Chow Tai Fook is the largest jeweler in the world as far as sales, with nearly $10 billion in revenue annually. In the United States, the 2,077-store retailer is best known for its purchase of diamond brand Hearts On Fire earlier this year.
Kent Wong, the group’s managing director (CEO in U.S. parlance), very generously took some time to speak with JCK this week about its plans for Hearts On Fire, whether it will ever expand to the United States, and how it plans to add thousands of stores in the next decade. Edited highlights of our conversation follow.
JCK: What do you see for Hearts On Fire?
Kent Wong: First off, we are happy to have acquired Hearts On Fire. It has a very good branding position as a premium diamond brand. Most important, the original market in America and 27 countries will be continue to be developed by existing management. I think the existing market can be grown by two drivers. One is more product offerings. The second is new store openings.
Chow Tai Fook has stable sources of diamond rough, so that ensures Hearts on Fire has a sustainable source. We have already set up diamond specialists for Hearts On Fire for quality control. After we improve the supply chain, we will further invest in the marketing budget.
At the same time, we will bring Hearts On Fire to greater China—Hong Kong, Macau—and mainland China. Last week we successfully introduced the Hearts On Fire brand in Shanghai. We plan to open three more stand-alone stores before Chinese New Year, which means before February.
In the coming years we will further expand the Hearts On Fire stand-alone stores in some high-end department store and malls. We want 10 to 20 stand-alone stores. After that we will further develop our shop-in-shops inside some Chow Tai Fook stores, which will leverage Chow Tai Fook’s high traffic. It will take about five years to launch about 300 points of sale in greater China. About 10 percent of the points of sale will be stand-alone stores, 90 percent will be shop-in-shops.
JCK: What should U.S. retailers who sell Hearts On Fire expect?
Wong: We want to help the retailers be more successful and give them more support with a more diversified product offering. We want to further develop our design team so we can produce product that is tailor-made for customer demand.
JCK: Can you see Chow Tai Fook coming to America?
Wong: The company is not ready to consider exploring our business in America. We still believe China will be one of the fastest-growing jewelry markets in the coming decade.
JCK: How much do you plan to expand?
Wong: We are optimistic about the Chinese economy in the coming 10 years. We are prepared to grow our business through investing in new store openings. We will open about 200 stores each year for the next 10 years. In 10 years, we will double our stores, from 2,000 to 4,000.
JCK: In America, we watched with great interest Alibaba’s incredible success with Singles’ Day. Your company participated in that. What was that like from your perspective?
Wong: On Singles’ Day, we saw a more than double increase in sales from the last year. More important, the buying pattern of Chinese young people is changing. The population ages 30 to 45—which represents 50 percent of the population—is well-educated and social media savvy. The whole industry has to learn to use social media and e-commerce to approach the emerging customer, especially the young people.
Compared with other industries, the jewelry industry is less affected by e-commerce completion. In China, we sell items with a lower ASP [average selling price] online. The Chow Tai Fook brick-and-mortar stores sell items with three or four times higher ASP than online. That means we can cross the customer over from online to offline.
Chow Tai Fook has already done a revolution to our model. Our brick-and- mortar store will become a place where we can let the customer enjoy the shopping experience. We invite them to come and feel and touch the jewelry. When the customer selects a product, they can have the product in their mobile, so when they make the purchase decision, they can just click and buy it and have it delivered. It is a wonderful shopping experience.
JCK: Do Chinese customers care about social issues like blood diamonds?
Wong: Yes. I think that the young people are really concerned about corporate social responsibility. At Chow Tai Fook, 50 percent of our diamonds are sourced directly from mining companies that have adopted the best practices. That’s a value to the customer.
JCK: You have a sight, you are a manufacturer, and you are a retailer. Signet is now a sightholder. Do you see more retailers getting involved with miners?
Wong: I think it will be a trend for the mining companies to work together with the big retail chains. The benefit is that through a vertically integrated system the mining companies can understand market trends and customer demand. They can plan a potential strategy.
At the other end, the retailer can get support from the mining company so they can have a sustainable source and also increase the confidence of the customer.
JCK: How does the American market differ from the Chinese one?
Wong: For me, I still have to learn more about the American market. In China, 54, 55 percent of purchases are driven by the gold market, while 24 percent is driven by gem-set jewelry, which is mostly diamonds. That is different from the States, where most of the sales are driven by diamonds. We have different cultures.
JCK: To what do you attribute Chow Tai Fook’s success in China?
Wong: We are an 85-year-old company. We understand our customers’ beliefs. Chinese people have a 1,000-year history of buying gold jewelry. In the past only the king or the nobles could own it. It was a kind of power, but also a kind of treasure. It meant dressing or good luck. Same with buying diamonds or jade or colored stones. Chinese consumers believe jewelry is a kind of wealth accumulation. It is also a treasure given to the next generation as a memory.
Our company has built up a trust and authenticity in the customer mind for two reasons. In early 1960, we upgraded the purity of our gold. That built up trust with our customers.
In 1990 we were the first company in Hong Kong to evolve the buying pattern of the people. The customer didn’t know the value of jewelry, so the other merchants gave big discounts—30 percent, 40 percent. All they did was double or triple the markup. You lose customer confidence if you give a big discount.
We were the first to do a fixed-price policy. So we guarantee a reasonable price. Now Chow Tai Fook became a benchmark. This built up our brand entity.
JCK: Are you considering any other acquisitions?
Wong: I don’t think so in the short term. We still have to concentrate on the Chow Tai Fook brand and the success of Hearts On Fire.