Temporary Employee Selling Competitor's Products
Appeal Filed One Day After Judgment Delivery
Sales Halved Feared... Fighting for Survival
Lotte Hi-Mart's lawsuit opposing the corrective order from the Fair Trade Commission is set to be reviewed by the Supreme Court. From Lotte Hi-Mart's perspective, which is currently focusing on improving profitability through organizational reform, this lawsuit inevitably entails significant changes to its existing business methods and employment practices, leading to analyses that the company is putting all its efforts into overturning the lower court's ruling.
Lotte Hi-Mart has filed an appeal against the court ruling that upheld the Fair Trade Commission's decision to sanction the company for requiring dispatched employees from suppliers to sell products from other companies. The photo shows the exterior of Lotte Hi-Mart headquarters. Photo by Lotte Hi-Mart
According to related industry sources on the 25th, Lotte Hi-Mart filed a notice of appeal to the Seoul High Court, the appellate court, on the 20th, dissatisfied with losing the lawsuit seeking cancellation of the corrective order against the Fair Trade Commission. Although the deadline for filing an administrative appeal is within 14 days from the date of receiving the judgment, it was confirmed that Lotte Hi-Mart submitted the appeal just one day after the judgment was delivered on the 19th. A Lotte Hi-Mart official explained, "We decided to appeal because we want to receive further judicial judgment regarding the issue of supplier-dispatched employees selling competitors' products."
Industry insiders expect that if the lower court's ruling is finalized, the change in the existing business model will directly impact Lotte Hi-Mart's sales. According to the lower court's judgment, from January 2015 to June 2018, Lotte Hi-Mart achieved total sales of 11 trillion KRW through supplier-dispatched employees. Among these, sales of competitors' products by dispatched employees amounted to 5.5893 trillion KRW, accounting for more than half of the total sales. If, as per the Fair Trade Commission's corrective order, supplier employees are prohibited from being instructed to perform tasks other than selling and managing products of their own companies, Lotte Hi-Mart would have to brace for a '50% drop in sales.'
There are also expectations that the ongoing organizational reform at Lotte Hi-Mart will inevitably face obstacles. Since the appointment of CEO Nam Chang-hee, Lotte Hi-Mart has achieved an operating profit of 7.8 billion KRW in the second quarter of this year, more than 30 times higher than the same period last year, through rigorous inventory normalization and cost-efficiency strategies. This was an earnings surprise that completely overturned securities firms' and industry forecasts predicting operating losses. Lotte Hi-Mart is also pursuing mid- to long-term strategies for sustainable growth, but if the existing business model changes, it is analyzed that strategic revisions will be unavoidable.
Previously, in December 2020, Lotte Hi-Mart was issued a corrective order and fined 1 billion KRW by the Fair Trade Commission for allowing supplier-dispatched employees to sell competitors' products. The Fair Trade Commission judged that such business practices violated the Large-scale Distribution Business Act. While paying the fine, Lotte Hi-Mart filed a lawsuit seeking cancellation of the Fair Trade Commission's corrective order, which requires supplier-dispatched employees to sell only the company's products, arguing that the order is unfair. Due to the nature of home shopping companies, on-site dispatched employees typically introduce and sell products from multiple companies together, and prohibiting this would increase customer inconvenience, which is Lotte Hi-Mart's argument presented in court and elsewhere.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
