Chow Tai Fook sees profit tumble 46 percent with no let-up in slack business climate

Chow Tai Fook Jewelry Group - one of the world's largest listed jewelry chains by market capitalization - posted a 46.2-percent plunge in annual profit as the Chinese mainland's slowing economy, changing consumer habits and strong outbound tourism take their toll on the retailer.

For the financial year ended March 31, 2016, the Hong Kong-listed group's profit tumbled to HK$2.97 billion from HK$5.53 billion a year ago. Revenue slumped 12 percent to HK$56.59 billion from HK$64.27 billion a year earlier.

The company proposed a final dividend of 8 Hong Kong cents per share, down 46.6 percent from a year ago, plus a special dividend of 22 Hong Kong cents per share.

Chow Tai Fook's share price surged 4.81 percent to close at HK$5.88 on Tuesday, while the Hang Seng Index added 1.42 percent.

"The mainland is still driving much of the growth volume in the travel and retail sectors, and this will continue as the next generation of luxury shoppers join the workforce and start acquiring wealth," said David Lung, managing director at Deloitte China's consumer products and retail unit.

"Overall mainland consumers are the travel sector's biggest spenders and they remain strategically important for luxury brands," he said.

Chow Tai Fook's same-store jewelry sales on the Chinese mainland, where it runs more than 2,000 jewelry and watch stores, and in Hong Kong and Macao saw declines of 10.3 percent and 21.7 percent, respectively.

It plans to close seven to eight stores in Hong Kong, but does not plan to lay off staff for the time being.

As the slump in mainland tourist arrivals continues, the decline in the sales value of Hong Kong's jewelry, watches and clocks, and valuable gifts business narrowed in April - falling 16.6 percent, compared with a 20.4-percent dive in March and 24.2 percent in February.

The SAR's retail sales value posted a 14-month slide in April, dipping 7.5 percent after having lost 9.8 percent in March and 20.6 percent in February - the largest monthly drop in 17 years.

Business advisory firms, however, have expressed optimism about future prospects although the path to recovery will be rough and volatile.

Global accounting giant PricewaterhouseCoopers (PwC) on Tuesday projected a compound annual growth rate of 2.1 percent for Hong Kong's retail and consumer products sector over the next four years.

"We may live in the age of value, but price is king. If retailers adjust their prices, sales will rebound," said Michael Cheng Woon-yin, retail and consumer leader at PwC.

He advised retailers to open up the online market as a way to combat the "retail winter". "The Hong Kong market is saturated. If retailers want to make money, they need to sell their products to other places. Some luxury goods have developed a new brand line to enable affordable luxury goods to take on the middle market."

According to the third annual Global Powers of Luxury Goods report issued by Deloitte Global this month, global luxury brands need disciplined innovation to respond smartly to new key market forces.

The report, which covered interviews with 100 of the world's largest luxury goods companies, said these key market forces include changing consumer spending behavior, the merging of channels and business model complexity, an increase in international travel, the growing importance of the millennial shoppers and the continued impact of the global economy.

Chow Tai Fook Chairman Henry Cheng Kar-shun, whose family controls the conglomerate, said: "The Chinese mainland is experiencing an economic slowdown, and volatility in capital markets has also hit luxury retail sentiment. Besides, more mainland consumers continue to look for more personalized products and shopping experience, with strong outbound tourism boosting consumption abroad."

Looking ahead, he expects the market environment in Hong Kong and Macao to remain challenging. "Persistent weak retail sentiment and the continued decline in mainland tourist numbers due to the strengthening US dollar and evolving travel preference will continue to affect the company's operations in the 2016 financial year".

Contact the writers at oswald@chinadailyhk.com

A sales assistant cleans a display cabinet in a Chow Tai Fook retail store in Hong Kong. After posting a 46-percent plunge in annual profit, Chow Tai Fook said it's expecting a challenging year ahead for Hong Kong and Macao. Billy H.C. Kwok / Bloomberg

(HK Edition 06/08/2016 page1)