CJ Olive Young faces discipline for abuse of power with suppliers

CJ Olive Young Co., South Korea’s top beauty store chain, will face punishment by the country’s antitrust regulator for abuse of power over its suppliers, people familiar with the matter said on Wednesday.

The franchise operator, a unit of food-to-entertainment conglomerate CJ Group, allegedly used its market dominance to force its contractors to supply goods only to the company and sever ties with CJ’s competitors, sources said.

After years of investigation into CJ Olive Young, Korea’s Fair Trade Commission also found that the company has for years engaged in the unfair business practice of forcing its suppliers to take back unsold products from CJ outlets across the country, the people said.

The antitrust watchdog will send its findings to CJ Olive Young for confirmation as early as next month before making its final ruling later, they said.

Under the FTC law, abuse of power is subject to punitive action, including a fine of up to 6% of annual sales.

If the regulator concludes that CJ Olive Young is in violation of the law, it could face a fine of as much as 500 billion won ($397 million).

The company posted 2.1 trillion won in sales revenue in 2021 and 2.7 trillion won last year.

When contacted by The Korea Economic Daily over the allegations, CJ Olive Young said it will make an official response after receiving the formal report from the FTC.

But a company representative said CJ Olive Young shouldn’t be classified as the dominant market player just because it operates more outlets than its competitors.

“We haven’t abused our position as the top player to drive our rivals out of the market. In the health and beauty industry, consumers can buy products via numerous online channels. We shouldn’t be seen as the dominant operator just based on the number of brick-and-mortar stores,” he said.

PROBE BEGAN TWO YEARS AGO

The FTC launched an investigation into the case in April 2021 following a report to the antitrust body by an industry official that CJ Olive Young forced its suppliers to accept an unfair practice known as "In & Out," under which they were asked to take back unsold goods when delivering new ones, sources said.

During the probe, the commission also found that CJ used its market dominance to prevent its suppliers from signing contracts with competitors, including GS Retail Co., which operates its health and beauty store chain Lalavla; Lotte Shopping Co.'s Robs; and E-Mart Inc.'s Boots, the people said.

Industry data shows the number of CJ Olive Young’s offline outlets has increased to 1,275 this year from 1,198 in 2018.

Over the same period, the number of Robs’ stores plummeted to 12 from 122. Lalavla and Boots, which ran 168 and 34 outlets in 2018, respectively, closed all of their stores by the end of last year.

According to the FTC, any company with a market share of 50% and higher is deemed the dominant player. When the combined market share of three or fewer companies exceeds 75%, they are also regarded as dominant players.

A CJ Olive Young official said the company’s significant business growth over the past few years was largely due to its timely and prompt response to rapidly changing market trends.

Write to Ji-Hoon Lee, Soo-Jung Ha and So-Hyeon Kim at lizi@hankyung.com

In-Soo Nam edited this article.