China’s biggest jeweller says it will double its 2191-strong store network within 10 years.
The company this week reported a 22.4 per cent decrease in revenues in the first half year’s trading, but remains bullish about the resilience of its core China and Hong Kong markets in both the short and longer term.
The revenue decline was due to the ‘normalisation’ of gold purchasing following an unusually high sales period in the previous year when gold prices sharply decreased. Gross profit margin, however, increased due to the product mix returning to normal and more consumers buying gem-set jewellery.
“The jewellery market downturn came as no surprise, given the relatively slow economies in both Hong Kong and Mainland China and in particular the high base effect when compared to the same period last year,” said CTF in its earnings statement.
“Having that said, the situation was not all that bleak. Signs of resilience were seen in the second quarter as reflected in the group’s narrowing decline in revenue as well as a rebound in jewellery retailing in mainland China. The group is confident these improvements will continue in the light of the festive shopping sprees in the second half of the financial year and the momentum will sustain moving forward.”
The company said the doubling of its retail network would go hand in hand with “stepped up efforts” to further enhance its eCommerce model with optimised O2O synergy and omni-channel retailing.
“Currently of Mainland China’s 600 million plus netizens, about 24 per cent are online shoppers and close to 50 per cent are women. There is plenty of room for business growth in both online and offline luxury markets and the jewellery industry with women as its major customers will definitely benefit,” the company said.
Mainland China has already surpassed the US as the world’s largest e-tail market and the growth momentum remains robust. Online sales surged 49.9 per cent year-on-year in the first nine months in 2014.
CTF said the recent announcement of China’s central government to prioritise support for e-commerce to drive domestic spending will be a powerful impetus to accelerate its development.
Mainland China, currently accounting for 58 per cent of CTF’s sales, will continue to be Chow Tai Fook’s major market. Stable employment, rising disposable incomes, continuing urbanisation, together with widespread confidence in the country’s future economic development, are all positive factors that support the group’s optimistic business outlook in the medium to long run, the company said.
Hong Kong’s position being an international jewellery hub and a free port for tax-free luxury goods enables it to stay attractive to many locals and tourists. The stable consumption power and demand for jewellery products of local people will remain as the favourable factors that support the city’s jewellery industry continuously.
“As Mainland consumers are becoming more discerning and look for high quality jewellery products and unique shopping experience, with its long-established goodwill as a shopping paradise and its proximity to Mainland China, Hong Kong will be able to maintain its leading position as the sightseeing and shopping destination to many mainland tourists.”
While overseas travel is increasingly popular among the Mainland Chinese in recent years, the group has sought to open points of sale in newly emerged tourist destinations to capture the spending power of the affluent outbound Mainland Chinese tourists.
In the half year to September, the company opened its first store in Korea, in Jeju Island.
CTF’s gross profit margin increased to 31.8 in the half year to September 30, compared with 26.4 per cent in the same period last year.
Chairman Dr Henry Cheng observed: “Despite the unfavourable operating environment in the first half, the group saw a sign of resilience as reflected in the narrowing decline in our revenue in the second quarter. We anticipate this trend will continue and are prudently optimistic about the second half of 2015.”
