HK jeweler wading into US market

Chow Tai Fook Jewelry Group seeks to offset sales drop with push into wholesale market

Chow Tai Fook Jewelry Group Ltd plans to offset a decline in luxury sales in China by entering the US wholesale diamond market, and industry observers said the world's largest publicly traded jewelry chain will face a very competitive landscape.

Some retailers in New York City's Diamond District - one of the primary centers of the global diamond industry - welcomed the prospect of a new supplier, but also expressed reservations.

"It will be better for guys like us that we have more options as long as they are competitive in their prices," said Mike Nekta of Leon Diamonds on West 47th Street in Manhattan. His family has been in the business since the 1970s.

Nekta, who also has his own custom designed jewelry line, said about half of his customers at his New York store in the summer are Chinese tourists. "That's why I have a Chinese salesperson on my staff," he said.

George of Ali Jewelry hailed the entry of Hong Kong-based Chow Tai Fook into the wholesale business. "The more the merrier," he said, but he isn't ready to abandon his current suppliers. "I wouldn't change because I am already accustomed to the people I work with," he said. "I know and trust the people I buy from right now."

Last week, Chow Tai Fook company officials unveiled plans to sell polished and rough diamonds to other US retailers. It follows a slowdown in the Chinese market, which hurt luxury sales and led profits to plunge by 46 percent in the last fiscal year. Chow Tai Fook now sells cut diamonds to US franchise retailers with its "Hearts on Fire" brand, which it acquired in 2014 for $150 million.

"We are interested in the US market because it has the largest demand for diamonds in the world. It contributes 40 percent of diamond sales," Chow Tai Fook Managing Director Kent Wong told Bloomberg.

Rather than breaking into a brand-new retail market on its own, the new wholesale business will allow Chow Tai Fook to test the waters, said Wong. "We will seek to partner with local retailers who know the market well," he said.

"With the slower growth of the Chinese market and more Chinese traveling and shopping overseas, local Chinese and Hong Kong jewelry retailers have started to expand to popular tourist destinations where Chinese buyers would like to go, including the US and Canada," Erik Jens, the CEO of ABN AMRO's International Diamond & Jewelry Group wrote in an email.

Chow Tai Fook will be entering a US diamond wholesale market that is competitive to the point that some view it as unhealthy, according to Edahn Golan, a Tel Aviv-based diamond industry consultant.

"Margins are slim and payment terms are very generous to further encourage sales. That said, the market is also fragmented and that may provide Chow Tai Fook with an opportunity as well," he said.

Golan said Chow Tai Fook moving into new markets makes sense.

"Generally, the US market is very stable compared to China. It's also a good market for goods not sold in China. In that sense, the diversification provides counterbalance that can help at a time such as now, when the market they are active in is weak," he added.

Golan said Chow Tai Fook's biggest competition will come from seasoned sightholders that have years of experience in the US market. A sightholder is a company on the De Beers Global Sightholder Sales's (DBGSS) list of authorized bulk purchasers of rough diamonds. DBGSS is controlled by the De Beers Group, the single largest producer and seller of rough diamonds in the world.

Ali Jewelry's George wondered if Chow Tai Fook should first try affinity marketing for its new wholesale operation. "They should start with the Chinese jewelers to establish a presence and then come to shops like mine," he said.

paulwelitzkin@chinadailyusa.com

(China Daily USA 08/01/2016 page1)