Slowing Down

Hong Kong June Market Report

By Liana Cafolla

The May 1 Labor Day holiday saw fewer-than-expected big-spending shoppers, which some retailers attributed to the recent softening in China’s economy.

“We have noticed that customers’ spending on high-priced jewelry products has fallen, as some high-end shoppers now have a tighter budget,” Ricky Ng Koon-keung, general manager of TSL Jewellery (HK), told the South China Morning Post. Ng is expecting a falloff in growth of 30 percent to 40 percent compared with the numbers his company posted in 2011. He said demand for products costing more than $13,000 is down in 2012. In contrast, sales of more mass-market products, while they have slowed, remain steady, possibly because middle-class consumers are less affected by China’s weakening economy.

Retail sales in the first quarter increased by 15.9 percent in value and 10.7 percent in volume year to year but the seasonally adjusted volume was down .9 percent from the previous quarter, according to figures from Hong Kong’s Census and Statistics Department. Sales of jewelry, along with watches, clocks and valuable gifts, were up 10.2 percent by volume in March compared with a year earlier.

WHOLESALE SLOWING

Sales growth is weaker largely because of China’s stalling property prices and a lack of access to credit from banks in Mainland China. As a result, Mainland Chinese tourists have less cash — the preferred method of payment — in their hands, said Dominic Li of International Company, a diamond retailer and wholesaler. “China is slower,” he said. “Business is very tough right now.”

“We are seeing a slower demand in May compared to the previous month of April and compared to the same period in 2011,” said Alon Garty of diamond wholesaler Windiam. “People are not buying in great volume for their stock. China is still active — in less volume, but still active.” In addition, he said that the wet season in Central Africa was creating a shortage of gem-quality goods coming onto the market.

GRAFF IPO

London-based jeweler Graff Diamonds plans to launch a $1 billion initial public offering (IPO) on June 7. It will start taking orders at a road show scheduled for May 21, according to media reports. Graff currently has one shop in Hong Kong, located in the prestigious Peninsula Hotel in Kowloon, and plans to open a second shop in the city, in addition to outlets in Macau and Hangzhou, in 2012.

According to a May 7 report in Thomson Reuters International Financing Review, about 28 percent of Graff’s IPO proceeds will be used to buy the inventory of DiamondWorks, a Luxembourg-based diamond wholesale company in which Laurence Graff owns a stake, and 25 percent to buy the entire outstanding share capital of Graff Monaco. The remainder will mainly be used to repay debt.

Goldman Sachs — one of four banks coordinating the IPO — estimated that Graff’s profit will grow by an annualized 31 percent from 2011 to 2014. The bank compares that to 15.8 percent expected for Tiffany and 47 percent for Chow Tai Fook.

Chow Tai Fook, which raised $2 billion in its own IPO in December 2011, held its first auction on April 30 in Hong Kong’s Grand Hyatt Hotel. The centerpiece of the sale was “the galaxy” — an 18-carat white gold, diamond and blue sapphire necklace that sold for $965,000 to a buyer from Beijing. Reflecting the company’s focus on its fastest-growing market, the auction was conducted in Putonghua, the language of Mainland China, rather than in Hong Kong’s Cantonese dialect.

NEW DIAMOND VENUES

Flash sales website Twangoo.com, known mainly for selling cut-price restaurant and spa deals, has started to sell discounted diamond jewelry through its group-buying site. The 5C Group, an Antwerp-based diamond manufacturer and wholesaler, offered either a thin line bracelet with a total diamond weight of .50 carats, or a five-rondel necklace with a total diamond weight of .70 carats, and priced each at approximately $640, which the company said was a 50 percent discount off the original price.

At the high end, Sotheby’s opened a new 15,000-square-foot gallery and diamond salon in Hong Kong on May 19. The space comprises the entire fifth floor of One Pacific Place, a high-end retail and office building near the city’s central district. Sotheby’s Diamonds, a partnership between the company and the Steinmetz Diamond Group, will offer immediately available new diamonds and diamond jewelry direct to clients, without the buyer’s premium that is charged in auction sales. Patti Wong, chairman of Sotheby’s Asia and Sotheby’s Diamonds, said the permanent diamond salon is opening “in response to the strong following among Asian clients for the Sotheby’s Diamonds collection.”

THE MARKETPLACE