SOUTH KOREA. In a significant move for Korean travel retail, major duty-free retailers have increased the US Dollar reference exchange rate for domestic products from KRW1,450 to KRW1,500, aiming to maintain price competitiveness amid the prolonged weakness of the Korean Won.
Lotte Duty Free introduced the change on 8 July. Shinsegae Duty Free followed suit a date later while The Shilla Duty Free and Hyundai Duty Free have also adopted the new rate.
The revision applies only to domestic brands, with foreign luxury brands exempt from the adjustment.
The latest development was initially reported this week by Seoul Economic Daily and other Korean business titles, which said the adjustment is a direct response to the sustained strength of the US Dollar against the Korean Won.
As reported, the exchange rate climbed to KRW1,560 in June, the highest level in nearly two decades.
Travel retailers use the reference exchange rate to convert Korean Won-denominated supplier prices into US Dollar selling prices for domestic brands, which lowers the US Dollar selling prices of Korean products by an estimated -3% following the increase to KRW1,500.
The latest adjustment continues a series of revisions that began last November, when the reference exchange rate rose from KRW1,350 to KRW1,400. It was subsequently increased to KRW1,450 in March before reaching KRW1,500 this month, helping maintain the price competitiveness of domestic products.
Lotte Duty Free told The Moodie Davitt Report, Lotte Duty Free that the latest adjustment marks its first revision in four months.
The company said: “It is intended to maintain the price competitiveness of domestic brand products while helping to ease the price burden resulting from the weaker Korean Won. Through this adjustment, we aim to enhance customer benefits by enabling more affordable duty-free shopping.”
Shinsegae Duty Free cited continued foreign exchange volatility as the reason for the adjustment. The company told The Moodie Davitt Report: “We implement an internal reference exchange rate system to provide our customers with stable, consistent and reliable price guidance in our stores.
“Under the prolonged high-exchange-rate environment, the US Dollar-denominated retail prices of Korean products had risen significantly, increasing the financial burden on shoppers.”
The revised reference exchange rate has been applied simultaneously to both the retailers’ offline and online duty-free platforms.
However, it will be applied to Lotte Duty Free’s inflight duty-free business from the first day of the following month, in accordance with the operating schedule.
Lotte Duty Free said the latest revision will boost customers’ buying power, encouraging purchases and supporting overall sales.
The company said: “The selling prices of domestic brand products are calculated by dividing their Korean Won prices by the reference exchange rate. As the higher reference exchange rate lowers the US Dollar-denominated selling prices, we expect it to help reduce customers’ price burden and encourage purchases.
“The effect is likely to be more noticeable for higher-priced products, where even small price changes can have a greater impact. As a result, we expect the adjustment to have a positive effect on both average transaction value and sales recovery.
“However, as the high exchange rate environment is expected to continue, the overall impact will need to be assessed in light of future exchange rate movements and market conditions.”
Shinsegae Duty Free offered a similar view. “By raising our reference exchange rate to KRW1,500, we have effectively lowered US Dollar-denominated retail prices by approximately -3%, helping to ease the burden on consumers and stabilise retail prices.”
Lotte Duty Free said the latest revision forms part of its ongoing approach to managing reference exchange rates in line with exchange rate movements and market conditions.
The company said: “Going forward, we will continue to monitor exchange rate trends, market conditions and customer benefits, and will operate the reference exchange rate flexibly as necessary.”
Shinsegae Duty Free added: “This adjustment is a proactive measure in response to the current macroeconomic climate and sustained high exchange rates
“We will continue to closely monitor market volatility and foreign exchange trends to implement the most flexible and customer-centric pricing policies going forward.” ✈
