Korean duty-free shops are crowded with people. (European News Agency)
[Financial Channel/Comprehensive Report] Taiwanese go shopping in South Korea, beware! Comprehensive Korean media reports indicate that due to the dramatic fluctuations in the Korean won exchange rate, some of South Korea's imported boutiques still experienced the rare phenomenon of "duty-free shops being more expensive than department stores" until August. The price difference of a brand-name bag was once nearly 12%. However, with the recent appreciation of the Korean won, the situation has reversed. The duty-free prices of some imported high-quality products are now lower than those in department stores. Drastic exchange rate changes have also forced Korean duty-free companies to frequently adjust their pricing strategies.
According to comprehensive Korean media reports, taking Dior Lady Bag Mini as an example, the price in Korean duty-free shops is US$5,500. Based on the exchange rate of 1 U.S. dollar to 1,524.5 Korean won three months ago, the converted price is about 8.38 million won, but the price of the same product in Korean department stores is only 7.5 million won.
In other words, if you bought this Dior bag in a duty-free shop at that time, it would be 880,000 won more expensive than a department store, with a price difference of about 11.7%. There was a price inversion of "duty-free but more expensive".
However, with the recent appreciation of the won, the situation has reversed. Based on the exchange rate of 1 U.S. dollar to 1,336.1 Korean won on September 9, the converted price of the Dior bag, which also sells for $5,500, has dropped to about 7.35 million won, which is about 150,000 won cheaper than the 7.5 million won in the department store.
It is worth noting that Dior’s price of US$5,500 has not changed. The price reversal mainly comes from the appreciation of the Korean won. The same US$5,500 was about 8.38 million won three months ago, but now it only costs about 7.35 million won.
The Korean won's exchange rate fluctuates violently, forcing duty-free operators to frequently adjust their pricing strategies. The four major duty-free operators Lotte, Shilla, Shinsegae and Hyundai have recently adjusted the base exchange rate applicable to Korean goods from 1,400 won to 1 US dollar to 1,350 won. Lotte and Hyundai will adopt it from September 10, and Shilla and Shinsegae will follow suit from the 11th.
This adjustment of the benchmark exchange rate mainly affects Korean products, which is completely different from the fact that overseas high-quality products such as Dior have become cheaper due to the appreciation of the Korean won. Korean products are priced in Korean won, and then converted into US dollars based on the base exchange rate set by duty-free operators. After the base exchange rate is adjusted from 1,400 won to 1,350 won, the converted dollar price will increase while the Korean won price remains unchanged.
The industry explained that when the Korean won weakened previously, the price competitiveness of Korean duty-free shops declined, and the phenomenon of foreign tourists switching to department stores and shopping channels such as Olive Young, Daiso, and Musinsa intensified. In order to retain foreign tourists, duty-free operators raised the benchmark exchange rate at that time to lower the dollar prices of Korean products and maintain price competitiveness. However, the operators were also under pressure on gross margins.
Now that the Korean won has appreciated, businesses have begun to revise downward the benchmark exchange rate that was previously raised in response to the high exchange rate. Industry insiders said that this adjustment is mainly to restore the US dollar prices of Korean goods that were previously lowered to maintain price competitiveness to normal levels.
It is worth noting that in the past, when the exchange rate was relatively stable, the benchmark exchange rate of duty-free shops might only be adjusted once every three to four years. Now the adjustment cycle has been shortened to about one month, highlighting the rapid changes in exchange rates.
Industry insiders admit that no matter the exchange rate is high or low, it is easy to predict as long as the trend is stable, but once the fluctuation range expands, the operating burden will increase. At present, the most troublesome thing for purchasing personnel is when should they purchase goods and how much inventory should be prepared.
