"As Margins Shrink, Suppliers Pressured to Cut Prices"... Coupang, Inc. Fined 2.1 Billion Won

[The Financial News] Coupang, Inc., which shifted margin losses from its lowest-price matching policy onto its suppliers, has been hit with an administrative fine of more than 2.1 billion won by the Korea Fair Trade Commission (KFTC). The penalty follows findings of violations of the Act on Fair Transactions in Large Retail Business, including pressure to cut supply prices, passing on advertising costs, and delaying payments for goods.
On the 26th, the KFTC announced that Coupang, Inc. had committed four types of violations: demanding reductions in supply prices, requiring suppliers to bear advertising and other costs, delaying payment for directly purchased goods and failing to pay delay interest, and not returning unsold products from its Coupang Product Experience Program. The commission issued a corrective order and imposed a fine of 2.185 billion won.
According to the KFTC, from January 2020 to October 2022, Coupang, Inc. pre‐set Pure Product Margin (PPM) targets in consultation with suppliers. When actual performance fell short of those targets, the company demanded cuts in the prices at which suppliers delivered goods.
The problem, regulators noted, was that Coupang, Inc. also passed on losses to suppliers even when margins shrank because retail prices fell under its lowest-price matching policy. The investigation found that whenever a rival online mall lowered its prices, Coupang, Inc. immediately reduced its own selling prices, and then demanded lower supply prices from vendors if its PPM declined.
Coupang, Inc. also required suppliers to shoulder additional costs such as advertising expenses and fees for the Coupang Product Experience Program when actual gross margin (GM) fell short of GM targets. These were nominally advertising and marketing costs, but in practice they were used as a substitute or supplement when it was difficult to further cut supply prices. In particular, the KFTC confirmed cases where the company hinted it might suspend or reduce purchase orders to pressure suppliers that were reluctant to accept its terms.
Payment for goods also came under scrutiny. From October 2021 to June 2024, in direct purchase transactions with 25,715 suppliers covering 508,752 cases, Coupang, Inc. paid a total of 280.9 billion won for goods after the statutory deadline of 60 days from the date of receipt. The delay lasted up to 233 days in some cases. The company also failed to pay 853 million won in delay interest, calculated at an annual rate of 15.5%, on amounts paid after the legal deadline.
Problems were also found in the operation of the Coupang Product Experience Program. Over 45 months from September 2020, Coupang, Inc. ran the program with 6,743 suppliers across 34,514 cases, but in instances where consumers did not actually participate and products were not used up, the company did not return the cost of those products to the suppliers. The value of unreturned products amounted to 536.79 million won.
The KFTC characterized this case as "undermining the essence of direct purchase transactions." In a direct purchase model, a retailer assumes ownership of the goods and gains the right to set retail prices, while also bearing the risks of price declines and inventory. Despite this, Coupang, Inc. offset the risk of margin erosion from its lowest-price matching policy by demanding lower supply prices or shifting advertising costs to suppliers, which the commission viewed as an abuse of its superior bargaining position.
Separately from the fine, the KFTC ordered Coupang, Inc. to immediately pay approximately 850 million won in unpaid delay interest and to return about 530 million won in unrefunded product costs from the Coupang Product Experience Program to the affected suppliers.
Cho Won-sik, Director of the Distribution and Agency Investigation Division at the KFTC, stated, "This case is the first sanction for violating the statutory payment deadline for direct purchase transactions." He explained, "We applied a fixed-amount fine to the demands for price cuts and advertising cost burdens, and a percentage-based fine to the remaining violations." He added, "By putting a brake on margin management practices at Coupang, Inc., the No. 1 player in online shopping—such as retaliatory suspension or reduction of purchase orders—we expect this decision to help prevent similar unfair trade practices from recurring."

hippo@fnnews.com Kim Chan-mi Reporter