After mass protests and some of the world’s toughest pandemic restrictions, Hong Kong is still a vital B2B hub for the jewellery sector.
The 15-carat De Beers Cullinan Blue diamond, expected to fetch more than $48 million when it goes under the hammer, is set to be the star of Sotheby’s Hong Kong Luxury Week, which returns to the city on April 23.
The event is a bright spot for Hong Kong’s luxury market after no shortage of gloom. Starting in 2019, mass protests and some of the world’s toughest Covid restrictions effectively eliminated tourism, plunging the long-time luxury retail capital, which once accounted for as much as 5 percent of global luxury consumption, into steep decline. From 2018 to 2020, Hong Kong’s luxury sector fell by half, according to Euromonitor.
Now, protestors have been silenced and Hong Kong is slowly lifting Covid-19 restrictions, but the road back to pre-protest, pre-pandemic levels of luxury consumption is sure to be long and uncertain. No-one expects a return to the days of heavy tourist flows from mainland China anytime soon. And Hong Kong’s personal luxury goods sector isn’t predicted to return to 2018 levels ($14.36 billion) until 2025.
Consumer sales hard hit
Hong Kong’s jewellery market has declined along with wider luxury sales in the city. According to data from Chow Sang Sang, one of Hong Kong’s top jewellers, the loss of mainland tourists robbed it of 50 percent of its sales revenue in the city.
That’s not to say overall business has suffered.
Hong Kong’s biggest jewellery players, including Chow Sang Sang and Chow Tai Fook, have pivoted their focus to local consumers. Since the beginning of the pandemic, Chow Sang Sang said it has managed to grow its sales among Hong Kong-based customers by 20 percent. That’s not enough to offset the loss of mainland consumers. But critically both Chow Tai Fook and Chow Tai Sang have successfully targeted mainlanders at home with their extensive network of Mainland Chinese stores and online presence.
“In [mainland] China every big jewellery player is doing well, us and Chow Tai Fook, everyone with a significant presence there is doing well,” said Fai Leung, Chow Sang Sang’s head of e-commerce. At Chow Sang Sang, sales grew 73 percent in the first half of 2021.
It’s a similar story at international high jewellery house Van Cleef and Arpels, which has long put Hong Kong at the centre of its Asia strategy. “[We had to] refocus on our local clients and this has been very successful,” said Nicolas Luchsinger, Van Cleef & Arpels’ Asia Pacific president, who declined to reveal local sales numbers. The company has also made up for the shortfall by targeting mainlanders at home. “But we believe in the future of luxury in Hong Kong,” Luchsinger said, adding that the brand has spent the past two years renovating stores and moving to better locations in anticipation of the eventual return of tourism.
An enduring B2B hub
If the future of Hong Kong’s consumer market looks hopeful but uncertain, the city remains a powerful B2B hub for the jewellery industry despite the years of upheaval.
After a 20 percent decline in 2020, Hong Kong’s fine jewellery exports rebounded sharply by 65 percent year-on-year to hit $6.9 billion in January to September 2021, 15 percent above 2019 levels, according to data from the Hong Kong Trade Development Council (HKTDC).
“Most of the material companies, whether the top-level Israeli diamond dealers or the mid-level Indian companies, set up their branch office or their companies here in Hong Kong,” explained Wings Cheung, general manager of the Hong Kong Jewellery Manufacturers Association, adding that they are drawn by Hong Kong’s major jewellery trade shows as well as the volume of gems and other materials passing through Hong Kong and its corporate tax rate, at 16.5 percent, among the world’s lowest.
“We chose Hong Kong as the centre to do business [because] it’s a free port, it’s very easy for us to import and export diamonds to and from any other part of the world,” said Sanjay Kothari, vice chairman at KGK Group, a privately-held company that doesn’t break out revenue but describes itself as one of the world’s largest wholesalers of diamonds, gemstones and jewellery. The business began in 1905 trading gems in Jaipur and has been operating in Hong Kong since 1962.
Thousands of jewellery businesses utilise Hong Kong as a B2B hub, sourcing raw materials from around the world and importing them to Hong Kong before they cross the border to southern Chinese and its manufacturing centre of Panyu. The finished products then return to Hong Kong, where they are sold or exported to wholesale clients around the world.
“Hong Kong provides a lot of convenience for business, specifically in our trade,” Kothari said. “Not to mention we are next to China, one of the largest emerging markets for gems and jewellery in the world.”
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(Source: written by Casey Hall, The Business of Fashion, April 12 , 2022)