World's Top Jeweler Diversifies With New Brands for Niches

(Bloomberg) -- Chow Tai Fook Jewellery Group Ltd. plans to embark on its biggest effort in decades to add new brands as the world’s largest jeweler seeks to diversify its aging staple of customers.

The company will look to acquire competing brands or create new ones, Managing Director Kent Wong said in an interview in Hong Kong. Chow Tai Fook will also bolster the reach of its namesake brand by adding stores in lower-tier Chinese cities as it looks to grow beyond the top urban centers there, he said.

Almost nine decades after its founding, the Chinese jewelry retailer’s flagship brand wants to shift from an older generation of shoppers to attract hip, millennial customers. Chow Tai Fook has introduced two marques in the past two years to widen its appeal among the young and their popularity has given the company confidence to explore possibilities beyond its core brand, Wong said.

“It’s a new age of Chinese customers. They are open-minded, well educated and electronic-savvy, and they travel around the world -- it’s different from decades ago,” Wong said Tuesday. “That’s why Chow Tai Fook needs more brands, more culture, more design-driven products.”

‘Right Strategy’

The move will be a part of a wider restructuring that will take place in the financial year starting April. Teams will be deployed to help the jeweler target customers from different age and income groups by bringing diversification in product designs, he said.

Chow Tai Fook in 2016 launched Monologue and last year introduced the wedding-themed Soinlove. As much as 70 percent of the sales for these two marques come from online channels, compared with about six percent for the flagship brand, Wong said. That shows the company’s strategy to target the young is spot on, Wong said.

“Investing in new brands is our sustainability strategy,” said Wong.

The company plans to open 500 to 1,000 new stores in mainland China within five years in lower-tier cities and rural areas, depending on market conditions, said Wong. That will take the proportion of the flagship brand’s stores in those areas to half of the total, from about 35 percent currently, he said.

Consumption of luxury products in China will record “high single digit” growth in 2018, led by leather goods and jewelry, Mario Ortelli, an analyst at Sanford C. Bernstein, wrote in a note this month.

Shares of Chow Tai Fook fell 3.5 percent, their biggest decline since July 31, on Thursday in Hong Kong. Smaller rival Luk Fook Holdings International Ltd. slumped 11 percent, steepest drop since January 2014, after reporting same-store sales in China for the three months ended Dec. 31 fell 4 percent. The benchmark Hang Seng Index advanced 0.4 percent.

The jewelry retailer in November said the next financial year will be a “turning point for our business given the nascent jewelry market recovery.”

Chow Tai Fook’s profit climbed for a second straight six-month period signaling the continued recovery in demand for luxury goods in China after a two-year slump that was ushered in with a corruption crackdown. Sales at its stores are picking up and more customers are also purchasing its products online as the world’s second-largest economy is on track for its first full-year acceleration since 2010.

China’s improving economy and policy environment will give consumers the confidence to more aggressively spend, Wong said.

“We are optimistic for the new year, even though we have a high base already,” he said.

To contact the reporters on this story: Daniela Wei in Hong Kong at jwei74@bloomberg.net, Corinne Gretler in Zurich at cgretler1@bloomberg.net.

To contact the editors responsible for this story: K. Oanh Ha at oha3@bloomberg.net, Subramaniam Sharma

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