Gyeonggi Province Conducts In-Depth Investigation into Contract Types of Large Shopping Mall Tenants...

[Suwon Ilbo=Reporter Park No-hoon] # Mr. A, who worked as a sub-manager at a road shop, was recruited by a brand headquarters to open a store at a large distributor B. The headquarters assured him monthly sales of 50 million won would be no problem and offered him a position as an intermediate management point manager with a commission rate of 15% on monthly sales.

However, upon opening, monthly sales fell short of 35 million won, and the headquarters unilaterally reduced the commission rate for event product sales to 8%. Additionally, with each annual contract renewal, the headquarters demanded lower commission rates.

# Ms. C, who sells children's clothing at a large distributor B, has a contract only with brand headquarters D, not with the distributor B itself.

However, large distributor B requires that the store always have at least two employees present, imposing unexpected labor costs on Ms. C. The brand headquarters provides no support or compensation, only stating there is nothing they can do.

# Mr. D, who operates a kids' cafe at a large distributor C, is burdened with monthly rental payments due to a minimum guaranteed rent contract signed when the kids' cafe was recently remodeled.

A minimum guaranteed rent contract requires tenants to pay the difference if the proportional commission calculated from sales falls below the predetermined minimum fixed rent amount.

Although sales plummeted due to COVID-19 and other factors, Mr. D must still pay rent according to the contract.

A recent investigation found that 7 out of 10 clothing and miscellaneous goods stores in large distributors within Gyeonggi Province operate under intermediate management point contracts without guaranteed rest days.

Gyeonggi Province conducted an in-depth investigation into large shopping mall tenant transactions from July 31 to October 1 with professional research organization KD&Research and announced the results on the 16th.

This was part of a factual survey on protection policies for small merchants in large distributors (intermediate management points) and the third such investigation, following an August survey on unfair trade practices by brand headquarters and large shopping malls and an October investigation on holiday closures at large distributors across the province.

The province explained it conducted the survey to conduct a careful investigation into contract relationships among large shopping malls, brand headquarters, and tenant operators and to develop countermeasures.

The survey consisted of three components: ▲contract types between tenant operators and brand headquarters ▲verification of contract conditions with brand headquarters ▲in-depth interviews with 10 tenant operators.

The province first surveyed the contract types between tenant operators and brand headquarters for 1,745 clothing and miscellaneous goods stores in 12 large shopping malls across the province.

The results showed intermediate management points at 71.9%, followed by directly operated stores at 22.2%, agencies at 5.7%, and franchise stores at 0.2%.

Intermediate management points are consignment sales outlets that manage brand stores in large distributors and enter into contracts with brand headquarters.

They typically operate by receiving sales commissions of around 15-20% of total sales or a combination of fixed salary and commissions. In return, they bear no rental costs.

The problem is that because these tenant store managers work in stores contracted between the distributor and brand headquarters, they receive no legal protection against unfair trade practices conducted by the distributor.

Current regulations provide protection through franchise laws, labor standards laws, and agency laws only for directly operated stores, agencies, and franchise stores that have contracts directly with headquarters, but there are no laws protecting these intermediate management points.

According to the investigation, when operating as intermediate management points, 76.8% of store owners bore additional deposits from headquarters. There were also some cases of interior design costs (6.4%), rental payments (0.6%), and other expenses (2.4%). Only 4.1% of store owners reported bearing no additional costs.

An analysis of 226 intermediate management point recruitment advertisements to verify contract conditions between brand headquarters and tenant operators showed that expected sales were disclosed in only 49 cases, representing just 21.7% of the total.

In other words, contracts are rarely concluded with accurate information disclosure, indicating a high possibility of unfair dealings.

Sales commissions generally ranged from 15-20%, but only 70 cases, or 36.5% of the total, specified commission rates concretely.

In the in-depth interviews with tenant operators about difficulties in their operations within large shopping malls, the following issues emerged: ▲lack of guaranteed rest days unless the distributor itself closes ▲labor cost burdens due to long operating hours (averaging 10-12 hours daily).

Other difficulties cited regarding brand headquarters included: ▲when operating under commission-based contracts, store operating expenses, part-time staff wages, and utilities and taxes are paid separately from commissions ▲contract negotiations focus merely on confirming acceptance of the headquarters' contract terms rather than discussing content ▲absence of standardized contracts leaves operators without legal protection regarding unfair, inaccurate, or unprofitable contract terms.

Kim Ji-ye, director of the Fair Economy Division at Gyeonggi Province, said, "The investigation results show that establishing standard contracts for intermediate management points and guaranteeing rest days are necessary. To resolve these issues, we will pursue relevant regulatory improvements while providing online and mobile educational materials containing methods to prevent and respond to unfair trade practices, enabling small merchants to assert their rightful claims."

Meanwhile, Gyeonggi Province co-hosted a forum on "Protection of Small Merchants Operating in Large-Scale Distribution Outlets" with lawmakers Lee Dong-ju and Min Hyung-bae in September to address related issues. At that forum, the province proposed amendments to the Large-Scale Retail Business Act to provide legal protection for intermediate management points.