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Jun
2015

Investing in stones and jewellery; a growing trend

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China’s jewellery consumption is on the rise

According to the Gems & Jewelry Trade Association of China (GAC), the total consumption of jewellery in China exceeded 280 Billion RMB in 2012, and it is expected that the growth will continue through to 2013 with a predicted value of 338.2 Billion RMB. Although gold and diamond jewellery occupies the majority of the Chinese jewellery sector, in recent years the coloured gemstone market has become a rising star.

Diamonds

Diamond consumption in China has been through strong growth over the past 5 to 6 years, according to the Diamond Exchange import statistics, China is now the second largest global market after the USA. In 2011, the total diamond import and export trade value peaked at US$4.7 Billion, with an average annual growth of 40%. Chinese consumption demand decreased in 2012 following the global trend, dropping to US$3.8 Billion. Diamond jewellery imports also decreased by 22% to 1.58 Billion RMB.

Over the last decade the diamond culture has become more accepted in China as the consumer has become more knowledgeable in terms of selection and purchasing. Consequently, the diamond jewellery market is now able to offer greater variety to accommodate this growing demand. Although the majority of consumers still prefer traditional cut stones, there is a growing demand for those that are fancy cut.

Amongst the wealthy consumers, purchasing large stone size’s became a trend, as a way of demonstrate both status and wealth, the bigger the stone the more favoured it is. Over 2 carat stones are popular. A 5-carat ring can be seen being worn on the street, not only in tier one cities, but also tier two and three cities. And in the last 24 months, coloured diamonds have also started to become favoured by wealthy consumers for both investment and consumption. Yellow diamonds are very popular in China, while pinks are also starting to attract attention. Large scale Hong Kongnese jewellery brands have started to launch low-to-medium end coloured diamond jewellery in China, causing a rise in its popularity and price.

 

Coloured gemstones

Precious coloured stones have always been favored by Chinese wealthy consumers for both collection and consumption purposes. Due to the expensive nature of stones such as ruby’s, sapphire’s, and emerald’s as well as China’s traditional favourite jade, this sector is mostly associated with consumers aged over 40.

However, the market over the past two years has been changing with more international jewellery brands entering China, offering both precious and semi-precious coloured stone jewellery collections and younger wealthy consumers have become the new target for these brands.

China’s coloured gemstone market has the fastest growth rate globally, and with the increasing size of the middle class, the market potential is expected to be enormous. However, consumers have limited knowledge and need more guidance in the selection process, but the high importation tax of over 40% and the lack of quality and pricing standards have put limitations on the market development.

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The wedding jewellery market

The wedding market in China continues to provide great growth potential for many sectors from property and interiors&furniture, to white goods, wedding services and of course jewellery. Diamond rings are still the major wedding jewellery choice and this trend will inevitably continue. The love of diamonds has already led to couples upgrading to rings with bigger stones at other occasions, such as anniversaries or the arrival of babies.

Official statistics predict that over the next 10 years, 14 Million new couples in China will marry every year. With the continuous improvement in income, the expected increase in consumption within the whole wedding market is large. The relative market size of affluent couples who could afford to buy a one-carat diamond engagement ring from a luxury brand is estimated to be 2.5 Billion RMB per year.

Collecting and investing in jewellery

With the latest property policy issued in March by the government restricting multiple home ownership, investment has moved into other areas including jewellery, and because gold prices are regarded as high already, and volatile, diamonds are now seen as a better investment option. As a result, large stones and coloured diamonds have already seen their market prices increase. However, the understanding of the investment value and selection of the right stones does not yet provide investors with returns, which is mainly due to the re-sale market being immature; auction house’s and Pawn stores being the two main resale channels. Diamond resale values in pawnshops are as low as 30 or 40%. So to fuel the diamond consumption, more jewellery brands have now started to offer buy back for customers wanting to upgrade.

Starting from early 2013, the diamond consumption and investment boom was triggered across the country. In Hangzhou Tower shopping mall, diamond transactions of over one Million RMB are common. Mr and Mrs Wang who are the owners of fashion company in Zhejiang bought a five carat D grade diamond for 1.5Million RMB in last year, and another two 2 carat diamonds recently. Mrs Wang also said that more and more of her rich friends are buying diamonds for anti-inflationary and appreciation value, some even consider buying diamonds abroad as part of an investment delegation.

Marketing and promotion in the jewellery sector

Media promotion

The Chinese jewellery market has two clear divisions; mass market consumption led by brands from Hong Kong, who started to enter the market in the 1990’s, and premium and luxury international brands, who arrived much later from about 2000 onwards, Cartier being the exception. These Hong Kong brands, such as Chou Tai Fook, Chow Sang Sang and TSL, established a solid and reliable brand image compared to the local Chinese brands. We have selected 9 brands covering all levels of jewellery out of the 20 we routinely monitor to look at their development strategy in China.

