Hong Kong jeweller TSL targets mainland China’s middle class in expansion drive, unswayed by weaker yuan and trade tensions

The company plans to add 100 stores in mainland China, but may raise prices to counter effect of weakening yuan

PUBLISHED : Sunday, 05 August, 2018, 12:52pm
UPDATED : Sunday, 05 August, 2018, 10:00pm

Tse Sui Luen Jewellery International (TSL), one of the largest Hong Kong jewellers, is betting on mainland China’s rising middle class to expand in the face of a weakening yuan and trade war fears.

The firm plans to add 100 stores in mainland China over the next two years to its existing network of 387 shops, in a vote of confidence in the country’s retail market.

China will remain “the growth engine for TSL for the coming 20 years” because of the rising spending power of the middle class, said Estella Ng Yi-kum, deputy chairman and chief strategy officer at TSL, in an interview.

The country’s household wealth is forecast to surge by about US$10 trillion to reach US$39 trillion in 2022, according to a report by Credit Suisse in November, while the country’s middle class is expected to benefit from planned changes to China’s tax code.

However TSL’s expansion plan comes as China’s retail sector is showing signs of a slowdown, with the government struggling to maintain robust economic growth while cutting back on the debt that has fuelled much of that growth, all the while under the shadow of escalating trade disputes with the US.

China investment, retail sales weaken, hinting at economic slowdown

China’s retail sales growth slowed to 9.4 per cent in the first six months of this year from 9.5 per cent in the same period last year. The figure for May had dropped to 8.5 per cent, the lowest level in 15 years.

Meanwhile, the yuan has weakened by 9.6 per cent against the US dollar over the past four months to the lowest level in 15 months.

“Even though the yuan is on a downward trend, we have strategies to adjust pricing and use product designs to fit the appetite of our customers to boost sales,” Ng said.

The weaker currency hurts TSL, Ng said, because over half of the customers at its 31 stores in Hong Kong and Macau are from mainland China and it becomes more expensive for them to shop in Hong Kong, whose currency is pegged to the US dollar. The weaker yuan also has an impact when converting TSL’s assets in the mainland to Hong Kong dollars.

Hong Kong’s retail recovery at threat as mainland Chinese currency weakens amid US trade war

TSL may raise product prices in mainland China to counter the impact of the weak currency, Ng said. The firm will also continue focusing on smaller diamonds, which have higher profit margins than gold products.

“We use design to make a 0.3 carat diamond look like half a carat,” Ng said. “So we can have a good margin and attract customers.”

TSL reported in June a 113 per cent jump in profit for the 13-month financial year ended on March 31 from the previous 12-month financial year ended on February 28 last year.