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Business

Chow Tai Fook turns failing China shops into logistics hubs

A Chow Tai Fook store in Causeway Bay, Hong Kong

HONG KONG -- Chow Tai Fook Jewellery Group, one of the largest publicly listed jewelry chain in the world, has found a new way to make better use of its struggling stores in China at a time of dwindling foot traffic: turning them into logistics hubs for handling e-commerce orders.

The Hong Kong-listed jeweler said on Tuesday it was collaborating with popular e-commerce channels, including Tmall operated by Alibaba Group Holding, to receive online orders so that some 2,100 of its physical stores across mainland China could become logistics points to facilitate delivery.

"We are tapping into our vast network of sales points to achieve online-to-offline interaction," said Executive Director Adrian Cheng Chi-kong, the third-generation heir of one of Hong Kong's wealthiest families that controls developer New World Development and transport companies. Cheng said about 30% of the products were only available online to differentiate from offline shops.

Chow Tai Fook Jewellery Group Chairman Henry Cheng Kar-shun, right, and Executive Director Adrian Cheng Chi-kong, left, announcing first-half earnings on Nov. 22. (Photo by Jennifer Lo)

While still small, the group's e-commerce business in mainland China posted a year-on-year growth of 22.5% in retail sales value, accounting for less than 3% of its total sales on the mainland.

Chow Tai Fook's e-commerce drive follows a decade of aggressive expansion into mainland China that eventually took a toll on the luxury retailer amid the country's anti-corruption campaign and competition from e-commerce players such as Alibaba and JD.com.

Net profit fell 21.5% on the year to reach 1.22 billion Hong Kong dollars ($157 million) in the six months ended in September, the lowest since it listed in 2011. Revenue also slumped 23.5% to HK$21.53 billion in the first half of fiscal 2017, due to weaker demand for luxury goods in China. Its mainland business contributed to more than half of its turnover.

Chow Tai Fook added seven shops to its retail network of 2,300 sales points in the region in the same period. With a net opening of 11 shops on the mainland -- most of them in iconic malls, the group would shut down loss-making shops in department stores and renovate half of the country's outlets in the next one to two fiscal years in a bid to consolidate its traditional outlets.

The jeweler also opened two shops in Malaysia and South Korea in the same period but closed six shops in Hong Kong and Macau due to fewer mainland visitors to these markets. Commenting on Hong Kong's retail outlook, Chow Tai Fook Chairman Henry Cheng Kar-shun said "the worst is nearly over," suggesting that the market could bottom out in the second half of fiscal 2017, unless something drastic and unexpected happened.

Retail sales in Hong Kong fell for the 19th consecutive month in September although the contraction eased slightly as mainland Chinese arrivals began to stabilize after months of decline. September sales of watches and jewelry fell 12.3% on the year, according to official statistics, less than half the drop reported a month earlier.

Some expect the retail slump to narrow further with more overnight visitors who typically spend more than same-day shoppers from neighboring Chinese cities. Overnight visitors accounted for 46.5% of the total in the first nine months this year, up from 44.4% in the same period last year. "Chow Tai Fook [and rivals] Chow Sang Sang and Luk Fook may see signs of hope and bottoming out in the near term," said Hugo Suen, a Hong Kong-based analyst at Sunwah Kingsley.

But others cited threats from mainland jewelers in an increasingly crowded market. Guangzhou-based Zhou Liu Fu Jewelry -- a name that sounds like a combination of Chow Tai Fook and Luk Fook, said it would add 50 shops in three years following its first opening in Hong Kong's shopping hub of Mong Kok earlier in November. Shanghai-listed Lao Feng Xiao, China's largest gold chain, is also planning a foray into Hong Kong.

Asked about the impact on the jeweler, Chow Tai Fook's Henry Cheng said the group was not too worried about competition. "It's only a sign that Hong Kong is an open market and investors are positive about its outlook."

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