Three Questions About Chow Tai Fook’s Purchase of Hearts On Fire

Having spoken to several sources and observers about Chow Tai Fook’s purchase of Hearts On Fire, most agree on two things: This is a great deal for Hearts On Fire. And not such a great one for Forevermark.

Of course, Forevermark isn’t part of this deal. But as the other major loose-diamond brand out there, its name keeps coming up. We’ll get to why in a second, but here are my three main questions about the sale.

What will happen to Hearts On Fire in the United States?

This purchase, most sources agree, is all about China, where Chow Tai Fook plans to turn Hearts On Fire into a “household name,” in the words of CTF managing director Kent Wong. And with more than 2,000 stores throughout China, Hong Kong, and Macau, it might do just that. 

Still, HOF will continue to be sold in the rest of the world, and Wong’s company aims to “make [Hearts On Fire] an even bigger success in existing markets.” Here in the U.S., CEO Glenn Rothman expects significant new investments from his deep-pocketed new owner, which might lead to more staff, more marketing, and maybe even an expansion of its office space.   

Which brings us to Forevermark. In recent years, that De Beers brand has overshadowed Hearts On Fire at events such as the AGS Conclave. While the two brands have different positioning, many do see them as competitors, and there is a sense in the market that Forevermark’s prominence, aggressiveness, and heavy marketing spend has hurt its rival. 

But if CTF delivers all it is capable of—and remember, this is a company with higher annual revenue than De Beers—Hearts On Fire could turn into the kind of prominent, well-funded brand that it has always wanted—and perhaps always needed—to be. At its recent Las Vegas forum, De Beers executives called for more well-capitalized brands in the United States. This may be a case of being careful what you wish for. 

All that said, as analyst Ben Janowski notes, Hearts On Fire is hardly a new product. Most independent jewelers either carry it, or have considered it, or have a rival stocking it. And while its “world’s most perfectly cut diamond” positioning has plenty of fans, Janowski believes it might consider expanding its offer. And indeed, Wong tells me, “There is also potential for HOF to launch other gem-set jewelry with CTF’s support.” 

What will this mean for Forevermark in China?

This is a dicey one. Not only does Chow Tai Fook sell Forevermark in China, by some accounts, it generates about 50 percent of that brand’s sales. 

Now its biggest customer owns a rival—and in some ways a similar—product. (Some Forevermark stones in China are sold with hearts and arrows cuts.) Wong says nothing will change: “We have been a long-term partner with Forevermark and will, of course, continue to be….The HOF brand is a complement to our existing portfolio; it appeals to different clientele, and thus should not cause competition.” 

Chow Tai Fook certainly has good reasons to keep Forevermark. It’s smart politically—the company is a major manufacturer and a sightholder—and it’s already sunk money into building that name. And even though it’s not a proprietary brand per se, Chow Tai Fook is certainly the biggest and most prominent retailer in that area carrying it. There is also likely some vertical integration there, as Chow Tai Fook might get some of its own goods marked. We may even see, some have suggested, a Hearts On Fire–Forevemark co-brand in China. 

On the other hand, there is always the chance that CTF might decide to concentrate on either its own or established brands, as other big retailers are doing. Take Signet: For the last year or so, Jared carried Forevermark in 10 stores. Now it’s decided not to go forward: “While portions of the program garnered success, both parties have agreed that at this point current strategies do not fully align,” says spokesman David Bouffard.

At the very least, the folks at Forevermark have to worry that owning Hearts On Fire will divert Chow Tai Fook’s attention away from the Forevermark brand. I don’t get to say this often, but Forevermark should have listened to me.

What will this mean for Chow Tai Fook outside of China?

This deal is CTF’s first significant foray into the United States. Wong didn’t reply when I asked if it expects any others, only saying it will “focus on Hearts On Fire.” And for the time being, that’s probably true. Chow Tai Fook knows China, and it may take a while before it expands beyond there, if it ever does. Still, the U.S. is the biggest market in the world. If CTF does ever want to test the waters here, owning HOF could give it a nice education as to what this market—and possibly several others—are all about. 

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JCK News Director