Jeweler Chow Tai Fook Defies Fears Of China Luxury Slowdown

Expansion, Strong Spending In China Saw CTF Profit Jump 79 Percent In FY 2011

Chow Tai Fook was founded in Guangzhou in 1929

Though international jewelers such as Graff Diamonds are becoming increasingly skittish about their China expansion plans, the latest revenue stats from the Hong Kong-based high-end brand Chow Tai Fook indicate that China demand remains strong for gold and jade. According to Bloomberg, Chow Tai Fook, which raised nearly HK$16 billion in its IPO last December, making it the world’s largest listed jewelry retailer, saw income rise 79 percent in fiscal year 2011 to HK$6.34 billion ($817 million). As of the end of March this year, Chow Tai Fook had 1,627 outlets in the Greater China region plus Singapore and Malaysia, compared to 1,358 one year prior.

Despite China concerns among international diamond-focused jewelers like Graff and Tiffany & Co. about the year ahead, Chow Tai Fook looks to be well-placed to weather any potential dip in the luxury growth rate. This is partly due to the company’s lower dependence on Hong Kong, established reputation in the market (founded in 1929), and focus on distinctly Chinese designs rendered typically in 24K gold and jade. Strong gold demand in China in 2012 should continue to buoy Chow Tai Fook.

As the Industrial and Commercial Bank of China Ltd. (ICBC) recently noted, Chinese buyers, facing lackluster equity markets and property curbs, are looking more to the metal in 2012. “Investors here want to hold part of their assets in gold to hedge for the risks, especially now that the financial crisis has evolved into a sovereign crisis,” Zheng Zhiguang, general manager of the precious-metals department at ICBC, said in an interview in Shanghai. As one of China’s traditional “portable assets,” 24K gold — Chow Tai Fook’s bread and butter — will likely continue to sell well regardless of any broader luxury slowdown.

Essentially, Chow Tai Fook’s aesthetic is an easier sell, to older and more traditional buyers at least, than that of foreign brands like Tiffany, Harry Winston, Van Cleef & Arpels and others. Yet unlike other, smaller (but still large) Hong Kong-based jewelers such as Chow Sang Sang and Luk Fook, Chow Tai Fook’s massive investment and expansion strategy in the Chinese Mainland (particularly in second- and third-tier cities) has left it less exposed to lower spending among Hong Kong-bound mainland Chinese tourist-shoppers. While Chow Sang Sang has aimed to combat this via an ambitious plan to open 50 new stores in the Mainland within the next “one to two years,” Chow Tai Fook is far ahead of the game.


Market Analysis, Retail