Advanced Search

China's Year of Consolidation


May 2, 2014 1:47 AM   By Avi Krawitz
Comment Comment Email Email Print Print Facebook Facebook Twitter Twitter Share Share
RAPAPORT... Investors in the Hong Kong-based retail jewelry giants have had better months than in April. Shares of Chow Tai Fook and Luk Fook Holdings – considered the first and third largest jewelry companies in the region – fell 10 percent and 12 percent respectively during the month, as both signaled a slowdown in sales growth during the fourth fiscal quarter that ended March 31, 2014.

Growth was still relatively strong – at least at Chow Tai Fook. Sales were boosted by a decent Chinese New Year season but have slowed since then. Most retailers would envy the 22 percent year-on-year revenue growth that Chow Tai Fook reported during the quarter – even if it’s some distance away from the 49 percent growth the company registered in the first half of the fiscal year. Less impressively, Luk Fook saw group same-store sales decline 10 percent during the fourth quarter.

Steady growth in gem-set jewelry compensated for tepid gold jewelry sales at both companies, while sales were firm in Mainland China and weak in Hong Kong and Macau. Reports have suggested that tourists from the mainland are increasingly choosing destinations in Europe, the Middle East or the U.S. over Hong Kong and Macau for their shopping excursions.

Sales are still being driven by expansion to keep pace with China’s urbanization, although one gets a sense that this too is slowing. Chow Tai Fook opened a net 29 points of sale in the fourth quarter, having opened 118 in the first fiscal half year.

However, the more important story for these companies, and the global jewelry market, is the softening of gold jewelry sales. Gold demand may have been exhausted by the three-month rush experienced last year around April when Chinese consumers took advantage of the slump in gold prices. China consequently surpassed India as the world’s largest gold consumer market in 2013.

Last year’s surge in gold demand helped boost jewelry sales at the start of the fiscal year, which will ultimately compensate for the jewelers’ weaker fourth quarter numbers when they report their full earnings in the coming weeks. However, companies will be challenged to maintain such a strong pace of growth in the current fiscal year given that sales will be compared to the high base of last year.

Prospects of further deceleration in the short term have discouraged investors and a number of researchers have downgraded their outlook for the shares. Analysts are eyeing gold price movements as a potential catalyst for growth. A rebound in the price of gold could reignite demand for gold jewelry, while the sales momentum would continue to slow if prices remained stable at the current two-year low levels, explained one analyst who requested to remain anonymous. A further decline would cause consumers to hesitate to buy more gold and would also weigh on jewelers’ margins, he added.

Commodity consumers prefer to buy in an uptrend as they seek assurances that their purchase will grow in value. Chinese consumers saw an opportunity when prices dropped quite suddenly between April and June 2013, believing that they wouldn’t go lower. Another sharp decline might spur a similar reaction but probably not as intense. So far, gold prices have consistently held above $1,200 an ounce since the end of June. While the spot price rose 6 percent in the first four months of 2014, it’s still too early to suggest that a sustainable recovery has emerged.

However, while these factors may impact the short-term demand and sales forecasts for 2014-15, the longer term outlook for China’s gold demand remains robust. The World Gold Council (WGC) predicted that private sector demand for gold in China will increase from its current level of 1,132 tonnes a year to more than 1,350 tonnes by 2017, of which gold jewelry is expected to rise at a similar pace to about 780 tonnes.

“While 2014 is likely to see consolidation, the succeeding years are likely to see sustained growth,” the WGC stated.

The WGC’s bullish outlook for the next four years is supported by the newly emerging middle class, rising incomes, a deepening pool of private savings and rapid urbanization across China, the group explained. However, the WGC also cautioned of a possible credit crisis in China that could depress economic growth and consumer spending.

Furthermore, necessary measures taken by the Chinese government to transition the economy from an investment and infrastructure-driven economy to a consumer-driven one are expected to curtail growth in the short term. Also, the government’s anti-corruption campaign to curb luxury gift-giving to consumers may still have an impact on the jewelry market, or at least on demand for products such as watches, gold coins and gold bars.

Therefore, the diamond and jewelry industry has reason for optimism and caution.

Most expect 2014 to be a year of transition for China’s jewelry market, especially since 2013 was a tough act to follow. Simply put, growth was exceptional last year, pushing companies such as Chow Tai Fook, Chow Sang Sang and Luk Fook Holdings to a new benchmark level – from which they hope to build upon, albeit at a more modest pace. Investors in April became understandably cautious about the short-term prospects for China’s jewelry retail sector. They recognize that the industry will require some consolidation in the coming year to ensure sustainable growth beyond 2014, signaling further maturation of China’s jewelry market.  

The writer can be contacted at

Follow Avi on Twitter: @AviKrawitz and on LinkedIn.

This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to or contact your local Rapaport office.

Copyright © 2014 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.

Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.
Comment Comment Email Email Print Print Facebook Facebook Twitter Twitter Share Share
Tags: Avi Krawitz, China, Chow Sang Sang, Chow Tai Fook, diamonds, jewellery, Jewelry, Luk Fook, Rapaport
Similar Articles
Diamonds for Fantasy story 150Unique Designs to Buy Modi Company Inventory
Jul 15, 2018
Jewelry manufacturer Unique Designs is the top contender to buy the assets of Nirav Modi subsidiary Fantasy,
Comments: (0)  Add comment Add Comment
Arrange Comments Last to First
© Copyright 1978-2018 by Martin Rapaport. All rights reserved. Index®, RapNet®, Rapaport®, PriceGrid™, Diamonds.Net™, and JNS®; are TradeMarks of Martin Rapaport.
While the information presented is from sources we believe reliable, we do not guarantee the accuracy or validity of any information presented by Rapaport or the views expressed by users of our internet service.