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Aug 21, 2023

Why Some Brands Aren’t Cashing In on China’s Jewellery Boom

Jewellery takes centre stage this month as the trade show circuit that started

Jewellery takes centre stage this month as the trade show circuit that started in Europe this spring comes full circle with a second wave of hard luxury events elsewhere. Industry leaders from China are expected to attend Hong Kong's Jewellery and Gem Asia fair at the end of June after JCK which wrapped up this weekend in the US.

Though concerns are mounting over China's patchy economic recovery in some quarters of the fashion industry, the jewellery sector seems to be shining bright. From January to April, jewellery sales were up 18.5 percent over the same period last year, demonstrating higher growth than the broader retail market figure of 8.5 percent. In April, sales of jewellery leapt 44.7 percent year over year, according to the National Bureau of Statistics.

What's driving the buoyant market? After last year's severe Covid-19 lockdowns, some consumers are still spending on indulgences. Others see the category — which is heavily gold-driven in China — as a safe store of value compared to flagging asset classes like real estate.

At the top end of the market, consumer sentiment is strong too. According to this year's Hurun Report, which surveyed 750 of China's wealthiest individuals about spending intentions, jewellery was the category that came out on top. Seventy-three percent of respondents said they intend to increase spending on jewellery, compared to 67 percent who intend to spend more on watches, and 64 percent who chose fashion.

Now that large gatherings and events can take place again, China is also expected to see a wedding boom, which is further fuelling jewellery purchases. State-media outlet China Daily reported that the peak season for weddings started in early May and will last until the National Day holiday in October. This period will be pivotal for jewellery brands since the wedding market accounts for half of mainland Chinese jewellery sales, according to the Hong Kong Trade and Development Council.

"Pent up demand for gold jewellery used for weddings improved thanks to the optimisation of Covid-19 control measures," said Wang Lixin, China chief executive of the World Gold Council. "More consumers are also turning to gold compared with other jewellery given its perceived safe-haven status."

Despite the high price of gold ever since the breakout of the Ukraine war, China's gold products consumption reached 198 metric tonnes in the first quarter, up 11 percent year-on-year (56 percent quarter-on-quarter), marking a high since 2015.

Even with these tailwinds, however, some global brands are not reaping the benefits as strongly as domestic players.

Richemont, for instance, revealed last month that it directed some of its high jewellery stock away from China to Japan due to subdued demand.

"The expenditure is rising but it has not risen as of yet as [strongly as] it did in the United States [after reopening]," Richemont chairman Johann Rupert said. "[There's] a little bit more caution… even though they’ve spent a lot, they have not gone and crashed their credit cards."

The executive also pointed to a chokehold on travel accessibility. Because the group's portfolio of brands — which include Cartier, Van Cleef & Arpels, and Buccellati — all carry a high price point, many shoppers would prefer to wait to buy overseas to save on taxes. Although upper class Chinese people have started travelling and shopping outside the country, tour groups have not yet returned, dampening overall sales for the firm.

When it comes to the more affordable fashion jewellery category, brands are signalling notes of caution. Pre-pandemic, Pandora had a multi-city campaign planned for China to relaunch the brand. But now that the country has reopened, chief executive Alexander Lasik said "we are far away from that" even though he still sees opportunities in the market.

Instead, his strategy now is a toned-down approach to launch one city at a time. "It really doesn't make a tonne of sense to spend a lot of money when the traffic just naturally isn't there… so we will most likely pick one city to begin with in Q3 and if traffic then picks up faster, then we can always lob on more cities as we go," he said.

In contrast, local player Chow Tai Fook, which claims to control around 11 percent of China's jewellery market, said as early as last November that it expects to open 1,200 to 1,300 Chow Tai Fook Jewelry stores in the upcoming year. For the three months ended March, it grew mainland Chinese sales by 9.6 percent year over year.

Part of the company's strong performance can be attributed to its expertise in gold, which plays a large part in wedding jewellery. China is one of the world's largest gold jewellery retail markets with mainland- and Hong Kong-based players such as Chow Tai Fook, Chow Sang Sang, Lao Feng Xiang and China Gold brands making up some of the most popular household names.

According to data from the Gems & Jewelry Trade Association of China, gold products make up 58.3 percent of all jewellery purchases, while diamond products accounted for 13.9 percent. Domestic brands have an edge too on jade, which is the second largest jewellery category in China ahead of diamonds, and is gaining traction among younger shoppers. According to a white paper published by the China Jade Association, in 2017 prime jade shoppers tended to fall between 30 to 50 years old. But by 2021, that age range dropped to 25 to 34 years.

The gap between global and local players’ performance can also be explained by the latter employing more aggressive digital strategies since they tend to be priced lower which makes selling online more palatable.

Last year, while Covid-19 measures kept people more at home, domestic brands were able to outperform because they were more available through e-commerce and consumers got more comfortable shopping for jewellery through digital channels. In 2022, China's online jewellery sales were 235 billion yuan ($33 billion) a jump of 27 percent. Jewellery sales on JD.com increased 40 percent while Douyin's doubled.

At the same time, Chinese brands are stepping up with better designs and more unique product innovations than in the past. The number of local jewellery patents, for instance, increased by more than 20 percent last year, according to China's National Gemstone Testing Centre.

Still, the prestige gap between international and local brands looms large. From 2010 to 2015, the top ten luxury jewellery brands favoured by wealthy Chinese, according to Hurun, were all international brands—mostly western but also included Japan's pearl-centric Mikomoto. In 2016, Chow Tai Fook entered the rankings, shifting around to various spots in the lower half of the top ten. In the last five years, it was Bulgari, Cartier and Van Cleef & Arpels that have held steady as the top three, although this year Laopu Gold became the second Chinese jewellery brand on the list.

Foreign players are also growing savvier and more in-tune with the local market.

LVMH-owned jewellery brand Fred announced popstar Liu Yu as its ambassador in May, getting the boyband member to sport its signature Force 10 bracelet and rings, creating a huge buzz online. Bulgari has for years invested in hosting elaborate ‘Serpenti’ exhibitions in multiple major cities in China from Beijing to Chengdu to Shenzhen.

In March, Cartier, which works with the singer Jackson Wang, released a series called L’Odyssée de Cartier, highlighting the inspiration the brand's founder, Louis Cartier, found in Chinese culture dating back to the early 1900s and the ways the brand has incorporated classic Chinese motifs like dragons and phoenixes.

Chinese brands meanwhile are taking a page out of their western competitors’ playbooks by developing less traditional products and items that target self-gifting and diverse occasions, setting the stakes even higher.

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