▲ Headquarters of Davich Optical Chain
Davich Optical Chain Co. has been hit with nearly 1.5 billion won in penalties for pressuring its franchisees with private brand (PB) sales targets and threatening franchise termination if those goals were missed consecutively.
The Fair Trade Commission (FTC) announced today (August 17) that it has imposed a corrective order, notification order, payment order, and a penalty of 1.477 billion won on Davich Optical Chain for violating the Franchise Business Act.
Davich Optical Chain set eight detailed performance metrics that franchisees were required to meet, including sales proportions for strategic brand frames priced at 100,000 won or higher, strategic products, clear myopia Davich lenses, and clear toric (astigmatism correction) lenses, thereby forcing target sales ratios for specific items.
The products included in these detailed metrics were items such as PB goods from which Davich Optical Chain could collect sales incentives and differential franchise fees.
Franchisees had no choice but to artificially inflate their sales volume to meet the required sales ratios for these products.
Davich Optical Chain checked whether franchisees met their sales ratios every month and imposed sanctions on those that failed to achieve them.
Specifically, Davich Optical Chain required franchisees who missed the target once to attend a workshop, and those who missed it twice consecutively to submit a rehabilitation plan.
In cases where franchisees failed to meet the targets for three consecutive times, they were required to attend a franchise termination committee, and official letters notifying them of potential franchise contract termination were sent out.
The FTC determined that these actions by Davich Optical Chain constituted an abuse of its bargaining position to boost sales of its own brand products.
In addition, it was found that Davich Optical Chain failed to shoulder its legal share of 20 percent for store remodeling costs incurred by franchisees at the headquarters' recommendation or request.
Davich Optical Chain covered only 20 percent of the costs excluding supervision fees among the expenses required for 15 franchisees to remodel their stores.
However, the FTC pointed out that supervision fees should also be included in store remodeling costs.
Furthermore, Davich Optical Chain recommended and required 193 franchisees to carry out sign replacement work reflecting a new corporate identity (CI) introduced around 2021, while failing to cover the associated costs.
Under relevant laws and regulations, franchisors are required to bear 20 percent of the costs for sign replacement work in such cases.
Davich Optical Chain also passed on costs while proceeding with 652 advertisements and 87 promotional events without obtaining prior consent from franchise owners.
Davich Optical Chain claimed it obtained consent from a representative committee composed of 18 percent of franchise owners, but this was not recognized as valid consent under the Franchise Business Act.
The FTC explained that this measure marks the first case of sanctioning the coercion of sales targets among violations of the Franchise Business Act.
It added that setting sales ratios for specific products, rather than total sales revenue or sales volume, can also be regarded as establishing sales targets.
An FTC official stated, "We will continue to monitor unfair practices so as to protect the rights and interests of franchise owners and enable fair franchise business transactions on an equal footing with franchisors."
(Photo: Yonhap News)
※
Copying, redistribution, and unauthorized use in AI training are strictly prohibited.