Davich Optical Co. Chain set sales targets for its private-label (PB) products and was found to have pressured franchisees that failed to meet them in consecutive periods with termination of their franchise contracts. This is the first time sanctions have been imposed as a case of "forced sales targets" among franchise business law violations.
The Korea Fair Trade Commission said on the 17th it imposed a 1.477 billion won penalty surcharge on Davich Optical Co. Chain, the franchisor of Davich Optical Co., for suspected violations of the franchise business law. Orders for recurrence prevention, notification, and payment were also issued.
According to an investigation by the Korea Fair Trade Commission (FTC), Davich Optical Co. Chain set eight detailed indicators that franchisees had to meet, including ▲the sales ratio of strategy-brand frames priced at 100,000 won or more ▲the sales ratio of strategy products ▲the sales ratio of transparent myopia Davich lenses ▲the sales ratio of astigmatism-correcting (transparent toric) lenses. These indicators included products for which Davich Optical Co. Chain could receive sales incentives and differential franchise fees.
Davich Optical Co. Chain checked each month whether franchisees met the sales ratios. Franchisees that fell short once were required to attend a workshop, those that missed twice in a row were told to submit a rehabilitation plan, and those that failed three times in a row were required to attend the franchise termination committee, with an official letter sent notifying them they were subject to termination.
The Korea Fair Trade Commission (FTC) determined these actions abused trading position to boost sales of the company's own-brand products. To hit the targets, franchisees had no choice but to artificially increase sales of certain products, which restricted their freedom to decide what to sell. Setting sales ratios for specific products also constituted "sales targets," it said.
Meanwhile, Davich Optical Co. Chain did not bear the statutory 20% share of store environment improvement costs that franchisees undertook at headquarters' recommendation or request. Davich Optical Co. Chain covered only 20% of the costs excluding supervision fees for improving the store environment, but the Korea Fair Trade Commission (FTC) noted that supervision fees should also be included in store environment improvement costs.
Davich Optical Co. Chain recommended or requested 193 franchisees to replace signs to reflect a new corporate identity (CI) introduced in 2021, but was found not to have borne the related expenses. By law, the franchisor must pay 20% of the sign replacement construction costs.
It was also revealed that, in the course of carrying out 652 advertisements and 78 sales promotions, costs were passed on without obtaining the franchisees' consent. Davich Optical Co. Chain countered that it had obtained the consent of a representative committee, but the Korea Fair Trade Commission (FTC) did not view this as a lawful consent process.