The department store industry, which saw record sales due to a surge in foreign tourists in the first half of the year, is closely monitoring the rapidly declining won-dollar exchange rate. The depreciation of the won had been a factor attracting foreign purchases of luxury goods and fashion, but with the exchange rate dropping to the 1300 won range for the first time in 11 months, price competitiveness may weaken.
As of August 21, the won-dollar exchange rate in the Seoul foreign exchange market was recorded at 1386.5 won, down 6.1 won from the previous trading day's closing price. This marks a significant increase in the value of the won compared to just over a month ago when the exchange rate was above 1500 won.
Foreign sales at department stores are particularly sensitive to exchange rate fluctuations. According to industry reports, foreign sales at Lotte, Shinsegae, and Hyundai department stores reached approximately 1.72 trillion won in the first half of the year, the highest on record. Lotte Department Store saw a 124.6% increase in foreign sales to 640 billion won compared to the same period last year, while Shinsegae Department Store reported a 120.5% increase to 580 billion won, and Hyundai Department Store experienced a 112.8% rise to 500 billion won. The combination of a weaker won, an increase in inbound tourists, and the popularity of K-content has driven a surge in foreign consumption of luxury goods and fashion.
From January 1 to August 20 this year, foreign sales at Lotte Department Store increased by 125% compared to the same period last year. Shinsegae Department Store reported a 238% increase in foreign sales at its main store and an 183% increase at its Centum City store from January to July. Hyundai Department Store also saw foreign sales rise by 138% and 134% at its The Hyundai Seoul and Trade Center locations, respectively. Notably, foreign customers accounted for about 20% of total sales at The Hyundai Seoul and Trade Center, highlighting their significant contribution to the performance of key stores.
The challenge is that as the value of the won increases, Korean products become more expensive for foreign buyers. For instance, a product priced at 1 million won would cost approximately $667 when the exchange rate is 1500 won per dollar, but would require about $721 at the current rate of 1386.5 won. This means foreign buyers would need to pay an additional $55, or about 8.2%, for the same product.
Luxury goods, in particular, have relatively small price differences across countries, making exchange rate changes influential in determining where purchases are made. In the first half of the year, the weaker won made buying luxury goods in Korea more attractive, drawing foreign consumers to department stores. However, if the won continues to strengthen, this effect may diminish. In April, some duty-free items priced in dollars became more expensive than those in domestic department stores due to high exchange rates.
It remains to be seen whether the decline in the exchange rate will directly lead to a decrease in foreign sales. According to the Ministry of Culture, Sports and Tourism, the number of foreign visitors to Korea in the first half of the year reached 10.71 million, a 21.3% increase from the previous year. During the same period, foreign card spending in Korea also rose by 50.8% to 10.39 trillion won.
Another variable is the diversification of the foreign customer base, shifting from a focus on Chinese tourists to include more visitors from the United States and Southeast Asia. The proportion of Chinese customers in foreign sales at Shinsegae Department Store dropped from 77.5% in 2019 to 48.5% in the first half of this year, while the share of American customers increased from 1.1% to 19.1%. Historically, Chinese tourists, who were significant contributors to sales, tended to adjust their purchasing behavior based on exchange rates. This shift suggests that more customers are visiting Korea for experiences related to K-fashion, K-beauty, and K-content rather than solely for shopping.
An industry insider stated, “It has only been a short time since the exchange rate dropped to the 1300 won range, and there has not yet been a noticeable impact on foreign sales. However, the increase in foreign tourists is somewhat offsetting the decrease in price attractiveness, and we are closely monitoring the potential effects if the decline in the exchange rate continues.”
* This article has been translated by AI.
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