Diamond and jewelry companies in China are operating in a dynamic and changing environment. In 2013, as the country’s economic growth has slowed, albeit to an enviable 7.5 percent, polished diamond demand has become cautious, affecting sentiment in the global trade.
But that doesn’t necessarily affect China’s long-term diamond and jewelry growth story. The country’s wholesale and retail trade continues to work to better understand the demographic trends and evolving consumer preferences in the country to ensure their position in the market.
Kent Wong, managing director of Chow Tai Fook Jewellery (pictured), notes the cyclical nature of growth in the local jewelry market and attributed the recent caution to the government’s change in leadership.
“The leadership transition [which occurs once every 10 years] always brings a slowdown, and the new government has also implemented measures that have restrained demand, such as curbing gift-giving to government officials. That has affected sentiment in the luxury and jewelry segment,” Wong said at this week’s Rapaport International Diamond Conference (IDC). “So I would say that buying sentiment has mainly been affected by government measures and I believe we will see a recovery and confidence will improve in the second half of the year.”
Chow Tai Fook is considered the region’s largest jewelry retailer as its revenue increased 1.5 percent to $7.4 billion (HKD 57.4 billion) in fiscal year 2012-13; meanwhile, profit fell 17 percent to $730 million, due mainly to the economic slowdown. The company ended the year with 1,640 points of sale in Mainland China and 103 spread across Hong Kong, Macau and other Asian markets.
If the company expressed caution at the time, it changed its tone in the first quarter that ended June 30. Chow Tai Fook reported 63 percent revenue growth in the period driven by strong gold jewelry purchases when gold prices fell in mid-April. While Wong doesn’t expect the company will maintain such high growth levels for the remainder of the year, he recognized that consumers still see a buying opportunity in gold jewelry, as prices may have recovered but remain well below levels seen earlier in the year.
He added that the company’s diamond jewelry sales are forecasted to increase by single-digit percentages for the fiscal year, having increased by 8 percent in the first quarter, with growth driven by greater volume of sales.
The Young & the Affluent
In fact, Wong observed that the volume of China’s jewelry sales is constantly increasing, even if demand does fluctuate along with consumer sentiment when the market slows. Rather, he noted that consumers tend to shift to less expensive products in more cautious economic times.
As a result, jewelry sales in China have significantly outpaced general retail and economic growth in the past decade and the trend is expected to continue. Wong reported that the compound annual growth rate of China’s jewelry market has increased by 26 percent in the past five years and is expected to more than double to about $103 billion by 2015. By 2020, he expects China will match the U.S. as the largest jewelry market.
To capture that growth, Wong recognized the 20 to 30 year old age group as well as the affluent consumer segment as representing the greatest growth opportunity for the industry in China. Those segments are not included in the mass luxury jewelry segment – where price points fall between $256 and $12,820 – which contributes about 80 percent of Chow Tai Fook’s total revenue.
According to Wong, the 20 to 30 year olds account for an estimated 30 percent of China’s population. They fill the medium-to-low-end market segment and are the target of Chow Tai Fook’s online sales campaigns. Wong expects the company’s online sales to contribute about 5 percent of total revenue in the next five years, but recognized that the internet is more about networking and relationship building than sales growth.
Chow Tai Fook has also teamed up with Rio Tinto to enhance its diamond fashion jewelry sales, largely for the younger generation in China. The program is focused on pitching affordable pieces with diamonds sourced from Rio Tinto’s Argyle mine in Australia.
“Although the Chinese market tends to prefer white solitaire diamonds and is largely focused on diamonds for weddings, there is enormous potential to expand the non-wedding market and explore demand for affordable diamond fashion jewelry,” Wong said.
Other campaigns, such as Chow Tai Fook’s Forevermark program, are targeting China’s growing affluent population as well. The company expects affluent consumers to account for half of all private consumption in China by 2020.
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