Asia

China’s Jewelry Rush

Sometimes, finding good topics for this blog can prove quite challenging. So, I’m always thankful for the readers who send in great material – some of which I am using in today’s post.

First, you should know that the luxury goods and services market in China is growing at an astronomical rate. Forecasts indicate that Chinese luxe will grow at a rate of 20% CAGR by 2015, at which time it will be the second largest market in the world.

One sector of luxury in China that is doing very well is jewelry. Estimated at a worth of $39 billion, the Chinese jewelry market is growing at around 15% per year. Growth has been fueled by a couple of factors:

  • A growing middle class living outside of the tier one cities are spending more on gems and gold.
  • Rising inflation concerns in the region are making gold more attractive as a hedging instrument; and
  • Lastly, the wealthiest segment of the Chinese population are been getting richer.

What is most surprising is the fact in spite of the availability of world renowned jewelry manufacturers and retailers such as Swarovski and Cartier, Chinese consumers are paying increasing attention to homegrown brands – specifically Chow Tai Fook (CTF). The company, owned by billionaire Cheng Yu-tung recently went public. With 1500 outlets and 2010 sales of $4.5 billion, CTF is twice the size of Tiffany & Co.

I’ll leave you with a graphic from The Economist, developed by George Washington University and L2 (a think-tank). It asserts that CTF, as a brand, outperforms well-known international brands in the hearts and minds of Chinese consumers.

Aman Resorts: A Tough Sell for DLF

Amangiri – Utah, USA

Two weeks ago, there was some news that China-based conglomerate, HNA, had sent in a bid to buy Aman Resorts, a collection of unique luxury resorts in some of the most sought-after destinations in the world. Aman Resorts, which is owned by DLF, an Indian development company, represents the company’s biggest non-core asset.

To bring you up to date, DLF currently has a net debt of more than $4 billion and is looking to raise as much as $650 million to shore up its debt levels and put some cash on its balance sheet. In 2007, the company had bought a 97% stake in Aman Resorts based on a $400 million valuation, while the remaining three percent was held by Aman founder Adrian Zecha. Considering that the purchase was made right before the global financial crisis, DLF has been desperately looking for a buyer for this property.

HNA Hotels and Resorts is part of China-based HNA Group. With assets exceeding $30 billion, the group has its tentacles in airlines, hotels, airport management, real estate, retail, financial services, logistics, and tourism. Annual revenues are around $10 billion (as of Dec. 2011). The hospitality segment of the group consists of a total of 43 luxury hotels and resorts in China and Europe (40 in China and three hotel assets in Brussels and Belgium).

Reports are out that HNA is out of the bidding process for Aman Resorts, since it never received any feedback on its undisclosed bid. Reuters reports that “bids came in the $300-$315 million range”, which means that the market feels these luxury assets are overpriced. This is a huge setback for DLF considering the list of companies interested in Aman Resorts. They include:

  • Malaysian sovereign wealth fund, Khazanah
  • LVMH, and
  • Kingdom Holdings, which owns a 47.5% stake in the Four Seasons chain of luxury hotels

It’s looking bleak for DLF, but maybe some other group will step up to take over Aman.

Adding Value – Train Rides and iPads

Train rides are very enjoyable for me because I get the chance to remain terrestrial. I’m not driving myself, nor am I on a bus going pretty much the same way I would have driven myself. Since train tracks do not always follow “car routes”, I get to take a more scenic view, stumbling upon sights that don’t come into my view on a regular basis. I also like to take trains at times they are sparsely occupied, so that I have a lot of space to myself. The combination of those components makes the ride an enjoyable one. However the real luxury experience can be summed up in one picture from my last trip on Amtrak: Continue reading →

Luxonomics

Today’s post focuses on luxonomics (luxury economics). Since luxury goods embrace the concept of rarity, it would be an obvious deduction to assume that the more scarce a luxury product or service becomes, the more demand it enjoys. Consequently, prices can appreciate – to levels that can be absorbed by few.

Some of the factors affecting supply include:

  • Input Prices
  • Technology or Government Regulations
  • Number of Firms
  • Substitutes in Production
  • Taxes
  • Producer Expectations

Today I want to show you some “scarce” luxury products, whose supply has largely been affected  by government regulations. As the cited MSN Money slideshow states, all the products listed are affected by legal restrictions limiting their production, distribution, and sale in parts of the world. Much of the reasoning behind these bans is aimed at protecting the environment. Continue reading →

Yao Ming Launches Wine Brands

30-day Challenge – Day 27

I’m not much of a sports fan, but I couldn’t help but notice recent stories about the former Houston Rockets star, Yao Ming, releasing a line of luxury wines in his native China. Continue reading →

Swatch: Creating a Shakeout in the Swiss Watch Industry

30-day Challenge – Day 24

A watchmaker at Edox, one of the Swiss companies challenging Swatch's decision to stop selling timepiece components.

