Date
21 October 2017
TSL’s Lambert Chan says his firm is expanding its product range to boost sales to younger age groups.
TSL’s Lambert Chan says his firm is expanding its product range to boost sales to younger age groups.

INTERVIEW: TSL eyes mass-market jewelry as luxury demand cools

Tse Sui Luen Jewellery (International) Ltd. (TSL, 00417.HK), a leading jewelry retailer based in Hong Kong, plans to focus more on the fast-growing mass-market segment as demand for luxury jewelry is expected to remain subdued due to China’s frugality drive and anti-graft campaign.

“We would like to ride the increasing demand for mass-market products, mainly [catering to] the younger age group of 20 to 30 as it will be more affordable for them,” Lambert Chan, deputy chief executive of TSL, told the Hong Kong Economic Journal’s EJ Insight.

The mass-market products will be sold more in southern China as consumers there are more sensitive to prices while people in the northern areas prefer buying high-end jewelry, he said in an interview.

In November last year, China’s new Communist Party chief Xi Jinping {習近平} announced an eight-point plan to promote frugality in the government and across the party leadership. In July this year, the Ministry of Finance ordered all government departments to cut their public spending by 5 percent this year.

Meanwhile, authorities also launched an anti-graft campaign, aiming to bring to book corrupt officials and party members amid widespread reports of lavish lifestyles of people in high positions. 

The frugality moves and the anti-corruption crackdown have, not surprisingly, dampened the sales of many luxury products and high-end services. The white wine, luxury goods and top-end hotels were among those that took a knock.

High-end liquor producer Kweichow Moutai Co. Ltd. (600519.CN), for instance, said earlier this year that about 38 percent of its sales, which come from spending on receptions by government officials, may have been affected by the government’s anti-extravagance campaign. It said it will focus more on non-government markets.

New Century Hotel Group, the parent of New Century Real Estate Investment Trust (01275.HK), said the ratio of catering income from customers in the government sector to the group’s overall revenue dropped to about 2 to 3 percent this year from 15 percent last year. Its chairman Chen Miaolin {陳妙林} said in October that the company will focus more on the mass-market segment now.

TSL’s Chan said his firm’s decision to expand its mass-market jewelry business is aimed at offsetting slower sales of gift items such as luxury watches and jewelry sets due to the Chinese government’s anti-extravagance drive.

While the impact on the luxury business will not be very significant, the company would like to uphold its profitability by expanding the mass-market business, he said.

“Mass market jewelry does not necessarily generate low profit margin… We can, in fact, set higher margins,” Chan said. Profit margins in mass-market products are higher than pure gold products, he said, without giving details.

In the meantime, “we hope to see about 20 stores in China selling pure gold products in the second half of the financial year ending February,” the executive said.

TSL currently has more than 180 stores in China. As for future plans, new outlets may be added in the locations where the company is already present, a move aimed at making the operation more efficient. The company plans to open five to seven stores in the coming months.

‘Wedding expert’

Selling mass-market products might cause some dent to the company’s premium brand image. To ensure that the group retains its sheen and innovative image, it will strengthen efforts to be recognized as an important player in the wedding market in the mainland.

“We would like to focus more on the wedding business” because of the high spending of people on weddings, Chan said, noting that people buy a lot of jewelry “from proposal rings to the jewelry used in the weddings”.

In the wedding business, besides selling jewelry products, TSL also provides proposal services, a value-added service including letting customers decorate sections of TSL’s shops for engagement proposals, or borrow some jewelry for photo shoots, he said.

The company launched the proposals-related services in Hong Kong in 2011 and kicked off such business in Beijing in March last year.

TSL is also organizing proposal-events for its customers in shopping malls. It has already covered major cities such as Beijing, Shanghai, Chengdu, Chongqing and Wuxi. “We would only launch one to two big proposal-events in a city; the next stop should be Changsha,” Chan said.

As for next year, TSL is planning to launch events in second- and third-tier cities where it can gain more press coverage. “The events do not only serve a sales function, but also promotional purpose,” Chan said. “We want people to think that TSL is always ahead of its competitors.”

“We saw high double-digit growth in sales on average after we launched the proposal services in nearby shopping malls, but the precise growth rate will depend on the base of each shop,” he said.

The cost of those events is part of the advertising and promotion expenses, which stand at about 2 to 3 percent of the firm’s turnover each year, Chan said.

– Contact the reporter at [email protected]

RC

Ayishah Ma is a financial reporter on Greater China issues.

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