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Growth Momentum in Recovery as We Review 2020

01 march 2021

Below is a review report of China's domestic jewelry industry in 2020 released by Guangzhou Diamond Exchange.

In the first half of 2020, the COVID-19 swept through the world against our expectations.

In the second half of 2020, the market recovered faster and better than we thought. In the gloomy year of 2020, we do see the dawn of light and strength.

The resilient Chinese jewelry market is a booster for the global market

The pandemic deals a blow to all aspects of the overall economy. In the past five years, total retail sales of consumer goods declined for the first time in 2020, down by 3.9% year-on-year to 39 trillion yuan. The jewelry industry underwent several lean years before the pandemic. From 2016 to 2020, the retail sales of gold, silver and jewelry products by enterprises above designated size declined year by year, and its proportion in total retail sales of consumer goods dipped from

0.9% to 0.6%, reaching 237.6 billion yuan in 2020 (Figure 1).

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Figure 1 Total retail sales of consumer goods and retail sales of gold, silver and jewelry products by enterprises above designated size from 2016 to 2020

The sudden outbreak of the pandemic in early 2020 cast a shadow over the jewelry industry that was already in the doldrums. The total blockade imposed due to the pandemic in the first half of the year dealt a hammer blow to jewelry consumption. However, as the pandemic is being brought under control, and the real economy gradually recovers, confidence in jewelry consumption is also greatly restored. In 2020, when the global jewelry market was hard hit by the pandemic, China was the first to resume work and production, giving a boost to the global market.

According to Bain & Company, the luxury goods market in Chinese mainland began to recover in April, 2020, and was expected to see a 48% growth in the whole year, reaching nearly 346 billion yuan. The Chinese mainland market’s share of the global luxury goods market doubled, soaring from 11% in 2019 to 20% in 2020. The luxury jewelry sales sector saw a year-on-year growth rate of up to 80%, far higher than that of beauty and watch categories.

China’s jewelry market recovered from the second half of the year, with robust growth

In the post-pandemic period, jewelry consumption recovers faster than the overall social consumer goods. In 2020, the total retail sales of consumer goods saw a year-on-year growth first since August, peaking at 5% in November, the highest monthly figure in the year. However, the retail sales of gold, silver and jewelry products by enterprises above designated size showed a year-on-year growth since July, peaking at 25% in November, the highest monthly figure in the year (Figure 2).

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Figure 2 Monthly total retail sales of consumer goods and monthly retail sales of gold, silver and jewelry products by enterprises above designated size from 2019 to 2020

In fact, the recovering jewelry industry in the post-pandemic period contrasts sharply with the sluggish market in the past few years.

Since 2018, the monthly retail sales of gold, silver and jewelry products by enterprises above designated size had been lower than the same period in the preceding years. In July 2020, however, when jewelry consumption began to rebound, it saw a year-on-year growth trend not seen for a

long time. Sales in the fourth quarter exceeded that in the same period in 2018. Sales in November even surpassed that in the same period in 2015, reaching 25.8 billion yuan, a record high for November in the past six years (Figure 3).

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Figure 3 Monthly retail sales of gold, silver and jewelry products by enterprises above designated size from 2017 to 2020

Thanks to the control of the pandemic, the majority of jewelry stores in China that shut down in the first quarter resumed operations in the second quarter, and the retail confidence gradually builds up. Hong Kong-funded enterprises’ stores in the mainland and Hong Kong and Macau saw diametrically different performance. The overall robust sales in the mainland market counters the persistently sluggish sales in the Hong Kong and Macau markets.

In 2020, the sales volume of Chow Tai Fook Group (including the mainland, Hong Kong and Macau markets) declined by some 45% year-on-year in the first quarter, fell by 20% in the second quarter, and finally rebounded by 3% in the third quarter, and soared by 17.5% in the fourth quarter. In 2020, Chow Tai Fook’s same-store sales volume in the mainland market saw positive year-on-year growth from the third quarter, and the decrease in same-store sales volume in Hong Kong and Macau markets narrowed since the third quarter (Figure 4). At the close of December 31, 2020, Chow Tai Fook had a total of 4,442 retail stores. Chow Tai Fook Group added 257 and 286 retail stores in the mainland (mainly franchised stores) in the third and fourth quarters, respectively.

