Hong Kong’s weakening luxury market has seen the territory’s largest jeweller post a 42.2 per cent drop in profit in the first half year to $1.557 million.
Sales at Chow Tai Fook fell four per cent to HK$28.12 billion, with gross profit down 15.8 per cent to $7.857 billion.
But Chow Tai Fook chairman Dr Henry Cheng says the company has a plan to respond to the luxury market shifts over the last 12 months which have caused the challenging trading environment and restore the jewellery giant’s bottom line.
“We remain highly focused and vigilant as we steer and position our business through refining our product offerings and channels tactically in response to the evolving customer tastes and preferences,” he said in a stock exchange filing.
In the face of the changing retail landscape in the markets, the company has adopted a conservative approach for point of sale network management during the next 12 months including the consolidation of low performing stores and a slowing in the pace of new openings.
The group plans to focus on improving inventory turnover and optimising inventory level.
“With long-term commitment and rewarding successes in innovative technology development and applications, the group will strive to implement the lately introduced Smart+ Initiatives for enhancing operational efficiency, delivering seamless shopping experience, and driving omnichannel retailing,” the company said in a statement.
“Last but not least, the group is always committed to human capital investment, for instance, the Chow Tai Fook Academy launched in June this year is an important endeavour to incubate staff members with structured and professional training and development programs.”
Kent Wong, group MD, added: “Amidst the uncertainties underlining the current market environment, we are positive about the long-term growth of the jewellery consumption in Greater China. Yet, in light of the challenges ahead, we will continue to adopt a balanced approach of growth and development.”
In the first half year, while the group’s sales slipped only 4.1 per cent, declining margins caused the profit slump.
This was largely due an increase in gold product sales and the unrealised hedging loss on gold loans for the period compared to an unrealised hedging gain in the same period last year.
China strength
Revenue contribution from the jewellery business in Mainland China increased steadily from 54.5 per cent in the first half of last year to 56 per cent in the last half.
The group opened 142 new points of sale in the Mainland during the half, mainly in Tier III and lower tier cities in Mainland China. But the net openings were only 29 because 115 points of sale were closed, equivalent to approximately five per cent of its network. The closures were higher than the group’s historical average as many ceased operation due to the closure and restructuring of many department stores. As at September 30, Chow Tai Fook had 2286 outlets in total, including two new ones in its newest international market, South Korea.
The group’s eCommerce business continued to maintain a steady growth of 44.3 per cent year on year in Retail Sales Value. Mainland China contributed approximately 1.9 per cent of the online jewellery business and the average daily traffic of its major eCommerce channels including Chow Tai Fook eShop, Tmall.com and JD.com accounts rose 47.1 per cent to more than 225,000 unique visitors. Followers on Sina Weibo, Tencent Weibo and WeChat accounts were accumulated to more than 1.4 million.
To strategically complement the Group’s premium bridal and fashion diamond jewellery portfolio, the Group has gradually extended the market access of the newly acquired internationally acclaimed premium diamond brand Hearts On Fire in Greater China. During the period, the Group opened four Hearts On Fire standalone stores in Mainland China and Taiwan, and 53 “shop-in-shops” and “counter-in-shops” in Mainland China and Hong Kong, leveraging Chow Tai Fook’s extensive retail network and customer base. As at 30 September 2015, the Group had 16 Hearts On Fire standalone stores spanning the US, Taiwan and Mainland China and 53 “shop-in-shops” and “counter-in-shops” in Mainland China and Hong Kong.