The staggering penalty, the highest ever imposed by the commission on a retailer, has sent shockwaves through Coupang. (Image courtesy of Yonhap)
SEOUL, Jun. 13 (Korea Bizwire) – In an unprecedented move, South Korea’s antitrust regulator, the Fair Trade Commission, has levied a record fine of 140 billion won against Coupang, the country’s largest e-commerce company, on allegations of unfairly favoring its own products over those of third-party sellers.
The staggering penalty, the highest ever imposed by the commission on a retailer, has sent shockwaves through Coupang, which now faces potential legal risks as the regulator has also referred the case for criminal prosecution.
The setback comes at a particularly challenging time for Coupang as it races to fortify its defenses against the rapid expansion of Chinese e-commerce giants like AliExpress and Temu into the South Korean market.
Some industry observers warn that the regulatory crackdown could hamper Coupang’s signature Rocket Delivery service and derail its long-term logistics investment plans aimed at countering Chinese competition.
Coupang has vehemently rejected the commission’s findings, arguing that the regulator has unduly restricted the company’s inherent right as a retailer to determine product placement and search rankings. The company maintains that its ranking system simply aims to recommend affordable, high-quality products based on consumer preferences, a practice common among retailers worldwide.
“Even in the U.S. and Europe, e-commerce companies like Amazon have not been penalized for prominently displaying their own private-label products in search results,” a Coupang spokesperson said, describing the South Korean regulator’s decision as “an unprecedented level of regulation.”
The company has also accused the Fair Trade Commission of discrimination, claiming that while other online rivals engage in similar practices of prioritizing their own products, the regulator declined to investigate them, citing them as “irrelevant considerations.”
Furthermore, Coupang has questioned the methodology used to calculate the astronomical fine, arguing that the commission failed to provide concrete evidence of actual or potential harm to sellers or consumers, which is typically the basis for determining such penalties.
The company’s expansion of its Rocket Delivery service to cover 80% of all cities, counties, and districts nationwide, along with a broader range of direct-purchase items, has been instrumental. (Image courtesy of Yonhap)
“This regulation will limit the choices available to Coupang customers who purchase products eligible for Rocket Delivery and Rocket Fresh services,” the company stated, vowing to immediately appeal the decision and vigorously challenge the regulator’s ruling in court.
The bombshell penalty comes as a significant setback for Coupang, which had just achieved its first annual operating profit last year and was poised to solidify its profitability. The fine, amounting to 23% of the company’s operating profit last year, is the largest ever imposed on a retailer by the Fair Trade Commission.
With the potential for the fine to escalate further, as it is currently a provisional amount, Coupang now faces the daunting task of reassessing its investment plans and bracing for the financial impact.
Immediately at risk are the company’s ambitious 3 trillion won logistics investment plans announced in March, aimed at expanding its nationwide Rocket Delivery network through new fulfillment centers, advanced automation technologies, and enhanced delivery capabilities over the next three years.
Industry observers have expressed concerns about the potential ripple effects on Coupang’s profitability, as any contraction in sales of its direct-purchase and private-label products, which account for a significant portion of its revenue, could directly erode its bottom line.
Moreover, speculations abound that the ruling, which prohibits the preferential display of Coupang’s own products, could inadvertently undermine the company’s vaunted Rocket Delivery service, which has become synonymous with next-day delivery in South Korea.
The broader retail industry is also on edge, worried that the regulatory crackdown might compel businesses to re-evaluate their private-label strategies, as these products typically offer higher profit margins.
“Retailers, both online and offline, may need to reassess their practices of prominently displaying private-label products to mitigate regulatory risks,” cautioned another industry insider, who wished to remain anonymous.
Ashley Song (ashley@koreabizwire.com)
