Hong Kong jeweler plans US sales unit

China Daily (USA) - - ACROSS AMERICA - By BLOOMBERG

Chow Tai Fook Jew­elry Group Ltd plans to ex­pand in the US mar­ket by sell­ing di­a­monds to re­tail­ers there, as it seeks to off­set ef­fects of a slow­down in China that has hurt lux­ury sales and led prof­its to plunge.

The world’s largest pub­licly traded jew­elry chain plans to start the new US whole­sale busi­ness within a year and has set up a team to con­duct fea­si­bil­ity stud­ies, Chow Tai Fook Manag­ing Di­rec­tor Kent Wong said. Un­like the com­pany’s US unit Hearts on Fire, which mainly sells its own­branded di­a­mond jew­elry to fran­chisees, Chow Tai Fook will sell pol­ished and rough di­a­monds to other re­tail­ers, he said.

“We are in­ter­ested in the US mar­ket be­cause it has the largest de­mand for di­a­monds in the world. It con­trib­utes 40 per­cent of di­a­monds sales,” Wong said.

Chow Tai Fook in 2014 bought Hearts on Fire for $150 mil­lion in a bid to in­tro­duce the US lux­ury di­a­mond brand to China, a move that’s met chal­lenges as the coun­try’s slow­down damped the buy­ing habits of high-end con­sumers. The Hong Kong-based re­tailer saw net in­come slump 46 per­cent for the year ended March 2016, as main­land tourists also be­gan to skip the city for other shop­ping des­ti­na­tions.

Low mar­gins

Chow Tai Fook’s ven­ture into the US may come with chal­lenges, said Han­nah Li, a se­nior an­a­lyst in UOB Kay Hian Ltd based in Hong Kong. She said its strat­egy re­flects the jeweler’s “lack of con­fi­dence” in the China mar­ket.

“The com­pany’s not ex­pand­ing into a fa­mil­iar mar­ket but it’s con­sid­er­ing a lower-mar­gin, whole­sale busi­ness in a new mar­ket where it needs a lot of time to ex­pand its busi­ness net­works.”

The US mar­ket ... has the largest de­mand for di­a­monds in the world.” Kent Wong, manag­ing di­rec­tor, Chow Tai Fook jew­el­ers

Hong Kong-listed Chow Tai Fook rose as much as 1.4 per­cent in Hong Kong trad­ing on Tues­day. It has gained 18 per­cent this year, af­ter plum­met­ing to a record low in January. The city’s bench­mark Hang Seng In­dex was lit­tle changed.

Since ac­quir­ing Hearts on Fire, the com­pany has ex­panded the brand in the China mar­ket with about 140 sales lo­ca­tions, Chow Tai Fook re­ported in June. About 80 per­cent of Hearts on Fire’s rev­enue are from its whole­sale busi­ness to fran­chisees, ac­cord­ing to the com­pany.

Rather than break­ing into a brand-new re­tail mar­ket on its own, the new whole­sale busi­ness will al­low Chow Tai Fook to test the wa­ters, said Wong. “We will seek to part­ner with lo­cal re­tail­ers who know the mar­ket well.”

BLOOMBERG

A cus­tomer looks at gold bracelets in a Chow Tai Fook jew­elry store in Hong Kong.

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