The duty-free industry, which had been hopeful for a recovery in domestic sales, is facing new challenges. After a decline in exchange rates since July sparked a resurgence in domestic demand, a recent surge in rates has put price competitiveness back in question.
On September 21, the won-dollar exchange rate closed at 1,381.0 won. The rate had soared to a peak of 1,555.8 won on July 2, then dropped to a low of 1,336.1 won on September 9. Following that, it rose for seven consecutive trading days, reaching 1,383.3 won on September 18 before slightly declining.
In response to the falling exchange rate, duty-free operators adjusted the standard exchange rate used to price domestic products. Lotte and Hyundai Duty-Free lowered their standard rate from 1,400 won to 1,350 won starting September 10, while Shilla and Shinsegae Duty-Free made the same adjustment on September 11. This marks a further reduction after a previous drop from 1,500 won to 1,400 won last month.
The standard exchange rate is the internal rate used by duty-free shops to set dollar prices for domestic cosmetics and fashion items. Lowering the standard rate increases dollar prices, but if the actual exchange rate falls more significantly, the amount paid in won by domestic customers decreases. Conversely, if the exchange rate rises again, the perceived prices may increase. An industry insider stated, “Given the recent change in the standard exchange rate, there are no immediate plans for further increases, and we will continue to monitor exchange rate trends.”
During the period of declining exchange rates, signs of recovery in domestic consumption were evident. Lotte Duty-Free reported a 26% increase in domestic sales in July compared to the previous year, followed by a 43% increase in August and a 48% increase from September 1 to 20. Cumulatively, sales from July 1 to September 20 rose by 37%. Within that period, categories such as alcohol and tobacco saw a 159% increase, cosmetics and perfumes rose by 56%, and food increased by 39%. A representative from Lotte Duty-Free noted, “Sales of alcohol and tobacco have particularly surged since the opening of our Incheon Airport store in April.”
Shinsegae Duty-Free's Myeongdong store experienced a 15.5% decrease in domestic sales in July and a 10.5% drop in August, but saw a 1.6% increase in September, marking a return to positive growth. In September, domestic sales in the luxury category increased by 11% compared to the same month last year. A representative from Shinsegae Duty-Free commented, “The high exchange rates in July and August significantly impacted domestic sales, but since mid-August, as the exchange rate stabilized, we are approaching last year's levels in September.”
Overall, the duty-free sector showed signs of recovery in domestic consumption compared to the previous month. According to the Korea Duty-Free Shop Association, domestic sales in July reached 241.8 billion won, a 14.6% increase from the previous month.
An industry insider remarked, “Duty-free shops' price competitiveness for domestic customers varies greatly with exchange rates. Given the recent recovery in domestic sales, whether the exchange rate remains high for an extended period will be a variable affecting performance in the second half of the year.”
* This article has been translated by AI.
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