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SHANGHAI — Executives at Chow Tai Fook, one of the world’s largest jewelry retailers, said business conditions are starting to improve after the company posted a disappointing set of first-half figures.

This story first appeared in the December 1, 2014 issue of WWD. Subscribe Today.

The impact of Chinese President Xi Jinping’s austerity campaign on the luxury goods market has already peaked, Kent Wong, managing director of Chow Tai Fook, told journalists as part of the company’s 85th-anniversary celebrations on Friday.

“The anticorruption campaign has affected the market, but the new rules cracking down on spending were introduced two years ago when the new chairman took office. [The impact] has already thinned out and things are going back to normal,” said Wong.

Elsewhere, Chow Tai Fook chairman Henry Cheng said sales in the company’s home market of Hong Kong are starting to recover “gradually” as pro-democrat protests die down. Over the past few months, the protests have forced some retailers to cut back their operating hours and brought traffic to a standstill.

Citing the impact of China’s austerity measures and the Hong Kong protests, Chow Tai Fook said last week that its first-half net profit and sales tumbled at a double-digit pace. The jewelry giant said net profit for the six months ending Sept. 30 slid 24 percent to 2.69 billion Hong Kong dollars, or $347 million. Revenue declined by 22 percent to 29.32 billion Hong Kong dollars, or $3.78 billion.

Meanwhile, Chow Tai Fook is plotting major expansion for its recently acquired Hearts on Fire brand.

The first Chinese outpost of the American diamond specialist will open in Shanghai in mid-January on Nanjing Xi Lu opposite the Plaza 66 mall, marking the start of an ambitious plan to open 300 stores by 2020.

Chow Tai Fook, which acquired the Boston-based company for $150 million in June, will roll out new outlets in Nanjing, Hainan and Hong Kong by the end of this fiscal year. An additional landmark opening on New York’s Madison Avenue is slated for the spring.

The appetite for diamonds among Chinese consumers is growing rapidly, despite government measures to curb extravagant spending among officials. In the last three years, Chow Tai Fook’s gem-set sales have maintained stable double-digit growth in tier-one and tier-two Mainland cities, Wong said, citing the bridal market as a key market driver. “Around 50 percent of [Chinese] women want a diamond engagement ring,” he said.

Chow Tai Fook executive director Adrian Cheng told Bloomberg that the company is considering acquiring stakes in diamond mines to secure a long-term supply of the gems to meet the high demand in China.

The Hong Kong-based jewelry company has identified a new target consumer segment: “The next generation of sophisticated Chinese woman, who is younger, independent and international, with a strong global view,” said Cheng, who is also a member of the board of Hearts on Fire. “We have every confidence in the growth of the premium design segment in China.”

The jeweler, worth $15.78 billion, will market Hearts on Fire through new independent flagships. Collections will also be available in existing Chow Tai Fook outlets.

The brand intends to reposition in two key ways. “Firstly, we are focusing on explaining the brand. The educational process is very important to us. Secondly, we want to introduce more fashion and design pieces into the product mix, instead of focusing on weddings,” explained Cheng.

Chow Tai Fook believes Hearts on Fire’s Hollywood image will resonate with increasingly sophisticated Chinese consumers. “It’s very important that we extract that DNA and showcase it,” Cheng said.

American socialite and style icon Olivia Palermo attended the Hearts on Fire China launch celebrations in Shanghai on Thursday, which took place at Rockbund No. 1 on The Bund.

“Hearts on Fire diamonds have a unique sparkle and the designs are incredible. I’m very happy to be supporting them. It’s a new relationship for me and I’m excited to see them grow in China,” said Palermo, who was sporting a specially commissioned rose gold necklace with a 10-carat diamond center.

When asked about future acquisitions, Henry Cheng said the company is concentrating on the expansion of its latest purchase for now.

“I would like to see the effect of Hearts on Fire before we decide if there will be further acquisitions,” he said.

For now, Chow Tai Fook executives said the company remains focused on serving its preexisting consumer base in Mainland China, Hong Kong and Macau, with plans to open more than 200 Chow Tai Fook stores per year on the Mainland, and between five and seven in Hong Kong, depending on market conditions.

It will, however, expand in duty-free areas outside of China to tap demand from affluent Chinese tourists, and has recently opened an outlet in South Korea’s Jeju Island.

On the subject of China’s slowing economy, Henry Cheng said he remains optimistic. “I am confident in the China market. Of course, there is fluctuation, but I believe the fluctuation is an upward trend, not a downward one.”

Chow Tai Fook is also working to strengthen its partnerships with high-traffic e-commerce platforms. In the next five years, the company’s online revenue is expected to rise from 1.5 percent to 5 percent of total sales, executives said. Current partners include Alibaba’s Tmall, which drives 60 percent of all online sales; JingDong Mall (JD.com) and VIP.com. However, the average selling price of online purchases is well below that in-store. An average online purchase totals 1,000 renminbi, or about $163, while an in-store one goes for about 3,000 to 4,000 renminbi, or $489 to $651, executives said.

The theme for the anniversary celebration held at the China Art Museum on Friday was “red universe,” symbolizing the company’s color and global outlook. The 1.7 million-square-foot venue, covering five floors, is the former China Pavilion built for the Shanghai World Expo 2010. Highlights of the festivities included an exhibition of 13 specially commissioned Hearts on Fire pieces of jewelry, which were modeled in a catwalk show attended by 700 people.

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