For a company with revenues in excess of $6.5B, Swatch is considerably the worlds largest watchmaker. The Swiss company recently received approvals from the regulatory agencies to stop supplying competitors with the movements they use to make their timepieces. This is an ironic twist of events, because I am forced to ask myself, “why didn’t Swatch’s competitors invest in producing their own inner workings?”

Continue reading →

Morningstar: Luxury Firms are Overvalued

30-day Challenge – Day 23

Luxury brand valuations – from Morningstar  

Aside from writing on this blog, I’ve got some other nice skills, particularly in the areas of financial analysis and valuation. I am also fortunate to be part of a select group of MBA students, who manage approximately $500K for the Mason School of Business. In my duties as an equity analyst for The Batten Fund, I cover the consumer staples & discretionary sectors, and as such all the securities associated with luxury firms fall under my purview.

Yesterday, Francesco Lavecchia, an equity data analyst with Morningstar Italy published an opinion piece on the biggest decision luxury brands are facing in their bids to enter the growing Asian market. There are two choices lux companies have in conquering Asia: Continue reading →

Leaders in Luxury: A Series of Insights

30-day Challenge – Day 15

I am devoting today’s post to Leaders in Luxury, a series of insights from esteemed professionals leading global luxury brands. My thanks go out to FT.com for making these available. Enjoy…

Sung-Joo Kim, head of MCM Group, on her career and the business of luxury

Leonard Lauder, Chairman Emeritus of Estee Lauder on the next luxury consumers.

Differentiating Upscale Hospitality Series: Orient Express

30-day Challenge – Day 12

Today, I am looking at emerging themes in luxury with a focus on the hospitality industry. With rooms becoming commoditized, hotels have but one option to capture the hearts of its customers – differentiate. How do you differentiate one luxury hotel brand from another? Well, for starters we are way past thread counts, serving sumptuous breakfasts, and delivering the morning newspaper. Upscale hotels are having to differente themselves on the experiences they can provide their guests. In the next posts, I’ll talk about how some hotel groups are doing just that. We’ll kick off the series with Orient Express.  Continue reading →

Luxury in Asia

Prior to my articles on Patagonia and Saks Inc., I promised to deliver some interesting reads on luxury goods in Asia. I am now delivering on that promise with enough reading to keep you as busy as a W&M MBA student. Below are some some of my favorite reports/article on the Asian market for luxury from well the respected consulting firm, Mckinsey & Company. Some worthy reads over the weekend, with a pot of coffee (or tea) waiting in the wings. Enjoy…

Image

No seismic shift for luxury in post-quake Japan – May/June 2011
Although they were rocked by the Tohoku earthquake, Japan’s luxury consumers are back shopping—but with caution.

luxury goods in South KoreaKorea’s luxury market: Demanding consumers, but room to grow – September 2011
This year’s Luxury Consumer Survey addresses three key questions: Can South Korea keep it up? What’s changing? And what do these trends mean for the players in the luxury industry?

ImageFive questions for … Christophe Lorvo – May 2011
Christophe Lorvo, general manager of the Grand Hyatt Tokyo, answers questions about the global hotel business—and how to keep going after an earthquake.

ImageUnderstanding China’s growing love for luxury – March 2011
McKinsey’s in-depth annual report on the Chinese luxury market reveals two major trends: There are more luxury consumers, and they are more sophisticated.

Focus On Asia

For this week’s posts, I am going to focus on issues surrounding luxury goods in Asia. In some short paragraphs, I’ll introduce news topics surrounding the Asian market, where brands are pushing hard to establish a presence.

Gucci, Tiffany target Chinese banks in piracy law suits 

You have probably heard the phrase “imitation is the best form of flattery”. While that is true for many things, piracy in China bears huge costs for US firms – between $2.5 billion and $3.8 billion per year. In this article from Reuters, Emily Flitter discusses new developments in attempts by luxury brands to eliminate piracy.

Piracy and counterfeiting are huge “value leakers” for high-end brands, but in a strange twist of irony they can also serve to proliferate a brand (only at lower product prices and brand value).

The Rising Cost of Luxury In Asia

In the MBA program we are exposed to the macroeconomic dynamics of purchasing power parity (PPP). PPP is a figure that tell us if a big mac is more expensive in Brazil, than in China. Well, luxury goods have their own metrics, tracking the price of a basket of luxury goods across world markets. While Forbes Magazine uses the Cost of Living Extremely Well Index, Julius Baer’s August 2011 Wealth Report: Asia brings a new indicator to the party of economic indices. According to the Swiss private banking firm, the the price of luxury goods is up 11.7% in dollar terms in the four big markets of Hong Kong, Singapore, Shanghai and Mumbai. What is even more important is that prices have risen far faster than generic inflation in these cities. Want to know where to get the best price on a Chanel bag? Click here.