| Global Times | 2012-6-15 0:50:03
By Ji Beibei
Chinese domestic jewelry brands may face a tough time this year despite recording impressive growth in 2011, analysts said yesterday, after Shanghai Laofengxiang Co reported a 64 percent year-on-year surge in its profit last year.
Laofengxiang, the Shanghai-based jewelry brand, raked in 21.1 billion yuan ($3.31 billion) in 2011, with a total profit of 911 million yuan, according to a statement filed to the Shanghai Stock Exchange yesterday.
The Chinese jewelry market has grown rapidly over the past few years. Total retail sales of jewelry in 2010 and 2011 hit 250 billion yuan and 380 billion yuan, recording 13.6 percent and 40 percent year-on-year growth, respectively, according to the Gems & Jewelry Trade Association of China.
But analysts noted that the domestic jewelry sector has entered into a transition phase in 2012 and bigger local brands will face fiercer competition from foreign as well as Hong Kong-based rivals in third- and fourth-tier cities.
"After the surge of 2011, the jewelry sector is slowing down. Small players featuring weak financial strength, unclear brand image and average products are facing possible closure," said Wang Jing, a gold market analyst with Shenzhen-based Qianzhan Intelligence Co.
European and American brands like Cartier and Tiffany have a major presence in the first-tier cities, while second-tier cities are major markets for local brands like Laofengxiang, Laomiao and Hong Kong-based brands including Chow SangSang and Chow Tai Fook.
Jewelry brands would vie for market share in the third- and fourth-tier cities as the market in the first- and second-tier cities has become mature, said Liu Jianhua, deputy secretary-general of the Diamond Division of the Gems and Jewelry Trade Association of China.
Domestic brands are at a disadvantage in the competition, since Chinese consumers tend to trust foreign brands more than the local ones.
"For the same quality jewelry, foreign brands like Cartier can set the prices several times higher than that of the domestic brands," Liu noted.
Domestic brands also need to address problems cropping up during rapid growth. Laofengxiang, for instance, repeatedly failed quality checks by local authorities in March, reflecting its poor ability to manage the retail chain.
Laofengxiang, which has over 2,015 outlets nationwide by the end of 2011, has heavily relied on franchises and distributors in its race to gain market share, Wang said. Thus it has poor ability to exercise control over products quality, and also dealers who have used inferior products to replace standard ones, hurting its brand image.
By leaving a comment, you agree to abide by all terms and conditions (See the Comment section).