Public Con
The labor union of Homeplus held a press conference to censure Tesco in front of the British Embassy in Jung-gu, Seoul on Aug. 29. Homeplus, the Korean branch of Tesco, a major UK-based global distribution company, is being harshly criticized by consumers for a series of corrupt business practices, including cheating on prize giveaways and extorting petty thieves. Also, it is becoming more difficult for Homeplus to maintain second place in the large distribution industry in Korea due to its deteriorating profitability.
The prosecution officially searched and seized the headquarters of Homeplus located in Yeoksam-dong, Seoul on Sept. 4. The Gangnam office of Seoul Metropolitan Police Agency found out last month that employees of Homeplus appropriated four expensive vehicles that had been listed as prizes in a contest for over a year.
According to the police, Jung (age 35), the manager of the insurance service team of Homeplus, stole four vehicles worth 150 million won (US$140,724) in total, including two BMWs and one Audi. The cars were offered at four prize events for Homeplus customers held from May 2012 to June of last year. But no customer ever won the cars.
Other than Jung, the police turned over accomplices Choi (age 32), his friend A, and subcontractor employee B, who all worked together to manipulate the lottery results, to the prosecution.
Jung and Choi earned over 100 million won (US$93,770) by selling the four vehicles to a used car dealer. Jung first participated in the prize competition using the name of his friend. He then forced subcontractor employee B, who was in charge of managing the event, to manipulate the electronic system to choose Choi as the first place winner each time.
Selling Client Information to Insurance Companies
Homeplus holds big prize events every year. The nominal purpose of the event is to “overcome the recession,” but the actual purpose has been revealed as selling the personal information of prize contestants to insurance companies. Jung, the main suspect of this prize fraud, is also a member of the insurance service team.
Homeplus sells personal information to insurance companies for 2,000 to 2,800 won (US$1.87 to US$2.61) per person, and also earns a percentage of the profits if insurance companies make sales using that information.
For the last three years, Homeplus has been selling the personal information of more than 3 million customers. It has been revealed that the goals of this year are to sell the personal information of 4 million customers and score 4.8 billion won (US$4.5 million) in profits through four prize events.
Accordingly, it has been estimated that one prize event could make over 1 billion won (US$935,440) in profits for the company. In this situation, Homeplus has been criticized for establishing the financial subsidiary company Homeplus Financial Services last month by separating the insurance services team. Regarding this new company with the role of both insurance agent and broker, a Homeplus representative commented, “Tesco of the U.K., as the headquarters, has been considering entering the Korean market.”
Threatening Petty Thieves Nets Additional Funds
But the insurance racket is not the only hustle going on with Homeplus. Many of the company's security officers have been caught extorting petty thieves that they have caught, rather than turning them over to the authorities. The National Police Agency arrested three people including Son, the security team leader of Homeplus, for joint extortion, and indicted 48 security officers. In addition, the National Police Agency indicted an additional 13 former and current branch managers at Homeplus for overlooking the crimes of these security officers and encouraging their interrogation and intimidation tactics.
These so-called “security officers,” including Son, extorted over 200 million won (US$187,226) from 130 people after catching them stealing items from Homeplus stores by threatening to tell their families and the police after they were caught. This happened in ten different branches of Homeplus around the metropolitan area since July 2010.
Homeplus officially incentivized the security company by giving them extra points when security officers successfully extorted more than 1 million won from each case of theft, and deducting points when security officers failed to meet their monthly quota of ten thieves caught and 800,000 won (US$748) of extortion.
Lack of Legitimate Profits
Homeplus was ranked at the bottom among 100 companies in the large-small company accompanied growth index assessment for three consecutive years last year.
Homeplus is the second-largest distribution company in Korea, right behind Emart. However, operating profits, the index of corporate profitability, decreased by half for the past two years, and its sales growth is the lowest among the three major supermarkets this year.
Homeplus was established as a joint company by Tesco of the UK and Samsung C&T in 1999. Since Tesco acquired all the shares of Samsung C&T in March 2011, Tesco currently holds 100 percent of the shares of Homeplus.