Food
Hong Kong-based jeweler Luk Fook is pushing ahead with its expansion into mainland China by doubling its stores there even as competitors are moving at a slower pace amid tepid demand for luxury goods.
The company, a smaller rival to Chow Tai Fook Jewellery Group, one of the world’s largest listed jewelry chain, said on Thursday it “still had room” to increase its mainland outlets to 2,000-3,000, up from 1,400 currently, without giving a timeframe for the expansion.
“We are only in about 300 Chinese cities comparing with 500 cities of our rivals,” said Luk Fook Executive Director Shirley Wong Hau-yeung, adding that the group would focus its expansion in quality shopping malls in second- and lower-tier cities.
The jeweler is also looking to boost its revenue contribution from the mainland, which now accounts for over half of its total — a three-year goal it set two years ago. “We actually met our target early,” said Chairman and Chief Executive Wong Wai-sheung. “Having 80-90% of revenue from China is probable.”
Chairman Wong’s upbeat remarks comes at a time when Luk Fook is seeking to diversify from a struggling home market where luxury retail has been hit hard by a dwindling number of deep-pocketed mainland visitors to Hong Kong.
First-half net profit fell 7.4% on the year to its lowest level since 2010 at only $429 million Hong Kong dollars ($55.3 million) between April and September. Revenue dived 21.5% to HK$5.47 billion, dragged lower by a 32.3% sales plunge in stores that had been open for over a year in Hong Kong and Macau, while its mainland sales saw a slightly less severe decline of 23.7% from a year ago.
The group added 27 shops to its network of 1,455 outlets globally, including 24 in China and the rest in Macau, New York and Seoul in the same period. “A further depreciation of the Chinese yuan will prompt more mainlanders to spend at home and boost local consumption,” said Chief Financial Officer Kathy Chan So-kuen, justifying the group’s strategy in mainland China.
Meanwhile, rival Chow Tai Fook would be “selective” when entering mainland China, said Managing Director Kent Wong Siu-kei on Tuesday. The Hong Kong-listed jeweler added only 11 shops on the mainland — many of them in shopping malls — between April and September, bringing the total to 2,100 in the country.
Chow Tai Fook’s more cautious approach followed a decade of aggressive expansion into the mainland market that hurt its profitability as the country’s economic slowdown and anti-corruption drive dampened appetite for luxury goods. With about half of its turnover from the mainland, the group reported its lowest first-half profit since its 2011 listing — just HK$1.22 billion, a fall of 21.5% from a year ago.
With competition from e-commerce players such as Alibaba Group Holding and JD.com, the group would continue to close loss-making outlets in department stores and hopefully turn its shops into logistics centers for handling e-commerce orders in a bid to find better use for its ailing assets.
