A goldmine in retail?

Dominating the highly lucrative Chinese jewellery market, Chow Tai Fook, the world’s largest jewellery chain, has long had a good run.

Bloomberg lists its market cap at HK$109billion, approximately US$14billion, while other competitors such as Tiffany & Co. stand at US$11.3billion. The company also recently opened its 2,000th store in Wuhan, China and is looking to expand its presence in the region.

Alan Chan, director of the group branding department at Chow Tai Fook Jewellery, reveals the company’s winning retail strategy.

The department store gold mine

Though Chow Tai Fook has a number of 'street stores' measuring approximately 200 square metres (such as the standalone store located in Marina Bay Sands in Singapore) most of its stores are what Chan calls ‘department store concession counters’.

Measuring approximately 80 square meters, these stores account for 80% of its store count and are particularly popular in Mainland China where people prefer to shop in department stores.

All stores carry merchandise from all price tiers of the Chow Tai Fook brand, unlike companies like Giorgio Armani - where different stores reflect the varying pricing tiers of its different brands. This is because a customer “may spend $100 or a $1,000,000,” says Chan.

Defraying killer overheads

Like any retailer, Chow Tai Fook's biggest overheads are rent, staff costs and stock costs. The staff costs are the result of its long operating hours and the cost to stock its stores with valuable merchandise is considerable. Still, Chan says that rent is the largest source of overheads: approximately 10% of Chow Tai Fook's revenue (which totaled approximately HK$37.7billion or US$4.8billion) goes towards paying rent.

It saves costs by utilizing economies of scale - most of its stores have standardised equipment. Chan cites the example of its product showcases, which are crucial because jewelers need to display their wares as elegantly as possible. He also cites the example of lighting, which needs to be deployed to make jewellery sparkle and thus increase its appeal. To get its showcases and its lighting, it orders in bulk from strategic partners. Most of its showcases are of a standard size, which allows it to use its computers to calculate, for example, how many showcases it will need to put in new stores.

This also ensures that orders can be placed beforehand, meaning that once a lease on a new store is signed, it can be set up quickly. This is important to do because of the high cost of rent means that new stores need to be in operation as soon as possible.

Chan will share more about Chow Tai Fook's retail strategies at Marketing magazine's Shopper Marketing 2014 conference.

To obtain conference tickets, please write to Joven Barcenas at jovenb@marketing-interactive.com or call +65 6423 0329.

For sponsorship enquiries, please contact Che Winstrom at chew@marketing-interactive.com