Chow Tai Fook Targets Young Chinese With Lower-Priced Bling
(Bloomberg) -- Chow Tai Fook Jewellery Group Ltd. is targeting young shoppers in mainland China with a new chain of lower-priced stores, as the world’s largest jeweler tries to shore up its customer base amid sales that are set to fall for a third-straight year.
The new Monologue outlets will stock jewelry priced at 2,000 yuan ($291) on average, about a third of the prices at the company’s flagship Chow Tai Fook-branded stores, said Managing Director Kent Wong on Thursday. The first of them opened in the southern city of Shenzhen in September, with as many as six more planned this year including in Dalian and Wuhan, he said.
“Chow Tai Fook is actively turning the brand image younger and more diversified,” said Wong in a briefing in Hong Kong. “We don’t expect the new shops to provide huge sales contributions as they are selling lower-priced products. But we have to do it or we’ll lose the young customers.”
Chow Tai Fook, which operates more than 2,000 jewelry and high-end watch outlets mainly in Greater China, is aiming to capture a shift in Chinese shopping habits as the country’s economic slowdown and an anti-corruption crackdown damped demand for luxury goods. In Hong Kong, where the jeweler is based, retailers are hurting from 21-straight months of falling sales as fewer mainland Chinese tourists visit the city.
“Chow Tai Fook is going down-market to seek new momentum as the high-end jewelry market is obviously losing customers due to the long-term anti-corruption trend and consumer preference changes,” said Hannah Li, a Hong Kong-based analyst at UOB Kay Hian Ltd. Introducing low-end products in stores that are distinct from Chow Tai Fook will keep the company’s premium image from being tarnished, she said.
Chow Tai Fook shares dropped as much as 3.5 percent in Hong Kong trading Friday, the biggest decline in more than a month. Chow Tai Fook’s shares have gained 13 percent this year, outperforming the 4.1 percent rise in Hong Kong’s benchmark Hang Seng Index.
The company will also open a store specializing in wedding jewelry in April in Hangzhou, said Wong. That effort is part of the 88-year-old jewelry chain’s attempt to revive flagging sales with new business models. Last year, it announced plans to expand its online presence and venture beyond its traditional bases to markets such as the U.S., Taiwan and South Korea.
Chow Tai Fook is likely to close five or six stores, mainly in tourist areas where rents are still high, according to finance director Hamilton Cheng. The retailer will review as many as 30 stores this year as their rental contracts come up for renewal, he said.
Chow Tai Fook’s earnings may rebound this year as it lowers shop costs and retail rents, Bloomberg Intelligence analyst Catherine Lim wrote in a note this week. Analysts surveyed by Bloomberg forecast revenue to fall 11 percent on average in the twelve months ended March 2017, which would mark the third-straight fiscal year of declines.
In Hong Kong and Macau, Chow Tai Fook is aiming for further rental rate reductions of as much as 50 percent for its street-level stores in the twelve month ended March 2018, Wong said. The company has shut a net seven outlets in the two cities this fiscal year, he added.
While Chow Tai Fook is hoping for a further easing of its sales decline in 2017, “it is still too early to say if we are now in a recovery trend as there’s too much global uncertainty,” Wong said. “We need to wait till the second half of this year for a clearer look.”