Economy Remains Buoyant

RAPAPORT...
 

The report also suggests that there was no “hard landing” for the Chinese economy in the midst of the global turmoil. Among the three major engines driving the economy, the growth of investments and exports has slowed, while domestic demand has accelerated. In the first three quarters of this year, total retail sales of consumer goods reached $2 trillion, a nominal year-on-year rise of 17.0 percent and a real growth of 11.3 percent after deducting for inflationary factors.

Golden Week is Golden

While shrewd Chinese buyers use the macroeconomic data to analyze and predict demand and price trends, and attend important international trade shows to get a closer read of the market, the sales totals during holiday seasons in China reveal the market in reality, and are an important indicator of future movements.

In China, the important holiday sales seasons for jewelry are: Christmas through the Gregorian New Year, Valentine’s Day, the Chinese New Year Golden Week — usually during February but in January in 2012 — Labor Day on May 1 and National Day Golden Week starting October 1. These holidays are prime times for weddings, self-rewarding and gift giving — especially the two Golden Weeks and the Labor Day weekend — and their sales account for a big portion of annual sales.

Chinese holidays and foreign holidays also influence each other, especially now that Valentine’s Day and Christmas are becoming more popular in China. In recent years, retailers in China have even begun to promote Thanksgiving, not as a religious celebration but as a sales occasion. The wholesale sales reports from the important shows in Mainland China and Hong Kong are always considered good predictors of sales during the holidays that follow.

Diamonds Second to Gold

While the reports from the various parts of the country for National Day Golden Week show double-digit percentage increases in jewelry sales, most of the sales being reported are for gold jewelry. The recent decline in the price of gold, along with various campaigns promoting gold jewelry, have contributed to the increased sales. In Shanghai, total jewelry sales during the most recent seven-day Golden Week topped $90 million. For the most popular jewelers, sales were up by 25 percent to 30 percent but the majority of purchases — from 60 percent to 70 percent — were of gold jewelry or gold products.

Although Golden Week is definitely “golden,” it might not be “glittering” for some jewelers, who report mixed sales in diamonds. Even when sales volume is up, diamond sales are not necessarily profitable for retailers who purchased stocks at high prices in previous months and then saw the price decline in the third quarter of 2011. This is especially true for website-based retailers, who adjust retail prices to align them with wholesale prices more frequently than traditional retail stores. They do so because of the ease with which their customers can make online price comparisons. While diamond demand due to weddings is steady, the demand for diamonds for investment and speculation has decreased. In fact, the continuing price fluctuations could cause hesitation in buying on both the consumer and wholesale levels in the coming months.

Shopping Luxury Overseas

Meanwhile, overseas shopping by the Chinese during their holiday seasons influence foreign markets as well. Luxury stores were among the winners during the most recent Golden Week. According to data from the World Luxury Association (WLA), Chinese visitors spent $3.6 billion overseas during the seven-day holiday — comparable to three months of domestic luxury market sales — at a rate of $2,760 to $11,040 per capita.

The big tax difference between buying abroad and at home is a main reason Chinese consumers buy luxury items overseas. A total of 700,000 visitors visited Hong Kong, spending $538 million — $512 to $1,025 per visitor — with 29 percent of the money spent on jewelry and watches. Gold jewelry is also a big seller in the jewelry sector.

The Marketplace

• Retail sales for gold jewelry during the National Day Golden Week holiday from October 1 through 7 increased, but diamond sales were mixed.
  
  
• The market mood has been less optimistic because of the substantial price decreases during the troubled third quarter of 2011. Buyers became more hesitant to purchase and more anxious about when the price will “touch bottom.”
  
  
• Wholesalers and some website-based retailers holding inventory from previous months are sometimes selling goods at a loss. Wholesale prices continue to drop, especially for cash transactions.
  
  
• There has been an increase in Indian dealers traveling to China in the hope of closing sales with Chinese buyers before the dealers close their shops for the Diwali holiday.

Article from the Rapaport Magazine - November 2011. To subscribe click here.