[King Dollar's Bombardment] Where Are the Reopening Benefits... Duty-Free Stocks Fear High Exchange Rates

July Sales Down 14.6% to 1.2 Trillion Won
Customers Leave for Online Malls as Dollar-Based Prices Rise
High Exchange Rates Prompt 'Conservative Approach' Advice

The duty-free industry, which had expected a recovery due to the lifting of aviation regulations and an increase in quarantine-free travel destinations, is struggling with the high exchange rate. On the 27th, a duty-free shop in downtown Seoul was quiet. Photo by Moon Honam munonam@

[Asia Economy Reporter Myunghwan Lee] Duty-free shop stocks, considered representative beneficiaries of the reopening (resumption of economic activities), are facing difficulties. The easing of entry restrictions and the resumption of air travel have not been very effective, compounded by the adverse factor of a high exchange rate.

According to SK Securities and the Korea Duty Free Association on the 7th, domestic duty-free shop sales in July recorded 1.2474 trillion won, a 14.6% decrease compared to the previous month. SK Securities diagnosed that due to the high exchange rate, the dollar-denominated prices of duty-free products rose, causing consumers to shift to other distribution channels such as department stores or online shopping malls.

Even excluding the impact of the high exchange rate, the duty-free sector has not fully benefited from the reopening effect despite the easing of international flight restrictions and the arrival of the vacation season in June. This is due to a sharp decline in foreign sales caused by a decrease in Chinese tourists following China's lockdown measures. Profitability is also steadily deteriorating as the commission fees for Chinese daigou (personal shoppers), the largest customers of duty-free shops, have skyrocketed.

The stock prices of major listed companies operating duty-free shops have also fallen compared to the first quarter when reopening expectations were high. This is due to a combination of adverse factors in the global stock market, including the strong dollar, inflation concerns, and tightening policies. Hotel Shilla, which operates Shilla Duty Free, traded in the mid-80,000 won range in mid-April but closed at 72,200 won yesterday. Shinsegae, which owns Shinsegae Duty Free, rose to the 270,000 won range in March but recently has been priced in the low 200,000 won range.

As the risk of a high exchange rate becomes more prominent, advice is emerging to approach investment in the duty-free sector cautiously for the time being. SK Securities researcher Jung Gyu-jin said, "Domestic sales at duty-free shops have decreased due to limited growth in airport users caused by the resurgence of COVID-19 and the deterioration of price competitiveness due to the high exchange rate," adding, "There are also effects such as restrictions on the influx of foreign tourists due to sporadic regional lockdowns, so it is valid to take a conservative approach to the duty-free industry for the time being."

However, there is also analysis that the increase in the duty-free allowance could have a positive impact on duty-free shops. The Ministry of Economy and Finance announced on the 5th a legislative notice to revise the Customs Act Enforcement Rules to raise the basic duty-free allowance for travelers' carry-on goods from $600 to $800. Kyobo Securities researcher Jung So-yeon evaluated, "This increase in the duty-free allowance is the first in over eight years since 2014 and will raise the average spending per domestic customer, leading to an expansion in duty-free sales."

The abolition of the pre-entry COVID-19 test earlier this month may also contribute to an increase in overseas travelers, benefiting duty-free shop performance. Researcher Jung said, "COVID-19 tests conducted overseas require time and cost, which discourages travel," and diagnosed, "The abolition of the test will accelerate the recovery of travel demand."

This content was produced with the assistance of AI translation services.