As fine jewelry labels around the world struggle to make fruitful connections with emerging millennial consumers, other brands have found a market with much more willing shoppers: mainland China’s third-tier cities.
Hong Kong jeweler Chow Tai Fook’s executive director Adrian Cheng announced this week that it would be opening up to 100 new stores across mainland China in the next fiscal year, with much of this expansion to take place in China’s third-tier cities. The group closed seven stores in Hong Kong and Macau in the past fiscal year, following a pattern of luxury brand store closures in Hong Kong shopping malls, partly accounted for by a drop in mainland tourists.
Chow Tai Fook’s announcement comes as it posted a 3.9 percent rise in net profits in the year ending in March.
The jeweler has recently set its sights on expansion, not just in China, but in the West. This past year, the group opened a second U.S. boutique in April in the duty-free retailer T Galleria by DFS in Hawaii, a destination that has seen a growing number of Chinese luxury travelers, honeymooners, and weddings. The group opened its first U.S. store in Macy’s in New York in November.
But mainland China remains one of the main drivers of luxury industry growth. Bain & Company predicted this market would see a 6 to 8 percent rise in growth in 2017 as more wealthy consumers are shopping at home. This is thanks to factors such as increasing consumer confidence and the rebound in spending on individual purchases after a crackdown on gifting and ostentatious spending as part of Xi Jinping’s anti-graft campaign. Chow Tai Fook saw mainland China demand account for nearly 75 percent of its earnings and drive 14 percent growth in profit in the second half of the 2017 fiscal year.
Many luxury labels have already begun expanding their presence to China’s second, third and fourth-tier cities as they fulfill brick-and-mortar goals in China’s metropolises. In the case of Chow Tai Fook, the rising wealth of third-tier city consumers offers new potential for growth, particularly as more affordable and edgier jewelry brands divert the attention of younger luxury consumers in Beijing and Shanghai.
In Hong Kong, the jeweler is pivoting its focus to local luxury consumers to combat the dip in numbers of mainland travelers. Same-store sales in Hong Kong and Macau in the last 12 months ending in March dropped 12.4 percent, but Hong Kong’s overall jewelry and watch sales have been edging up in the last two months.