[IPO Spotlight] Shinsegae's SSG.com... 'Blind' Digital Innovation and Persistent 'Fee Power Abuse'

[Asia Economy Reporter Park So-yeon] SSG.com, the e-commerce platform of Shinsegae Group preparing for its IPO next year, has been found to still enforce high commission fee policies based on its market dominance. While it charges lower fees to overseas luxury brands and major domestic brands, it imposes high commission fees on small and medium-sized domestic companies, highlighting the persistent issue of 'commission fee abuse' in the distribution industry, which continues even in online commerce where physical stores are unnecessary.

According to financial investment and distribution industry sources on the 25th, SSG.com applies high commission fees of up to the 40% range to small and medium-sized enterprises (SMEs) operating on its online mall.

For example, SME A, which operates cosmetics and daily necessities brands, pays 35-40% commission fees when selling products through SSG.com with discounts ranging from 0 to 10%. For instance, if a product priced at around 10,000 KRW is sold on SSG.com at a 10% discount for 9,000 KRW, the company must pay SSG.com a commission fee of 3,150 to 3,600 KRW. The commission rates vary according to discount rates: 20% discount corresponds to a 30% commission, 30% discount to 25%, and 40% discount to 20% commission.

A representative from brand A hinted, "The commission fees are set too high," adding, "You can consider it almost 40%." This figure shows a significant gap compared to the 14.8% cosmetics commission rate reported by the Fair Trade Commission last year. It is known that SSG.com charges 20-30% commission fees for major domestic beauty brands and around 10% for overseas luxury brands.

According to the 2020 Fair Trade Commission's survey on distribution transactions of large retailers, SSG.com's commission rates for women's clothing were recorded as follows: women's suits (16.7%), women's casual wear (15.1%), underwear and fur (16.7%), jeans and unisex (13.1%), men's casual wear (17.1%), shirts and neckties (14.1%), and overseas luxury goods (20.5%). However, actual voices from the field differ somewhat from these statistics.

A representative from outdoor brand B said, "SSG.com basically demands a 20% commission," adding, "From the brand's perspective, because product planners (MDs) have too much discretion in exposing products to consumers at the lowest prices through 'coupon discounts,' we have no choice but to pay the commission fees as they demand."

The reason for the discrepancy between the Fair Trade Commission's survey results and the actual commission rates borne by SMEs is that SSG.com categorizes brands and applies significantly different commission rates accordingly. There is a stark contrast between major brands and others. A representative from a major domestic fashion brand C hinted, "We pay commission fees in the 10% range to be listed on SSG.com."

Regarding this, SSG.com explained that the fees are agreed upon in the market. An SSG.com representative said, "Luxury goods emphasizing rarity try to attract each other in a buyer-seller relationship, so conditions must be minimized," adding, "Cosmetics and fashion generally have high intermediate margins, and there is an agreed margin range between manufacturers and sellers in the market."

SSG.com stated that the high commission fee policy is limited to markets such as fashion and cosmetics, where brand preference greatly influences price. However, it was found that SSG.com also charges higher commission fees than other online shopping malls in its main sectors such as fresh food and health food.

SSG.com's commission rates were surveyed as 16% for fresh food, 18.1% for processed food, and 18.1% for instant food. These figures are significantly higher compared to the overall online shopping mall averages (fresh food 12.6%, processed food 10.9%, instant food 14.5%). The health food commission rate was also recorded at 19.1%, 4.1 percentage points higher than the overall average of 15%.

In addition, SSG.com's commission rates in most categories such as home living, children and infants, culture, sports and leisure, miscellaneous goods, electronics and digital products, and beauty products significantly exceed industry averages. In particular, jewelry and accessories showed a commission rate of 23.8%, which is 10.9 percentage points higher than the industry average of 12.9%. Beauty products also had a commission rate of 22.3%, 7.2 percentage points higher than the average of 15.1%.

Amid social criticism of excessive commission fee policies by platform giants like Kakao, SSG.com, affiliated with a large corporation, is also facing criticism for disproportionately passing on excessive business costs to relatively smaller and less competitive companies. With growing market demands for expanded ESG (environmental, social, and governance) management among listed companies, a comprehensive overhaul of commission fee policies before the IPO appears necessary.