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When it comes to luxury goods in China, “the future”, says Erwan Rambourg, “is female”. Mr Rambourg, who is global co-head of consumer and retail research at HSBC, says the market has undergone a deep shift, in no small part because of China’s anti-corruption drive, which tightened up rules on “gifting” between executives, largely men. “It’s moved from a male-, watch- and gifting-driven market to a more female-dominated luxury space.”
While luxury watchmakers selling in China have been plagued by overstock, volatile currency fluctuations and the anti-corruption campaign, the jewellery market in comparison looks brighter. Both are facing slower growth, says Mr Rambourg, but there are “fundamental differences” between the sectors which look likely to favour jewellery.
China’s jewellery market will not in the near future see 22 per cent annual growth, as it did from 2009 to 2015, but it nevertheless grew by 7.3 per cent to Rmb306.9bn ($47bn) in 2015, according to HSBC. This is above the 5 per cent HSBC forecasts for the sector in each of the next three years, which — while pallid — is at least positive. (Euromonitor forecasts 7 per cent compound annual growth in 2015-20.)
Where watches are predominantly wholesale driven, jewellery is retail-based — with brands distributing within their own stores, including “concept stores” with radically new designs. Branded jewellery (ie from global companies) is due to grow from 20 per cent today to 30-40 per cent, according to figures from consultancy McKinsey. The McKinsey report identified “emerging-market consumers, for whom established brands inspire trust and the sense of an upgraded lifestyle”, as one of three groups driving growth.
Urbanisation and rising disposable income will drive it, too, though “companies have to change their branding strategy and product offering to capture the incremental market growth”, says HSBC analyst Lina Yan.
The biggest names may still be foreign, such as Cartier and Tiffany, but several homegrown houses have expanded in recent years, providing Chinese consumers with Chinese jewels.
Hong Kong-listed Chow Tai Fook is the world’s biggest jeweller by market capitalisation (HK$54bn, $7bn) with a retail network of 2,286 stores. Revenue decreased 4.1 per cent in the six months ending in September, but executive director Adrian Cheng sees “potential” in some sectors of its business. Last month, however, the company warned that it expected 2016 profits to fall by 40-50 per cent because of “weak consumer sentiment in [the] Greater China region”.
Sales to its top clients — those spending at least HK$10,000 annually and who make up 50 per cent of sales — had posted monthly double-digit growth on average in 2014 and 2015. “[These clients] are younger and more willing to embrace international traditions, such as engagements and Valentine’s Day,” says Mr Cheng.
Whether a greater embrace of engagement traditions will bolster the market when marriages have dropped 5 per cent, according to HSBC estimates, remains to be seen. The wedding sector accounts for a third of the country’s jewellery market.
Still, pursuing the fresh popularity of diamond jewellery for weddings and more, in 2014 Chow Tai Fook purchased Hearts on Fire — an American luxury brand — for $150m.
The Chow Tai Fook and Hearts on Fire collections, priced Rmb20,000-Rmb30,000 ($3,000-$4,600), are currently in stores, with more than 120 new Hearts on Fire points of sale due to open throughout next year.
Chinese brands are also catering to their citizens abroad. Qeelin — founded in Hong Kong in 2004 and acquired by luxury conglomerate Kering in 2013 — is banking on Chinese travellers.
While Hong Kong has suffered from a fall in tourism from the mainland — down 18 per cent from January to March 2016, according to HSBC — a rebound in trips to Korea, Japan and Thailand has compensated. “They’re just shifting,” says HSBC’s Mr Rambourg. (In Hong Kong in January and February 2016, watch and jewellery sales were down 24 per cent, HSBC says.)
Qeelin, whose main markets are the mainland, Hong Kong and France, will launch four new stores this year, including two now open in South Korea. Its chief executive, Christophe Artaux, adds that women are increasingly buying for themselves — and seeking more design-led pieces, compared to the status-oriented purchases they sought before.
Currency goes some way to explaining the move. The renminbi has fallen 6 per cent against the Hong Kong dollar since early 2014, while it had strengthened 17 per cent against the South Korean won by early February; at the time of writing, it was up 10 per cent.
Another homegrown brand, TTF Haute Joaillerie, is expanding into Europe. The company currently produces only 30 high jewellery pieces per year, priced from about Rmb3m, all privately sold. Founded in 2002 in the industrial hub of Shenzhen, TTF will open its first boutique, in the Rue de la Paix in Paris, later this year.
The new flagship will sell a more accessible collection, priced from Rmb30,000, which will keep its signature Sino-French aesthetic of using jadeite and white jade.
“France is home to the most important international jewellery brands,” says TTF’s founder, Frank Wu. The growing number of Chinese tourists was also a factor, as wealthy overseas Chinese and mainlanders make up his client base. Chinese outbound tourism has gone from 11m in 2000 to 117m in 2014, and is expected to grow to 200m in 2020, based on data supplied by Exane BNP Paribas.
According to consultants Bain & Company, jewellery is “ever more perceived as a safe investment in an uncertain economic and financial environment” — a sentiment that resonates with smaller Chinese maisons.
Hong Kong-based Wallace Chan is sought after for his rare gemstone designs, which start from $150,000. He has no points of sale and expanded only by word of mouth and by participating in jewellery and fine-art fairs. Mr Chan calls the China downturn an “adjustment”.
Chow Tai Fook is also focusing on unique pieces, having launched an annual high jewellery collection five years ago. After touring China, the 15 pieces are then privately auctioned, with only its top 200 or so clients invited to bid.
At jeweller Cindy Chao’s showrooms in Taipei, Hong Kong and Beijing, Chinese customers buy for investment. “The top of the pyramid are still shopping, but aiming for the best,” says Yuting Hung, Cindy Chao’s marketing director, who points to recent auction records for coloured diamonds.