In a recent conversation with Kent Wong,Chinese super-retailer Chow Tai Fook’s
managing director, Martin Rapaport discussed the future expansion of the company
and the future of diamond sales in China.
|Kent Wong, managing director of Chow Tai Fook.
Photos courtesy of Chow Tai Fook.
MARTIN RAPAPORT: How extensive are Chow Tai Fook’s diamond
KENT WONG: Chow Tai Fook is a vertically integrated jewelry
retailer that is active in all aspects of the diamond and jewelry supply chain.
We source rough diamonds directly from the De Beers Diamond Trading Company
(DTC), produce polished diamonds in our own diamond-cutting factories, design
and manufacture jewelry for sale in our retail outlets. The broad range of our
activities provides us with first-hand knowledge of the diamond market as we
directly experience how supply and demand dynamics impact our businesses.
MR: What is your view of the diamond market?
KW: We expect the supply of diamonds to grow at moderate
single-digit rates over the next ten years. While the market for the most
expensive diamonds is relatively stable, there is a huge market for
medium-quality diamonds in China. Demand for mid-quality — H to K color, VS to
SI — diamonds over the next three to five years will be very strong, creating a
significant imbalance between supply and demand. We expect the demand for
mid-quality diamonds to grow by about 30 percent per year and anticipate a
shortage of goods in this range.
MR: How about smaller, lower-quality diamonds?
KW: Jewelry with smaller melee diamonds with retail prices
up to $500* provides an excellent sales opportunity in China. We have a project
with the Rio Tinto mining company that promotes Argyle Champagne colored
diamonds that are smaller than 1 point in size. Sales of this fashionable
jewelry with contemporary designs much exceeded our expectations. With the
right products and marketing story, this is another segment we can explore and
MR: What is your view regarding diamond prices?
KW: During the first half of 2011, diamond prices rose
sharply due to strong demand and expectations that prices would continue to
rise. Overall sales in the industry during the second half of 2011 were below
expectations, resulting in excess inventory and lower prices. As demand
develops in 2012 and inventories rebalance, we expect relatively stable prices
for the next few months. We would like to see diamond prices aligned with
inflation and growing at a healthy 3 percent to 5 percent rate over the next
few years. We are, however, aware that demand for medium-quality diamonds could
outpace supply and this may result in upward price pressure on these particular
MR: Why are all of Chow Tai Fook’s jewelry stores and sales
in China, Macau and Hong Kong? Will you be expanding to other markets?
KW: We will continue to concentrate ourselves in the Greater
China region over the next decade because we believe that the jewelry market in
China is just beginning to take off. There are a lot of opportunities for us to
improve our sales performance in this region. Chow Tai Fook has the largest
penetration rate in China with nearly 1,600 points of sale (POS) in more than
320 cities. This concentrated focus has enabled us to firmly establish our
brand and become one of the fastest-growing companies in China.
MR: How important are diamonds in your sales mix and what
are your expectations for the growth of diamond demand in China?
KW: While gold is our most important jewelry category,
representing about 55 percent of sales, we see great opportunities for
diamonds. Gem-set jewelry — mainly with diamonds — accounts for about 24
percent of our sales and this category grew by 60 percent from the first half
of 2010 to the first half of 2011. This strong performance reflects the
expansion of China’s middle class, with increasing diamond demand by consumers
in the 30- to 40-year-old age group. The growth in diamond jewelry demand is
not only taking place in the important bridal engagement ring category, but
also in contemporary diamond jewelry that is well designed for the Chinese buyers.
Young and middle-aged Chinese consumers are buying contemporary diamond jewelry
to celebrate their personal achievements and accomplishments. Diamonds are
becoming an acceptable way for Chinese women to communicate their success and
The Chinese government’s new five-year national economic
plan will seek to expand China’s gross domestic product (GDP) through domestic
consumption. Government policies will support the further development of
middle-class consumer spending. Urbanization policies will expand the economic
base in Tier III and Tier IV cities as rural areas and farmlands are
transformed into urban areas that will include shopping centers and department
|Achievement Collection ring.
For all of the above reasons, we expect Chinese demand for
popular diamond categories to grow by as much as 30 percent annually over the
next five years.
MR: How important is the Chinese diamond engagement ring
KW: The 13 million marriages in China every year present us
with a great opportunity to increase diamond sales. We believe that about 50
percent of these weddings can or would include a diamond engagement ring. A
small 15-point ring sells at retail for about $500, with average-size 30-point
rings going for about $1,500 to $3,000. Wealthier consumers would be buying 1-carat-and-larger
rings for $10,000 and up.
MR: How important are diamond certificates and grading
KW: By law, all diamond sales in China must be accompanied
by a diamond grading certificate. All the diamonds we sell in China are accompanied
by a grading certificate from the government’s National Gem Testing Center
(NGTC) diamond grading laboratory. In Hong Kong, most of our solitaire diamonds
are graded by the Gemological Institute of America (GIA).
MR: How important is the internet as a Chinese sales
KW: Ecommerce is an important channel to approach customers
and attract them to our stores. Direct sales over the internet are very limited
and the best internet activities complement and work in coordination with other
sales channels that provide the customers with a more intimate and informative
sales experience. Trust is very important in the Chinese market and the success
of our brand penetration and recognition gives us a significant advantage when
communicating over the internet.