The retail sales of Lukfook Group’s stores in Chinese mainland saw a change from decline to increase since the third quarter of 2020, registering a low single-digit growth rate. The retail sales of diamond products registered a double-digit growth rate. Since the third quarter of 2020, the decrease in Lukfook Group’s same-store sales narrowed, and same-store sales in the mainland market registered positive growth in the fourth quarter (Figure 4). At the close of December 31, Lukfook had a total of 2,249 stores in Chinese mainland, with a net increase of 225 stores throughout the year, including 142 new stores in the fourth quarter (144 new stores added, 2 stores closed).

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Figure 4 Changes in same-store sales year-on-year of Chow Tai Fook Group and Lukfook Group in 2020

(Note: At the close of the fourth quarter, of Lukfook Group stores in the mainland market, self-operated shops accounted for some 4%, and licensed shops some 96%.)

Chow Tai Seng’s operating income in the initial three quarters of 2020 was 678 million yuan, 996 million yuan, and 1.675 billion yuan, respectively. The changes in the first, second, and third quarters compared to the same period last year were -38.25%, -22.94%, and 17.94%, respectively. Based on the recovering second-quarter business, growth was achieved in the third quarter. At the close of September 2020, Chow Tai Seng added 348 stores, and closed down 339 stores, with a net increase of 9 stores.

Luxury brands in the Chinese mainland market experienced an exceptionally difficult start in early 2020, but some brands registered double-digit or even triple-digit growth at the end of the year. LVMH Group saw a jewelry sales volume of 2.366 billion euros in the fourth quarter, a year-on-year increase of 9%. Jewelry is the star performer in the company’s sales, especially for Bvlgari, which saw a “double-digit” growth in sales volume. Tiffany’s sales in China during the holiday season soared by over 50%. Richemont Group saw a staggering 80% year-on-year increase in sales volume in the fourth quarter in China, and jewelry is the star performer.

Resilient leading companies benefit from the rapid embrace of digitalization

Due to the lockdown for the pandemic control in early 2020, it was not allowed to operate physical stores. Various industries embrace the livestreaming practice, and live commerce is adopted throughout the jewelry industry.

Judging from the number of products available through live commerce, brands and the livestreaming anchors cooperate to enhance brand promotion and exposure. Chow Tai Fook cooperated with Viya to promote the pure gold bracelet in February 2020, and 168 pieces of bracelets were snapped up in seconds. In March, the benefit livestreaming event in cooperation with Li Jiaqi received enthusiastic response, with some 5,000 pieces of jewelry sold out in seconds. Pandora sold out 2,500 pieces of silver bracelets immediately through cooperation with Li Jiaqi. Swarovski cooperated with Taobao’s top anchors Viya and Lier many times, but a limited edition of about 2,000 pieces of one product was available for sale each time.

On the other hand, products suitable for live commerce are sold in large volume at a low unit price, or at a low profit, which are not suitable for jewelry sales in the general sense. For example, the livestreaming cooperation between China Gold and Hu Haiquan on Douyin on November 1, 2020 saw a single-session GMV of 140 million yuan. According to data from Chanmama, the highest-priced product for this live commerce was gold bar worth 20,000 yuan apiece. 1,816 pieces of gold bars were sold, with a sales volume of 36.774 million yuan, accounting for 25.7% of the total live commerce sales. It is reported that the commission charged by the anchor for gold bar in live commerce is extremely low. As gold is the hard currency, a decrease of only a few yuan per gram in the unit price is enough to attract consumers and bring GMV of tens of millions of yuan for the anchor. Except for gold bars, most gold products for this live commerce have a unit price from 200 yuan to 500 yuan, with low gold content. However, 12 types of products saw a respective sales volume of over 10,000 pieces thanks to the low price and brand guarantee.

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Figure 5 Analysis of data on special Douyin livestreaming cooperation between China Gold and Hu Haiquan on Nov. 1, 2020

(Picture courtesy of Chanmama)

Except livestreaming, if we look at digitalization in a broad sense, we can see that brands that can boost e-commerce and omni-channel retail indeed benefited tremendously in 2020.

