Major Korean duty-free operators are raising the reference exchange rate used to set the selling prices of domestic brand products to 1,500 won in response to a rising won-dollar exchange rate. A higher reference rate lowers the duty-free selling prices displayed in dollars, so domestic products are expected to see a price reduction effect of about 3 percent.
According to the duty-free industry Monday, Lotte, Shilla, Shinsegae, and Hyundai duty-free stores are raising the reference rate applied to domestic brand products to 1,500 won from the previous 1,450 won. Lotte and Shilla duty-free will apply the revised rate from the 8th, while Shinsegae and Hyundai duty-free will apply it from the 9th.
The reference rate is the exchange rate that duty-free stores apply on their own when setting the dollar selling prices of domestic brand products supplied to them in won. Because the won price is divided by the reference rate, raising the rate lowers the dollar-denominated price. For a product priced at 43,500 won, applying a reference rate of 1,450 won yields $30, but raising it to 1,500 won brings it to $29.
The duty-free industry raised the reference rate to prevent the price competitiveness of domestic brand products from weakening amid the recent high won-dollar exchange rate. The industry raised the reference rate from 1,350 won to 1,400 won last November, then to 1,450 won in March this year. Including this adjustment, the reference rate has been raised three times over about eight months since last November.
However, the revised reference rate applies only to domestic brand products. Overseas luxury brands are excluded from the adjustment, as their selling prices are set according to the headquarters' global pricing policy.
"With high exchange rates continuing, raising the reference rate can lower the dollar selling prices of domestic products, which is expected to help maintain price competitiveness," a duty-free industry official said.
