Olive Young Avoids 'Worst-Case Scenario,' Feels 'Relieved' Despite 1.9 Billion Won Fine

Olive Young Avoids Major Prosecution and Billions in Fines
"Will Improve Internal Systems and Share Situation with Partners"

Fair Trade Commission: "Difficult to Judge Abuse of Market Dominance,
Market Position Should Expand Beyond H&B Offline Market"

Olive Young has been fined 1.896 billion KRW and faced corporate prosecution by the Fair Trade Commission (FTC) for violations of the Large-scale Distribution Business Act. Initially, it was reported that the FTC would impose fines amounting to several hundred billion KRW and prosecute the corporation along with its current and former representatives, but with the reduced level of sanctions, Olive Young has been able to breathe a sigh of relief.

CJ Olive Young operating in downtown Seoul. Photo by Jinhyung Kang aymsdream@

On the 7th, the FTC announced sanctions against Olive Young for violations of the Large-scale Distribution Business Act and abuse of market dominance, which were investigated earlier this year. The FTC determined that Olive Young violated the Large-scale Distribution Business Act by gaining unfair profits through coercing exclusive participation in events from suppliers (500 million KRW), failing to restore the reduced supply prices during promotional events to normal prices after the events (896 million KRW), and unjustly charging information processing fees (500 million KRW), imposing a total fine of 1.896 billion KRW. Although it was initially expected that both the corporation and its current and former representatives would be prosecuted, the FTC judged that the personal responsibility of the individual CEO did not meet the criteria for prosecution, deciding to prosecute only the corporation.

In response, Olive Young stated, “We have already completed or plan to complete improvements to our internal systems regarding the issues pointed out by the FTC and will transparently share the progress with our partners,” adding, “We will strive to become a partner in the growth and global expansion of small and medium-sized enterprise brands.”

Regarding the major issue of abuse of market dominance, the FTC opted for an open-ended conclusion. The key point was whether CJ Olive Young’s market dominance could be limited to the health and beauty (H&B) offline sector, but the FTC plenary meeting decided to defer judgment on this matter (ending the deliberation process). This differs from the prosecution’s indictment-like review report, which limited CJ Olive Young’s market to H&B offline. Consequently, the level of sanctions was analyzed to be lower than initially expected.

The FTC also sided with CJ Olive Young regarding its business status. CJ Olive Young has consistently argued that its market position should not be limited to H&B but should consider the online and offline cosmetics distribution markets as one. Under the Fair Trade Act, a market-dominant business is defined as one where a single operator holds more than 50% market share or the top three combined hold more than 75%. CJ Olive Young’s market share in the H&B market approaches over 80%.

The FTC stated, “Considering the strengthening competitive structure between offline and online sales channels, we believe the market should be expanded rather than limited to H&B.” However, it added, “We have not reached a definitive conclusion on the exact scope of the market.” It further explained, “Whether Olive Young’s exclusive brand (EB) policy constitutes abuse of market dominance will be judged after monitoring the policy’s impact on the overall market.” Olive Young provides benefits such as reduced advertising costs and guaranteed participation in events to suppliers who exclusively supply products to the company.

Olive Young’s EB brand policy is expected to gain momentum following the FTC’s decision. Since the FTC did not rule the policy illegal, CJ Olive Young cannot be forced to discontinue the EB policy even if it continues. An industry insider explained, “The perspective of viewing the H&B market as a separate market is gradually diminishing,” adding, “The blurring boundaries between online and offline channels likely influenced the FTC’s judgment.”