End of gold rush era

2014/11/21

From：Macau Business Daily

Reality check time. Jewellery retailers are licking their wounds. Last year’s ‘Gold Rush’ has petered out, with declining sales the proof. Many mainland Chinese visitors bought in but conspicuous consumption is out.

“Since the beginning of the year until October, we’ve seen a single digit drop in our sales revenues. This is because we’re comparing the results with a high base of sales in 2013”, says Lee Koi Ian, Managing Director of Seng Fung Jewellery Company Limited, to Business Daily. The company has eight shops on the streets of Macau, mainly concentrated in San Ma Lou and Nam Van.
Last year, the drop in the value of gold led many Chinese tourists to buy in. This event – quickly dubbed the ‘Gold Rush’ – prompted the results of the jewellery retail sellers. For instance, the profit of two of the major players in Hong Kong and Macau – Chow Tai Fook and Luk Fook – went up by 32.1 percent to MOP7.5 billion, and 50 percent to MOP1.96 billion, respectively.
However, with the gold rush over, sales growth has been declining for both small and large players.
According to data from the Statistics and Census Services (DSEC) of Macau, in the second quarter of this year there was a drop of 21.9 percent year-on-year in the sale of watches, clocks and jewellery. This market lost MOP1.2 billion during the second quarter in comparison to last year. From March to August, Hong Kong posted an average drop of 21.7 percent.
Like Seng Fung Jewellery, Chow Tai Fook (Same Stores Sales Growth 2Q –22 percent) and Luk Fook (SSSG 2Q –20 percent) explained in their second quarter results that the end of the Gold Rush caused this reduction.

Anti-graft campaign
hits luxury
product sales

However, the high base of sales alone should not be blamed for the drop in sales. The anti-graft policies of the Central Government have been affecting the sale of luxury products in Hong Kong and Macau, Sulabh Madhwal, Personal Accessories and Eyewear Industry analyst at Euromonitor International, explained to Business Daily.
“The effects of the anti-graft policies have been felt across luxury goods”, he said. “In 2014 and 2015, value sales growth of real jewellery is expected to be much lower than those seen for the stellar year of 2013”.
Mainland Chinese tourists visiting Macau and Hong Kong have also less money to spend than in the past.
“Mass market shoppers are more or less the same as last year as is the number of visitors. But we have fewer high spending clients, which are the ones that buy goods worth more than MOP100,000”, the Managing Director of Seng Fung Jewellery said.
According to the official data of the third quarter of the year, mainland Chinese per capita spending in Macau decreased 4 percent year-on-year to MOP2,220.
This trend is not exclusive to the jewellery market. Earlier this week, Sasa, the retail seller of cosmetic products, said that their clients were also spending less money.
But in Macau retail sales are being affected by declining gross gaming revenues.
“It’s affected the sales chain”, Lee Koi Ian said. “In our company we do not sell to the very high-end [consumers], who are gamblers and shops inside casinos. But our best high-end clients are usually gaming promoters and workers related to gaming”.
Meanwhile, the Hong Kong market is struggling with the Occupy Central movement.
“Customer traffic and the business of our point-of-sale in certain areas in Hong Kong has been affected by the demonstrations happening nearby”, Chow Tai Fook reported earlier this week.
This is a perspective shared by Barclays analysts. “We believe trends for October will likely weaken as retail sales could be negatively impacted by the ongoing protests in Hong Kong”, the British bank stressed.
Even if there is a decline in sales in comparison to 2013 the prospects for the jewellery market are brighter for the rest of this year and for 2015.
“The retail sentiment is better because there are more weddings and festivities in the city during the second half of this year, especially after Golden Week in October”, Mr. Lee said.
This fact is also proven by Luk Fook’s results for Golden Week. The group’s same stores sales growth was up 3 percent year-on-year in Macau and the Hong Kong market.
“Although the overall industry outlook is expected to be positive, leading retailers might be pressed to extract revenue growth. Recovery in 2015 is not expected to be as strong as the Chinese government’s anti-graft policies are unlikely to change in the near future”, Euromonitor International analyst Sulabh Madhwal said of future prospects.
*with Stephanie Lai

Copyright@Macau Business Daily