China’s diamond market could have a tougher year ahead – Jing Daily

Jing Daily, the Chinese luxury mag, wrote a piece on my Chinese diamond trader interview.

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They note some negative news in the diamond space, with Graff Diamonds postponing its planned USD 1bn Hong Kong IPO and Hong Kong sales growth at Tiffany slowing to 10% in the first 3 months of 2012.

Jing Daily also makes a good point and one that I didn’t touch upon in my piece –

that it may not be that Chinese buyers have turned away from diamonds altogether – they are likely just buying more outside of mainland China and Hong Kong.  By most estimates, well over half of luxury purchases made by Chinese consumers are done outside of China, and with Chinese tourists flocking to Europe in record numbers, it’s highly likely that quite a few are taking home some serious stones.”

I agree and this is probably the main story in Chinese luxury demand.  As I noted with my post on Prada,

“Drilling down, if you look at SSS by region, Greater China grew at 21% from 2011 and 2012 – not bad at all.  But it was Europe which grew the most at 31% YoY.

This would seem counter-intuitive given the EU debt crisis.  However Prada has continued to open new stores (4 in 1H2012) and in their presentations have stated that EU sales were driven by cashed-up Chinese and Russians.  So Prada is also a play on emerging market travel.”

The issue with diamonds of course, is how such sales are tracked – how do you know if the diamond buyer in a European store is from China?  I’m not aware of any good data points – does anyone have any suggestions?

A proxy would be looking at Richemont’s results.  In its Interim FY13 results, Richemont saw 17% growth in its Europe sales and this was “driven by tourism, increasingly from Asia, favoured by a weak euro.”

In the follow up Q&A, Executive Chairman Johann Rupert, in a response to a question on corruption (p.20) noted:

In terms of corruption, you find corruption all over the world. I would say less in the Nordic countries and in the [inaudible] countries, but, unfortunately, it’s all over the world, and I’m not going to comment on corruption in China at all. The 1 million Swiss francs per day turnover in Bucherer in Lucerne has got nothing to do with corruption in China. It’s people that have worked, that have saved, that are spending their own money. You know, it’s now over 1 million Swiss franc’s a day in one store in Lucerne. Travelling Chinese are coming and they’re spending. If you go to Galeries Lafayette, and if you see the people…”

And later on (see p. 21), CFO Gary Saage and Rupert again emphasised the travel aspect.

It’ll be interesting to see how Prada and Richemont’s commentary on Chinese travellers to Europe changes in 2013, as the corruption crackdown plays out in China.

Will the Chinese traveller flows slowdown? Or will there be no impact, backing up Executive Chairman Rupert’s view that their Chinese customers in Europe have nothing to do with corruption and that “It’s people that have worked, that have saved, that are spending their own money.”

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