Duty-free exchange rate hits 23-month low

Benchmark rate also falls 50 won in a month

'Every sale brings a currency loss,' industry says

Tourists shop at a duty-free store in Seoul.
Tourists shop at a duty-free store in Seoul.

The exchange rate applied to duty-free purchases has been falling in line with the recent decline in the won-dollar rate. A falling won-dollar rate typically encourages more Korean shoppers to buy duty-free goods, but the industry is not entirely pleased. The recent roller-coaster swings in the exchange rate could translate directly into weaker profitability.

According to the duty-free industry on Friday, the official won-dollar rate applied to duty-free purchases stood at 1,337.9 won that day. That is the lowest level in one year and 11 months, since Oct. 8, 2024, when it stood at 1,333.3 won. Compared with its recent peak of 1,554.4 won on July 3, the rate has plunged 13.9 percent, or 216.5 won, in just two months. Over the most recent month, from Aug. 12 to Friday, the rate fell 5.5 percent.

The duty-free exchange rate, which applies to both domestic and imported goods, is reset every midnight based on the previous day's benchmark rate set by the Seoul Money Brokerage Services. The won-denominated payment amount is calculated by multiplying the dollar-based price by the daily exchange rate. As a result, a falling duty-free exchange rate typically encourages more purchases by Korean shoppers.

In practice, sales to Korean shoppers fell sharply in July, when the monthly average official rate exceeded 1,500 won, reaching 1,501.1 won. According to the Korea Duty Free Shops Association, the number of Korean buyers and total sales that July came to 1,363,372 people and 241.8 billion won ($181 million). Both figures were down 14.2 percent and 13.5 percent, respectively, from the same month a year earlier.

With the rate holding in the 1,300 won range this month, the chances of improved sales to Korean shoppers have grown. Still, duty-free retailers are not entirely upbeat, because a rate that falls between the time products are purchased and the time they are sold can translate into losses. Since the rate hovered in the 1,400 to 1,500 won range over the past year, retailers that bought products at those higher rates now face an unavoidable currency loss.

"When we bought imported goods, the rate was in the mid-1,400s to 1,500 won range, and now it has fallen to the 1,300s," an industry official said. "It is a structure where every sale results in a currency loss."

Profitability calculations have grown even more complicated as duty-free retailers recently lowered the benchmark rate applied to domestic brand products. Lotte and Hyundai duty-free stores cut their benchmark rate from 1,400 won to 1,350 won per dollar starting Thursday, while Shilla and Shinsegae duty-free stores followed suit starting Friday.

The benchmark rate is used to set the dollar-denominated sale price of domestic goods supplied to duty-free stores in won. When the benchmark rate falls, the dollar sale price rises. For example, a domestic product priced at 100,000 won would sell for $71.4 under a benchmark rate of 1,400 won, but for $74.1 under a rate of 1,350 won. That makes it less price-competitive.

The bigger problem is uncertainty. As the exchange rate has swung up and down in short succession, it has become harder for retailers to decide when and how much inventory to purchase. The frequent shifts in the benchmark rate itself reflect the industry's struggle. The rate was cut from 1,400 won to 1,350 won in June 2025, then raised back to 1,400 won in November 2025, to 1,450 won in March 2026, and to 1,500 won in July 2026 before this latest cut. That amounts to five adjustments in 15 months.

"We have never experienced such steep exchange rate fluctuations," an industry official said. "We can only plan a purchasing strategy when the exchange rate moves predictably within an expected range, but it keeps deviating from expectations, making it difficult to manage profitability."


spa@heraldcorp.com