Chow Tai Fook has built a smart retail ecosystem that focuses on physical stores, supported by online sales and enabled by tool applications, and featuring O2O interaction for attracting customers. In addition to Chow Tai Fook’s traditional e-commerce platforms such as online flagship store, Tmall, JD.com, and VIP.com, Chow Tai Fook vigorously promoted online and offline (O2O) related businesses including O2O distribution (i.e. routing online orders to POS for delivery service for delivery services), CloudSales 365 and Cloud Kiosk. As a result, it saw a year-on-year growth rate of 67.1% in e-commerce and O2O-related retail sales, and an increase of

12.0% in sales volume in Chinese mainland.

Chow Tai Fook developed the dedicated “CloudSales 365”, a mini-program built upon WeChat Work platform. From April to September 2020, Chow Tai Fook harnessed “CloudSales 365”, to tap the private domain market, covering more than 2 million customers. New customers account for some 50% of the customers who shop via “CloudSales 365”, and the average selling price and sales conversion rate are generally higher than those on e-commerce platforms.

Moreover, at the close of September 30, 2020, Chow Tai Fook set up Cloud Kiosk in upwards of 1,000 locations, mainly in retail stores in Chinese mainland. The interactive Cloud Kiosk platform fulfils functions such as rich product videos, 3D display, theme page design, interactive games, and full-category product display. The Cloud Kiosk offers functions whereby customers scan QR codes to place orders, and choose store pick-up or express delivery services. While introducing customers to stores, it solves store stocking pressure, and analyzes the proportion of new and regular customers, visiting frequency, and customer activity degree through face recognition technology to provide decision-making support.

In the second and third quarters of 2020, the retail sales of Chow Tai Fook’s e-commerce and O2O-related businesses in Chinese mainland increased by 21.8%, accounting for 5.6% of retail sales in Chinese mainland. In the fourth quarter, Chow Tai Fook’s e-commerce and O2O related businesses in Chinese mainland contributed 8.3% to the retail sales of Chinese mainland.

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Figure 6 Chow Tai Fook’s smart retail ecosystem

(Source: Chow Tai Fook’s speech at the International Jewellery & Diamond Conference 2020 Guangzhou)

In addition to Chow Tai Fook, Lukfook Group also announced that in the fourth quarter of 2020, its e-commerce business performed well in the mainland market, with a year-on-year increase of 54% for its quarterly sales. Chow Tai Seng achieved ballooning e-commerce sales through new marketing methods such as live commerce. In the first three quarters of 2020, self-operated e-commerce business achieved operating income of 702 million yuan, accounting for 20.97% of operating income. In the third quarter, self-operated (e-commerce business achieved operating income of 315 million yuan, a year-on-year increase of 159.95%.

Be positive and optimistic, and follow the trend

Looking back at the Chinese jewelry market in 2020, the data obviously paint a picture more optimistic than we thought. In 2021, given uncertainty in the external environment, it may be more important to put the customer first and follow the trend, in addition to being positive and optimistic.

A new generation of consumers

According to Bain & Company, China’s millennials (born 1980-1995, some 320 million) are the chief luxury consumers on Tmall, and Generation Z (Gen Z) consumers (born after 1995, about 80 million people aged 20 and above) are becoming an emerging consumer group. Gen Z consumers buy luxury goods for the first time at the age of 20 on average.

Digital marketing

The young-generation consumers, who are digital natives, mainly learn information through digital channels. According to Tmall’s questionnaire survey on luxury consumers, Gen Z consumers rely solely on online channels for information, with e-commerce platforms, Xiaohongshu (Little Red Book), China’s official websites or apps of brands being the top three sources of information.

For digital marketing, it not only refers to building online sales channels, but also include raising consumers’ brand awareness through marketing platforms, let consumers "plant grass" (take interest in products) first and then "pull grass" (purchase). Furthermore, mature e-commerce platforms provide rich marketing approaches, offering third-party services such as ERP/CRM and smart customer service. Small and medium-sized brands can easily achieve digital marketing without much investment in digitalization.

The key value of brand

Compared to other generations, Generation Z consumers lay more emphasis on “pursuing fashion” and are more attracted by niche designer and co-branded models. This without a doubt offers opportunities for small and medium-sized brands. Small but nimble brands that have unique personality and value proposition find it easier than ever to win the favor of consumers.

We look forward to breakthroughs in the jewelry industry in 2021!