Results of Survey on Trading Between Large Scale Retailers and Suppliers

February 2, 2005
Fair Trade Commission

1. Summary of the Survey

The Fair Trade Commission has tried to clarify and improve the supply transaction between large scale retailers and supplies and taken action against violations with regard to supply transaction practices between large scale retailers and business operators that deliver products to these retailers ("suppliers") based on investigation of actual conditions to ensure fair trade.
As basic regulations on supply transactions, the Commission provides the "Designation of Specific Unfair Trade Practices in the Department Stores Business" (Fair Trade Commission Notification No. 7 of 1954, "Notification") in order to prohibit any abuse of the dominant bargaining position of large scale retailers over suppliers. The Notification is designed to regulate such as department stores,supermarkets. Provisions on prohibited acts have not changed since the enactment in 1954, except the provisions concerning premium offers that were deleted in 1996.

In recent years, however, the business types and styles of large scale retailers have extended from department stores and supermarkets to mass retailers specializing in clothing,home electronics, pharmaceutical products, cosmetics and others, home improvement stores and headquarters of convenience store chains. At the same time, their scale has been growing. In this situation, there are an increasing number of remarks on problems with supply transactions involving large scale retailers. The Notification no longer suits the current conditions of the distribution. Regard this situation, the Commission announced on September 22, 2004 that it would review the existing Notification and study formulation of a notification that effectively regulates the abuse of the dominant bargaining position of large scale retailers ("New Notification"). As part of this process,the Commission conducted a new written survey on actual conditions of trading between large scale retailers and suppliers.

2. Target and Method of the Survey

The written survey was targeted at large scale retailers and suppliers. The numbers of questionnaires sent and replies collected are as follows.

(Note 1) In the written survey to suppliers,large scale retailers are classified into the following categories: (1)department stores, (2) large-scale general supermarkets, (3) home improvement stores, (4) specialist mass retailers, (5) convenience stores, (6) discount stores, (7) drugstores, (8) catalog shops and (9)other large scale retailers, such as local dominant supermarkets and cooperatives.

(Note 2) The suppliers surveyed were randomly sampled from operators engaged in any of the following businesses: (1) clothing and textile products, (2) food and drink, (3)alcoholic beverages, (4) toiletry, cosmetic and pharmaceutical products, (5) household supplies and other products and (6) home electric appliances.

3. Types of Acts of Operators Surveyed, etc.

(1) The Fair Trade Commission has conducted periodical surveys on trading conditions between large scale retailers and suppliers and published the results. Results of recent surveys were published in 1999 and 2002. In view of past survey results and hearings from suppliers, the Commission surveyed the following;

- Return of goods
- Request for price reduction after delivery
- Request for change from purchase on non-return basis to consignment contact
- Request for low price delivery for special offers and anniversary sales
- Refusal of receipt of private brand products
- Request for dispatch of employees, etc.
- Disadvantageous treatment after rejection of unjustifiable requests
- Request for purchases of products or services
- Request for contributions, etc.
- Request for bearing the cost of installation of logistics centers, etc.
- Request for frequent delivery in small lots
- Other

(2) The survey in question also included an inquiry on trading conditions between large scale retailers and suppliers after the tax-inclusive price indication method was put into practice pursuant to the revised Consumption Tax Law last April.

4. Survey Period

(1) Questionnaire dispatch date: October 12, 2004

(2) Deadline for response: October 26, 2004
(The period subject to the written survey is from October 2003 to September 2004.)

5. Summary of the Survey Results

(1) Questionable acts in supply transactions frequently remarked in the survey to suppliers

a. Acts specified in the Notification

1) Return of goods
(Approximately 63%had "delivered goods returned unjustifiably" of nearly 80% of the respondents who had "delivered goods returned.")
- Return of goods no longer necessary due to refurbishment of the shop or the section
- Return of goods stained or damaged as a result of display, etc.

2) Request for dispatch of employees, etc.
(Approximately 68% "received unjustifiable requests" among about 55% of the respondents who "received requests.")
- Request for dispatch for stocktaking, for changing the goods displayed for sale, for internal paperwork, etc.
- Request for dispatch beyond the limit of earnings from sales promotion of products delivered, etc.

3) Request for price reduction after product delivery
(About 23% of the respondents received "requests for unjustifiable price reduction after product delivery.")
- Request for price reduction after selling at lower prices in a sale
- Request for price reduction for reasons of the accounting adjustment, etc.

b. Acts not specified in the Notification

1) Request for contributions, etc.
(Approximately 69% received "unjustifiable requests" among about 63% of the respondents who "received requests.")
- Request for bearing the cost for an event (such as an anniversary sale), renovation of the section, advertisement, etc.
- Request for contributions that exceed the limit of earnings from sales promotion of products delivered, etc.

2) Request for bearing the cost of installation of logistics centers, etc.
(Approximately 46% "received unilateral requests" among some 74% of the respondents who "actually defrayed some cost.")

3) Request for purchases of products or services
(About 33% "received unjustifiable requests for purchase of products or services.")

(2) In the previous survey to suppliers in 2002, large scale retailers were classified into four categories: (1)department stores, (2) supermarkets, (3) specialist mass retailers and (4) convenience stores. The recent survey added four new categories of (5) home improvement stores, (6) discount stores, (7) drugstores and (8) catalog shops. As a result, the survey confirmed dubious supply transactions in these new categories as well

6. Future Response

(1) The Notification will be revised as soon as possible.

(2) The Commission will conduct an investigation and take severe action if it obtains any specific information about abuse of the dominant bargaining position of large scale retailers over suppliers.

(3) The Commission will ask related trade associations to provide guidance to their members for the establishment of a system for compliance with the Anti-Monopoly Law.