[Edaily Reporter Kim Jeong-yu] The domestic retail industry is expected to remain in “cautious mode” for the time being, even as the likelihood of a ceasefire agreement between the U.S. and Iran has recently increased. Since geopolitical risks are not expected to be a one-time occurrence as in the past but rather to trigger further uncertainties, a trend toward a conservative approach in business strategy is emerging. Companies appear to be conducting business with uncertainty as a sort of “default setting.”

According to industry sources on the 17th, Company A, a domestic small-to-medium-sized cosmetics (beauty) firm, recently determined internally that establishing annual business plans was no longer meaningful and has reportedly begun formulating and revising its plans on a semi-annual basis. Company A is also considering further breaking down its business plans into quarterly intervals to ensure greater flexibility. Although an end to the conflict between the U.S. and Iran appears to be approaching, this decision appears to be driven by the assessment that significant uncertainty remains, given the history of rapidly changing circumstances.

Until now, the beauty industry has faced significant cost pressures for raw materials, containers, and packaging due to supply chain disruptions in petrochemical-based raw materials caused by the U.S.-Iran conflict. As cost pressures mounted, even major beauty companies struggled to devise alternative strategies. Therefore, if the end of the conflict becomes a reality, companies will be able to breathe a little easier. However, rather than “rejoicing,” K-Beauty brands remain cautious. It is reported that an increasing number of companies, like Company A, are fine-tuning their internal management strategies and adopting a conservative approach.

The CEO of Company A stated, “Although the recent situation—the U.S.-Iran conflict—has shown some signs of lulling, there is still significant uncertainty from a corporate perspective. After all, the war between Russia and Ukraine isn’t over yet, is it?” He added, “Since we view these external variables as the new ‘default’—something that will always be with us—the calculations for management are becoming more complex.”

It appears that exchange rate volatility has also become the new normal. While K-Beauty brands with a high proportion of overseas sales may benefit from a strong won, their profitability will inevitably decline if the costs of raw materials and packaging—some of which rely heavily on imports—rise in tandem. As war, exchange rates, and oil prices move in tandem, the small and medium-sized K-Beauty sector anticipates an “era of uncertainty” for the foreseeable future and is showing a trend toward implementing highly “micro” management plans.

Large corporations are also showing a similar trend when viewed from a broader perspective. #Amorepacific is also closely monitoring the possibility of an end to the U.S.-Iran conflict but appears to be taking a conservative approach. A company official stated, “While stability in the Middle East and the normalization of logistics could have a positive impact on international oil prices and freight rates, the prices of raw materials and logistics costs are influenced by various factors beyond the international situation, making it difficult to estimate specific cost-saving effects or business impacts at this point.” The official added, “Our policy is to continuously monitor the impact on our business and take proactive measures for risk management.”

The mood in the fashion industry is similar. It is reported that mid-sized domestic fashion companies, such as Company B, are also conducting internal simulations of “Plan B” strategies based on hypothetical assessments of geopolitical risks. Unlike the beauty sector, which relies heavily on exports, the fashion industry still depends heavily on domestic demand, making it more vulnerable to exchange rate fluctuations. In fact, prices for materials such as vinyl and fabric have already risen sharply due to the U.S.-Iran conflict. However, given the price-sensitive nature of the industry, it is difficult to fully pass on these cost increases to final consumer prices. Consequently, the fashion industry is reportedly adopting a more conservative approach starting from the business planning stage.

A fashion industry official stated, “Unlike in the past, the current trend of focusing on reducing inventory—by cutting orders based on the previous season’s sales figures and conservative growth rate data, while increasing reorders periodically—is likely to continue,” adding “We believe that even after the war ends, the aftermath is likely to affect exchange rates and other factors for some time, so a management style focused on ‘defense’ will become the norm.”

Since the 2022 war between Russia and Ukraine, geopolitical risks overseas appear to have taken root as a kind of “learning effect” within the domestic retail industry. There is a widespread sentiment across the industry that pursuing marketing campaigns or business initiatives with a long-term perspective, as in the past, is itself a risk. Consequently, even with this ceasefire agreement, companies appear to be adopting an even more cautious stance.