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Good and bad news from holiday sales in China

19 march 2012

On January 23, China celebrated its most important holiday of the year – Chinese New Year or Spring Festival. For the Chinese, it is of equal importance as Christmas for the Europeans and Americans and New Year for the Russians. The jewelry industry traditionally holds high expectations for these holidays. In past years, jewelers’ hopes pinned on Chinese New Year were justified. In this article, we summarize the results of sales this year and analyze the trends behind dry metrics.

Chinese New Year falls each time on a different date because it comes by the lunar calendar at the heart of the traditional chronology in China for almost 5,000 years. The lunar calendar is now widely used to determine the dates of the Chinese national holidays, as well as for some farm work.

Chinese New Year in China is called "Spring Festival," because according to the lunar calendar, on this day winter comes to its end making way for spring. Incidentally, it is really may be seen by changing weather. This time, the new year in China came on January 23. Although officially people in modern China are given one week (5 working days) to celebrate the occasion, the majority of the population across the country is celebrating the event for two weeks, until Feast of Lanterns, and sometimes even for a month. This means quite a lot of time to purchase gifts and be carried away by shopping.

Last November, China imported a record amount of gold, according to the Wall Street Journal citing official metrics. Shipments from Hong Kong to mainland China totaled 102 tons, a 20% increase from October and a nearly sixfold increase from November 2010. This was how the Chinese jewelry industry was bracing up for the holiday season.

One month later the Hong Kong Census and Statistics Department reported that gold imports from Hong Kong slumped to just 39 tonnes in December 2011, while Chinese gold imports for all of 2011 surged by 259 percent to nearly 428 tonnes thus making the December drop almost insignificant for the entire year picture. However, this was probably somewhat upsetting for Tom Kendall, a precious metals analyst for London-based Credit Suisse, whose forecast that overall Chinese imports for the full year would reach 470-490 tonnes failed to come true.

The good news for retail sales in China during the holiday period was that they went up 16 percent to about $75 billion (RMB 470 billion), as Bloomberg said citing the data from the Chinese Ministry of Commerce. In turn, Xinhua reported that sales of festival-related goods (precious metal souvenirs are traditionally a great success) saw double-digit growth in most regions, with the volume in Beijing, Jilin, Qingdao and Dalian up 15.5%, 17.9%, 18.1% and 14.2%, respectively.

According to Rapaport, bullions, coins and other jewelry bearing images of the Dragon, which assumed duty on January 23, were among the top rated purchases made by Chinese consumers with jewelry sales driven by strong gold demand while diamond sales were stable.

Xinhua described these goods as favorite buyers’ items this year. Sales of gold, silver and jewelry rose 57.6% during the week-long holiday at Beijing's Caibai store, a gold seller, the agency reported. Other jewelry stores across the country also saw sales surge, according to official data, Xinhua said.

"Many Chinese people lost lots of money in property and stock investments in 2011, so they prefer to buy gold to maintain the value of their savings amid high inflation," Liu Yangyi, a trader at the Shanghai Gold Exchange, told the Global Times Saturday. "Besides, Chinese people have a special feeling toward the dragon, and sales of gold jewelry in the Year of the Dragon are much better than in other years," Liu said.

As it is seen from the Wall Street Journal chart below, the first quarter of every year usually accounts for top sales in China. Spring Festival appears to be the major contributor to this outcome. One exception was 2010, when sales peaked in the 4th quarter because the crisis began in 2009 and consumers felt uncertain in early 2010. According to London-based metals consultancy GFMS, China's consumption of gold jewelry jumped 16 percent last year to a record 514 metric tons.


















 





However, the bad news is that despite the 16-percent growth, the growth rate was down 3 percentage points compared to the previous year’s increase. According to Bloomberg and other agencies, Chinese New Year in 2012 displayed the lowest sales metrics from the start of the financial crisis in 2009.

This may indicate that consumers are spending money on luxury items at the same rate as last year. Let us recall that more than one strategy to “move eastward” nursed by top brands was based on inspiring predictions of growing purchasing power in the Chinese market.

Just several examples. Last year, De Beers Diamond Jewellers, a joint retail division of LVMH and De Beers, opened their second store in Hong Kong. Harry Winston announced its decision to open three new outlets in China in 2012. Tiffany introduced a key position of Vice President for the Asia-Pacific Region into its new top management arrangement, thus consolidating its foothold to expand in this area, in particular highlighting China. London-based jeweler Graff Diamonds was preparing to enter the Hong Kong Stock Exchange with an IPO aimed to attract about $1 billion. The company submitted a formal application in mid-February 2012.

“The growth of luxury sales on the mainland is slowing,” said Ouyang Kun, chief executive officer of the World Luxury Association's China office, attributing this to high prices, restricted choice and poor quality driving an increasing number of consumers to the overseas markets to purchase luxury goods. This view is corroborated by the association’s data that Chinese tourists, who went abroad on the occasion of Spring Festival, bought $7.2 billion worth of luxury goods during their trips. And this makes almost 10 percent of the total holiday purchases made by the Chinese inside the country during the same period.

According to some Chinese experts, 2012 may be difficult for foreign jewelry brands that have come to China in an effort to get Chinese buyers. Less successful sales early this year may indicate a slowdown in the jewelry trade throughout 2012. Let's hope that the Russian omen "You will live the new year the way you celebrate its advent” does not apply to the Chinese market.

Dasha Platonova, Editor in Chief of the Asian Bureau, Rough&Polished