Consumers are always concerned about the authenticity of the
jewelry and therefore, a recognized brand has a great benefit. Our brand gives
our customers 100 percent confidence in our nearly 1,600 POS in China. While
consumers are interested in obtaining a good price over the internet, their
first concern is trust and confidence in the supplier.
MR: What advice would you have for a foreign company wishing
to enter the Chinese market?
KW: China is a very fast-moving market and it is much more
sophisticated than it was ten years ago. You have to establish a well-defined
product niche that is supported by an innovative marketing strategy.
MR: Since you design and manufacture many of your own
products, can you tell us how long it takes for you to move a product from the
design stage to the retail stores?
KW: The lead time is about 30 to 50 days, depending on what
kind of products we produce. Usually, the lead time is shorter for gold and
solitaire diamond products.
MR: How long does it take for a diamond to go from rough to
the sale of a piece of diamond jewelry?
KW: It takes
about the same amount of time – 30 to 50 days.
MR: How are you marketing the Chow Tai Fook brand in China?
Is there significant difference in how you are marketing Chow Tai Fook in China
and Hong Kong?
KW: In order to
capture different customers’ needs, we have different marketing strategies in
Hong Kong and China. For instance, we partner with banks to offer promotional
activities in Hong Kong to draw more spending by tourists. In China, we
organize VIP events, such as movie premieres and travel opportunities, which
are more lifestyle driven. We also leverage on department stores’ marketing
activities to broaden our customer base.
MR: How important is the wealthy customer? Does Chow Tai Fook
sell very big diamonds and how do you market and service the very big
KW: All of our customers, regardless of whether they buy
mass luxury products for $250 to $13,000 or high-end luxury products priced
above $13,000, are important and valuable.
We see that customers in Hong Kong, including People’s
Republic of China (PRC) tourists, who have higher spending power, are more
likely to buy gem-set jewelry, including diamonds. On the Mainland, as
disposable income increases, we are seeing an increasing number of Chow Tai
Fook customers who are able and willing to buy quality diamond jewelry products
from an iconic and trusted brand like ours. Also, because we are a DTC
sightholder and a Select Diamantaire of Rio Tinto, we have an edge to be able
to offer quality diamond jewelry products that precisely meet the needs and
desires of our VIPs.
MR: How have significantly higher gold prices impacted
Chinese jewelry demand? Are people buying more or less jewelry now that gold
prices have risen to higher levels?
|Platinum necklace with white diamonds and sapphires.
KW: Our jewelry sales are relatively less impacted by the
volatility and the price of the commodity. Our customer’s purchase is normally
based on his/her spending budget, which is more driven by the disposable income
level and wealth effect. When the price of gold goes up, customers generally
just choose smaller items to fit into their budgets. It is true that the sale
of diamond jewelry is growing as people are starting to consume diamond jewelry
for more diversified reasons. According to the Frost & Sullivan report,
wedding celebrations are still a strong driver of diamond consumption. Every
year, there are about 50,000 newly married couples in Hong Kong, more than 80
percent of whom will buy diamond rings, and every year, there are more than 13
million newly married couples in Mainland China. The Frost & Sullivan
research showed that 65 percent of newly married couples choose diamond rings
as their love tokens in medium- and large-size Mainland cities.
MR: Did you change your product lines due to higher gold
KW: The demand for our products is event-driven and
influenced by Chinese gift-giving customs, with the events oriented around
ceremonial and festive occasions, such as Christmas, Chinese New Year,
Valentine’s Day, weddings and newborn arrivals. The demand remains resilient in
good times and bad. Culture-driven purchases are not as sensitive to changes in
We also have a centralized IT (information technology) and
CRM (customer relationship management) system that enables us to quickly understand
customers’ current shopping behavior and preferences so we can formulate more
effective marketing and product strategies.
MR: What are the top three best-selling items in your
stores? Are you developing new products specifically for Tier III and Tier IV
KW: We have a robust product mix to cater to different
images and customer needs. The products in our stores in China can be
categorized and differentiated into 4 “images”: Deluxe Style, Elegant Style,
Contemporary Style and CHOWTAIFOOK Young Zone. Given the differences in
disposable income, it is true that average sale price and ticket size are
slightly lower in lower-tier cities, however, their volume growth is much
faster than that of the Tier I cities. For instance, customers in lower-tier
cities mostly buy gold products for their first purchase, and when they become
more affluent, they buy gem-set jewelry. We also introduce different
collections that reflect customers’ unique ethnic traditions and culture, e.g.,
the “Perfect Match” collection, which is a pair of specially designed rings or
pendants, targeting young couples; our Bao Bao Family collection was also very
well received by PRC customers when we launched the initial collection.
MR: What advice would you have for a young person entering
the diamond industry?
KW: Integrity, passion and circumspection are the key traits
for young people to enter the diamond industry. We provide our employees with a
clear career path and offer them opportunities for upgrading their skills and
promotions through tailored training programs.
*All dollar figures are in U.S. dollars.
Article from the Rapaport Magazine - May 2012. To subscribe click here.