Kwangbok Department Store

UPDATE 1 (2012-2-21): According to the Korea Times, this store is now providing people with a legal window to exchange local for hard currency:

North Korea is apparently allowing foreign currency to be exchanged at unofficial, black market rates at a newly-renovated department store in Pyongyang, according to a diplomatic source who recently visited the country, Tuesday.

The source said people could exchange euros, dollars and yuan at kiosks at Kwangbok Area Supermarket, which recently opened after refurbishment and is said to resemble department stores in the South. The North has long kept the value of its local currency artificially high.

Euros were being exchanged at the rate of one euro for 4,420 North Korean won, while the official rate is around 130 won per euro, the source said.

“They are exchanging hard currency at a rate that seems to be an unofficial rate,” the source told The Korea Times. “People can also shop at the department store using foreign currency by taking their receipts to the booths.”

The source added that the exchange rates were written on a board inside the kiosks.

ORIGINAL POST (2012-1-6): See the original post below.


 

Pictured Above: (L) The original facade of the “Kwangbok Department Store (광복백화점)”. (R) The new facade of the “Kwangbok Area Supermarket (광복지구상업중심)”

Here is KCNA coverage of the opening of the facility (Posted to YouTube):

Astute observers will notice the American beer, Pabst Blue Ribbon, featured prominently in the beer section.

Here is coverage of the opening in KCNA (2012-1-5):

Pyongyang, January 5 (KCNA) — The Kwangbok Area Supermarket was opened with due ceremony on Thursday.

All business service at the supermarket built as a commercial service center has been put on IT and digital basis. Customers can buy varieties of goods according to their taste and requirements in the sales rooms on each floor stacked with household appliances, electronic products, foodstuff, fibre, sundries and others.

Present there were officials concerned, officials of the Korea Taesong General Trading Corporation, officials and employees of the Kwangbok Area Supermarket, members of the Feihaimengxin Trading (Beijing) Co. Ltd. staying in the DPRK and the Chinese embassy here.

O Ryong Il, general president of the Corporation, said in his speech that the work to build the supermarket was successfully completed under the energetic leadership of leader Kim Jong Iland the dear respected Kim Jong Un and the positive efforts of the peoples of the two countries.

He expressed belief that the supermarket would help towards improving the people’s living standard and promoting the well-being of the two peoples through better service and management.

Xue Rifei, executive managing director of the Feihaimengxin Trading (Beijing) Co. Ltd., said in his speech that Kim Jong Il and Kim Jong Un gave field guidance to the supermarket on December 15, 2011 and named it the Kwangbok Area Supermarket.

He expressed the expectation that an effort will be made to reenergize the supermarket to win high appreciation for its best management, service and credit.

The Korea Taesong General Trading Corporation is a sanctioned organization, and according to the US Treasury, it is a “key node” in the illicit activity of Office 39. According to NK Leadership Watch:

One of the participants at the opening ceremony was Jon Il Chun (Chon Il-chun), deputy director of the Korean Workers’ Party’s Finance and Accounting Department and section chief of Office #39.  Mr. Jon accompanied Kim Jong Il on a visit to the Kwangpok store in mid-December 2011, which was KJI’s last reported public appearance before his death.

On a more casual note, the supermarket marks a point of administrative departure from the way department stores are typically managed in socialist countries. The Kwangbok Department Store (the former name) was one of Pyongyang’s premier formal retail outlets. For decades it operated in the same way as other socialist department stores: customers ended up standing in three lines before they were able to collect their merchandise (one line to order, another line to pay, and another line to pick up). The new Kwangbok Supermarket has adopted a market-style check out line. Though unnoticed by foreigners, this is the first such check out line I have seen in a North Korean department store.

This point was also highlighted in AP coverage:

A separate story in KCNA notes that the shop will sell both foreign and domestic goods:

The supermarket is supplied with home and foreign-made products which are in demand in the country.

Although I have not acquired data specific to this store, I believe it is reasonable (even rational) to assume that if the supermarket sells imported goods it will charge had currency for them. This opinion is based on the following assumptions: 1. The Chinese investors will not accept North Korean won under any circumstances. 2. The goal of Office 39 is to acquire hard currency for the Kim family. 3. North Korean retail outlets frequently post prices in multiple currencies so I don’t see any reason why it would be different here. Today a plurality of North Koreans can easily acquire foreign exchange.

Here is my working assumption of the business model: Chinese partner acquires merchandise and imports it to the DPRK. Sales in hard currency go towards allowing the Chinese supplier to recover its costs. Chinese partner either earns a profit from a markup it charges Kwangbok or it divides the profit with Office 39 along some agreed percentage.

If Chinese profits are earned from a cost-plus markup that it charges Kwangbop, then the partnership is closer to an exclusive supplier deal rather than a true joint equity deal. The North Koreans could cheat on this deal by finding cheaper suppliers and decreasing its purchases from the Chinese partner. If after-sales profits are split between the Chinese and Office 39, then both partners will need auditors on hand to make sure the books are accurate. The Chinese partner will also need a good relationship with the Chinese embassy if it runs into problems with the DPRK managers should they unilaterally change the terms of the contract (the split).

A Chinese firm reportedly tried to invest in the Pyongyang Department Store No. 1 several years ago. Not much seemed to happen, but maybe there is some more info here.

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