A Hong Kong gold merchant seeks fortune in China

By Joyce Hor-chung Lau
The New York Times
Friday, July 31, 2009

http://www.nytimes.com/2009/08/01/business/global/01spot.html?

HONG KONG -- When Chow Sang Sang opened its third jewelry megastore in Hong Kong in April, it was not a quiet affair. The 464-square-meter space was packed with publicists, fashion models, art installations, drummers and a diamond necklace priced at 5.7 million Hong Kong dollars.

Vincent Chow, the grandson of the company's founder and now its general manager, was at the 5,000-square-foot store to oversee the proceedings -- and to take a hand at banging on the drums himself.

But although Mr. Chow, 62, is overseeing a rapid expansion in the family jewelry business, he is staying firmly focused on the commodity that made his family's fortune.

"We started as goldsmiths," Mr. Chow said in a recent interview. "Today gold still makes up half of our sales."

Chow Sang Sang was founded in 1934 in Guangzhou, China. In 1948 -- when masses of refugees and companies fled political turmoil on the Mainland -- Mr. Chow's father and two uncles re-established the family business in Hong Kong, then a British colony.

In 1973 the jeweler went public on the Hong Kong exchange. Today Chow Sang Sang has more than 190 stores in Hong Kong, Taiwan, Macao, and China, and it had revenue of $1.27 billion in 2008.

For Mr. Chow, one of the buffers against hard economic times is gold's role in Chinese culture -- a role that will not fade with fads or volatile markets.

"In this part of the world, gold is a part of life, and people are used to trading it," he said. "It is what elders give to newlyweds. It is what a Chinese bride wears -- or perhaps I should say exhibits -- to show off gifts from the family. If you are going to buy a wedding bracelet, you cannot not buy gold."

Like most Hong Kong jewelers, Chow Sang Sang's bread-and-butter items include gold baby bracelets, as well as pendants and figurines shaped like religious or iconic figures.

There are more than 40 Chow Sang Sang stores in Hong Kong, but the Central megastore will be the last opening in the foreseeable future. Expansion will not be here but north of the border.

"The Mainland is our engine for growth -- there's no doubt about it," Mr. Chow said.

According to the Hong Kong government, the value of total retail sales fell 6.2 percent in May, compared with a year earlier. In a report, the Census and Statistics Department said consumers were "cautious" about luxury spending on items like cars and jewelry but that "local consumer sentiment continued to hold up rather well."

"The key reason for that drop is the change in the macro-economy," said Eric Yuen, the head of research at Guoco Capital, an investment management company in Hong Kong. "Overall, the slowdown of the economy will affect consumption."

However, according to Mr. Yuen, the spending power of the Mainland Chinese -- the main buyers of jewelry in Hong Kong -- will play a big role. The Chinese economy is picking up, having grown 7.9 percent year-on-year in the second quarter of 2009.

The jeweler's Mainland shops are not yet big earners; though there are 125 of them, they account for less than half of total sales. Still, the Mainland offers more room to grow than the more developed markets of Hong Kong, Taiwan, and Macao.

"There should be room for maybe 100 more stores on the Mainland," Mr. Chow said. "But not thousands of stores. We don't want one on every street in China."

Quality -- and the perception of quality -- is important in a crowded market. Mr. Yuen, the analyst, described Hong Kong retailers like Chow Sang Sang as having "a very strong operational history."

"They've got good brand names, which gives confidence to the Mainland buyer," he added. "If they're buying gold from an unbranded store on the Mainland, they have no guarantee of good quality."

Despite a drop-off in the latter part of the year, Chow Sang Sang's jewelry sales for the year ending Dec. 31, 2008, were up 30 percent from 2007.

The economic downturn has meant that Mr. Chow has had to keep a cold eye on costs. "In the first half of 2008, things were go-go-go in terms of buying materials like diamonds," he said. "But by the third quarter, we knew things were not right. So we quickly refined our logistics in a way that allowed us to reduce our inventory. We had to both confront the recession and make preparations for the volatility in the price of gold and platinum."

A well-known supporter of the arts in Hong Kong, Mr. Chow was once the head of the Hong Kong Arts Development Council and has worked in an official capacity with the Hong Kong Academy for Performing Arts, the Hong Kong Philharmonic Orchestra, and the Hong Kong Repertory Theatre. He has brought that interest into his business, adorning a Beijing megastore with works by young local artists.

"We don't want to rely too much on celebrity spokespeople," Mr. Chow said. "Celebrities come and go. Their popularity, notoriety, fame can be nebulous."

Gold, on the other hand, is solid -- and eternal. "In hard times," he said, "people cling to it."

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