in other countries too.

"Chanel is so powerful that it will not only prevent local firms from selling their luxury products at lowered price here, but also not allow the operators to return the merchandise," an industry source said. "Simply asking to return the product(s) can lead to a termination of business relationship by Chanel."

The same source said Louis Vuitton, Gucci and Hermes are the same or even more extreme in terms of imposing regulations compared to Chanel.

One of the mentioned brands' officials said in an interview with a local media outlet that the head office firmly adheres to the policy of not allowing price bargaining under any circumstance, and it is almost impossible for local retailers to sell their products at a discount.

Louis Vuitton declined to comment.


People wait in line to purchase Chanel products at Lotte Department Store in Myeong-dong, Seoul, May 13. Korea Times photo by Lee Han-ho
People wait in line to purchase Chanel products at Lotte Department Store in Myeong-dong, Seoul, May 13. Korea Times photo by Lee Han-ho

By Kim Jae-heun

The Korean Fair Trade Commission (KFTC) said it will look into French fashion house Chanel following allegations the luxury brand has been forcing restrictions onto local duty free firms regarding the pricing of its items, a violation of the Fair Trade Act.

Last month, the Korea Customs Service (KCS) decided to loosen regulations that previously restricted duty free companies from selling and distributing their inventory to local retailers, after the tax-free businesses were hit hard by the COVID-19 pandemic, which has place huge restrictions on international travel, deeply affecting duty free shops.

Duty free shops saw an 85.7 percent decline in customers in the wake of the COVID-19 outbreak and their sales have halved this year to a record-low 1.08 trillion won ($885 million) from 2.17 trillion won ($1.76 billion) in 2019.

The KCS extended the deadline until Sept. 29 for firms to clear customs on imported inventory worth nearly 3 trillion won ($24.42 billion) that has been in stock for over six months.

Duty free retailers here have struggled to set prices for their luxury items though, especially those produced by Chanel.

Chanel is notorious for its no-discount pricing policy and this time is no different as the French brand is insisting that it will not allow local duty free firms to sell its luxury items at reduced prices.

"If a firm does not allow a business partner to sell its products at a certain price and threatens to cut supplies or impose a penalty in any future business relations, this is a contravention of the Fair Trade Act," a KFTC official told the Korea Times recently. "If Chanel violates the act, then we can bring a case for possible judicial review and apply administrative actions accordingly, from imposing fines through to issuing a correction order or even prosecuting the brand, in the worst-case scenario."

The KTFC official added that when a company's restrictions on price setting promote healthy competition in the market and consumers are benefiting from it, the antitrust watchdog does not see the case as a violation of the act on resale price maintenance.

However, Chanel's case does not reflect this condition.

Unlike department store businesses that only lease space for luxury brands to conduct their business and take a commission based on sales profits, duty free operators have to buy the luxury merchandise and sell at prices set by the brand.

This is already a breach of the Fair Trade Act, but domestic duty free firms aren't ideally positioned to complain about the matter for possible fear of Chanel's departure and the termination of business contracts.

Travelers walk by Louis Vuitton's duty free store at Incheon International Airport in this 2011 file photo. / Yonhap
Travelers walk by Louis Vuitton's duty free store at Incheon International Airport in this 2011 file photo. / Yonhap

The situation differs dependent on a brand's name value and their position in the global luxury market and these factors have put Chanel on top of not only duty free operators here but also those in other countries too.

"Chanel is so powerful that it will not only prevent local firms from selling their luxury products at lowered price here, but also not allow the operators to return the merchandise," an industry source said. "Simply asking to return the product(s) can lead to a termination of business relationship by Chanel."

The same source said Louis Vuitton, Gucci and Hermes are the same or even more extreme in terms of imposing regulations compared to Chanel.

One of the mentioned brands' officials said in an interview with a local media outlet that the head office firmly adheres to the policy of not allowing price bargaining under any circumstance, and it is almost impossible for local retailers to sell their products at a discount.

Louis Vuitton declined to comment.


Kim Jae-heun jhkim@koreatimes.co.kr

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