Nonghyup Hanaro Distribution has been caught collecting "new product placement fees" on items that had been on the market for as long as eight years and nine months. The company also delivered contracts to suppliers and vendors an average of 30 days late and deployed promotional staff without first signing written agreements.

The Korea Fair Trade Commission said Sunday it had issued a corrective order and a total fine of 462 million won ($326,000) against Nonghyup Hanaro Distribution for violations of the Large-Scale Retail Business Act.

The Korea Fair Trade Commission at Government Complex Sejong in Sejong [Newsis]
The Korea Fair Trade Commission at Government Complex Sejong in Sejong [Newsis]

Nonghyup Hanaro Distribution operates 24 large and mid-size Hanaro Mart stores nationwide and posted sales of 1.18 trillion won last year.

The Fair Trade Commission's probe found that from January 2021 to July 2024, the company signed 863 contracts — covering special purchase, direct purchase and lease arrangements — with 426 suppliers and vendors but failed to deliver the contracts on time.

The Large-Scale Retail Business Act requires retailers to prepare contracts specifying the type of transaction, product categories and contract period, signed or sealed by both parties, and to hand them to suppliers immediately upon signing.

Of the 863 contracts, suppliers had completed their signatures before the contract start date in 710 cases, but Nonghyup Hanaro Distribution's own signature was delayed. In the remaining 153 cases, the company did not send the contract documents to suppliers until after the contract period had already begun.

On average, it took 30 days from the contract start date for a fully signed contract to reach the supplier.

The company also failed to follow legal procedures when accepting promotional staff from suppliers. From April 2021 to January 2024, Nonghyup Hanaro Distribution accepted 43 promotional workers across 11 separate deployments from 10 suppliers, all at the suppliers' own request, but did not draw up written agreements on deployment terms before the workers began.

Those promotional staff worked at Nonghyup Hanaro Distribution's stores for periods ranging from one day to 365 days, all without a written deployment agreement in place. The labor costs borne by the 10 suppliers during that period totaled about 108.2 million won.

The Large-Scale Retail Business Act generally prohibits large retailers from accepting employees on secondment from suppliers. Where a supplier voluntarily requests such an arrangement, the law requires the retailer to set out the number of workers, working hours and other conditions in a written agreement before the deployment begins.

The commission also found that the company had improperly collected new product placement fees. In January 2021, Nonghyup Hanaro Distribution revised its internal operating manual to define a "new product" based on when an item first entered a Hanaro Mart store — regardless of when it had actually launched on the market. Under that definition, the company collected a fee equal to 10 percent of the supply price for the first six months after a product's store entry.

The Fair Trade Commission's guidelines on sales incentive fees define a new product, in principle, as one that has been on the market for no more than six months, taking into account standard industry practice. Despite this, Nonghyup Hanaro Distribution collected new product placement fees on 187 products supplied by 43 vendors between February and November 2021 — all of which had already been on the market for more than six months.

Among those products were items that had been on the market for more than eight years and nine months. The total fees collected on these products came to 302.36 million won, while the total supply value of the products in question was about 3.11 billion won.

The commission determined that collecting new product placement fees on products that could not be considered new — having been on the market for more than six months — constituted receipt of sales incentive payments beyond the legally permissible range.

"We have taken strict action against a large retailer that collected new product placement fees from suppliers for products that were not new, thereby receiving an undue economic benefit," the commission said. "We will continue to conduct intensive reviews of practices that have become entrenched and habitual in the retail market."


y2k@heraldcorp.com