The escalating U.S.-Iran conflict has rattled currency markets, casting fresh doubt over South Korea's duty-free industry just as it showed signs of recovery.
The won closed at 1,476.2 per dollar on the Seoul foreign exchange market on the 4th, up 10.1 won from the previous day. Duty-free operators are visibly on edge. In overnight trading the day before, the exchange rate breached the 1,500 won level for the first time in 17 years since the global financial crisis.
Earlier this year, when the won traded in the low-to-mid 1,400 range during January and February, duty-free retailers aggressively courted domestic customers with exchange rate compensation promotions and discounts. The strategy paid off. Lotte Duty Free's domestic sales for January-February rose approximately 20% year-on-year. Shinsegae Duty Free and Hyundai Duty Free posted domestic sales growth of 10% and 15% respectively during the same period, marking a clear recovery.
But the unexpected emergence of Middle East geopolitical risks has upended the outlook. The currency spike has frozen domestic consumer sentiment. Rising oil prices threaten to increase logistics costs and disrupt supply chains.
Industry analysts widely expect profitability to deteriorate. Duty-free operators rely heavily on direct purchasing settled in dollars. A stronger dollar immediately translates into higher procurement costs.
Operators preparing to enter Incheon International Airport are also closely monitoring developments in the Middle East. Lotte Duty Free and Hyundai Duty Free were selected as operators for the DF1 and DF2 zones at Incheon International Airport, respectively. Both are preparing to resume full operations later this month. However, if the high exchange rate persists due to a prolonged conflict, earnings pressure will likely intensify.
"The industry encountered geopolitical risks just when we were expecting improved profitability across the board," a duty-free industry official said. "We are closely monitoring the situation company-wide, as supply chain disruptions and rising global logistics costs remain possible."