Based on our analysis, our 9 jewellery brands have adopted part or parts of the following media channels for brand promotion:

  • Print media: focusing on luxury and fashion magazines, business newspapers and magazines, and some local newspapers.
  • Online media: Public information sites such as Sina style and QQ fashion; Luxury websites such as Apex and Chinese-luxury, Fashion sites including Onlylady, Yoka, ELLE and Vogue, and video sites such as Tudou, Youku and PPS.
  • Outdoor media: in airports, outside luxury department stores and shopping malls.
  • TV: the most popularly selected TV stations are CCTV channels 3, 6, 8 and 15, local satellite TV, the fashion & lifestyle channel, Shenzhen satellite, HuNan satellite, and SMG – Channel Young.

To expand quickly through China, mass market brands such as Chow Thai Fook and Chow Sang Sang adopted a franchise model in the main. They have been very aggressive in promotion not only through print media, but also online, TV and outdoor advertising. Although targeting mainly middle market, they have been seen in luxury magazines to improve their brand perception. Compared to the premium and luxury brands, they are both very active on Weibo, each with over 3,000 posts; in particular Chow Tai Fook has over 54,000 active Weibo followers.

For premium and luxury brands, TV advertising is much less used. Cartier is most active in all of the four media channels, with a much higher outdoor investment than their peers. Its outdoor advertising placement frequency is similar to that of the two Hong Kong brands mentioned above. In the period from December to March Cartier’s print media investment was double or treble that of other active brands, such as Bvlgari and Van Cleef&Arpels. Brands such as Cartier, Bvlgari and Tiffany all have high investment in online media, while brands such as Van Cleef&Arpels, Harry Winston and Graff mainly focus on print media.

Marketing

Tiffany was busy adding three new stores in the second half of 2012, in Nanjing, Shanghai and Harbin respectively, and its Diamond Pavilion touring exhibition started in Shenyang in January 2012. It also collaborated with Vogue by loaning jewellery piece’s to celebrities attending the ‘Fashion in Vogue 120’ opening ceremony. In an effort to further develop the wedding market the brand sponsored the highly publicised wedding of Olympic badminton champion, Lin Dan.

Chaumet has added 4 stores to its portfolio, in Shenyang, Tianjin, Wenzhou and Shanghai, at each store opening a celebrity such as Fala Chen, Yao Chen, or its brand ambassador Sophie Marceau were present. In addition to being the title sponsorship of the second Shanghai Debutants Ball, it has worked with over 15 magazines on product photo shoots, it also been actively involved in the Beijing Film festival, loaning products to several celebrities.

Bvlgari opened its first store in Wuxi and Xian, second store in Shenyang in 2012, and in January this year, it re-opened its store in Shanghai’s plaza 66. During this time it also worked with many Chinese celebrities during its promotional events, such as Zhang Jingchu, Angelababy, Ady An, and Zhang Yuqi. Capturing the Year of the Snake in its product design, Bvlgari held an official illumination ceremony of the SERPENTI light, which has now become an iconic photographic opportunity outside plaza 66 in Shanghai.

As a well-established brand in China, Cartier’s marketing effort has less involvement with celebrities, but is more focused on the brand itself. It is the first luxury brand to have launched its own micro film L’Odyssée de Cartier in China, which can be found on its own website and some Chinese video sites. The film has enhanced the brands leading position in the market both in terms of creativity and brand heritage.

By comparison, Van Cleef&Arpels has chosen to work with well-established celebrities such as the ex-bond girl, Michelle Yeoh, and famous actress GongLi. It has chosen to focus on the young consumer market by working with film stars Zhang Jingchu, and Huo Siyan, and by hosting events with ‘brides to be’ in Shanghai and Beijing, to improve its share of the wedding market.

The use of a touring jewellery collection has been adopted by Graff and Harry Winston, rather than working with celebrities.

Store distribution

The graph below shows the current number of stores for the luxury jewellery brands that we currently monitor. The number of stores cannot be directly linked to the period of time in the market, as many brands specifically position themselves as offering limited availability, and hence elevating their status.

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The distribution density of the monitored luxury jewellery brands is shown below. The tier one cities of Beijing and Shanghai naturally have the greatest density of both brands with less than 10 stores in total and those with more than this number. However, we can see the brands that use scarcity as a value shown in red, open in the cities where there are a high number of wealthy consumers. As a benchmark, the Hong Kong mass-market jewellery brands will have 200+ stores across the country, which may also include tier four and five cities.

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