140 95 Rapaport News

Crackdown on Gold Jewelry Price Fixing

A Shanghai investigation into retail gold price manipulation resulted in price-fixing charges being filed against 12 jewelry retailers and the Shanghai Gold & Jewelry Trade Association, according to an August 12 report by the Xinhua News Agency. The investigation was conducted by the National Development and Reform Commission (NDRC) of China.
   So far, five of the 12 jewelers — Shanghai Laofengxiang, Shanghai Laomiao Gold, First Asia Jewelry, Chenghuang Jewelry and Tianbao Longfeng — have admitted to price fixing and been fined a total of $1.64 million, the equivalent of 1 percent of their annual sales. According to China’s antimonopoly law, the price manipulation fine for a company may range from 1 percent to 10 percent of its total revenues from the previous year. The Shanghai Gold & Jewelry Trade Association was fined $81,300, the maximum possible penalty amount for a trade association.
   Chow Tai Fook and Chow Sang Sang, who were among the firms under investigation, have denied the charges and issued statements. Chow Tai Fook stated that its gold retail price was “reasonably set based on the cost of raw materials and various operating costs such as design and craftsmanship, while taking the international gold price as a major reference.’’ At press time, there was no resolution on the allegations against both jewelers.
   One week earlier, in a similar price manipulation suit, NDRC announced levying a fine of $108.9 million against six foreign baby formula companies operating in Mainland China.

   Selling diamonds by tender is still very new in China. ALROSA held its first tender for rough and polished diamonds on the Shanghai Diamond Exchange (SDE) from July 29 through August 2, following a Letter of Intent signed by both parties in April 2013. Thirty-five companies participated in the inspection of goods. The tender totaled $505,362 in rough diamond sales, and $245,389 in polished diamonds, according to ALROSA. The Russian miner described the auction results as positive and said it is planning further cooperation with SDE, since the SDE members showed a keen interest in the tender.
   In November 2012, ALROSA entered into a long-term agreement for rough diamond supply with Chow Tai Fook Jewellery Group Ltd.

Entering the Market
   Michael Huang, managing director of Diamond Index Group, a China-based supplier of high-end diamonds and jewelry, told attendees at the Rapaport International Diamond Conference in Mumbai in August that China is not an easy country for foreign diamond and jewelry companies to enter, even if the market has opened up.
   “For success in China, you need a strong understanding of the local market and to recognize your own added value,” Huang explained. “Your timing also needs to be right because it’s not a market that is suitable for everyone.”

Emphasizing the Brand
   One common branding technique for a foreign brand name, such as Cartier and Tiffany, penetrating the China market has been to occupy expensive retail locations in the first-tier cities. In Shanghai, for example, a presence in locations such as the Nanjing Road Promenade, the most high-end section of Huaihai Road, or such luxury malls as Plaza 66 or the Bund area, instantly delivers a branding image of tradition and stability. The branding efforts commonly include advertising on TV and magazines at the same time.
   Although a lot of jewelry retailers in China are still selling generic diamonds, which they then set in a mounting, or calling themselves a brand name simply by purchasing OEM jewelry products from manufacturers and stamping their logo on them, the more sophisticated jewelers have coordinated branding efforts.
   Jewelry retailer ENZO and advertising agency Ogilvy Fashion & Lifestyle recently launched a sophisticated campaign in China with a series of print ads asking “How many times do you want to get married?” with a small-text tagline, “There’s only one true love, but for wedding rings there are lots of options.” The print ads will be displayed in outdoor shopping areas in more than 50 cities, as well as in lifestyle magazines such as Trends, Cosmopolitan and Bazaar. The campaign will run through the end of 2013.
   “ENZO not only stands for great quality, but is also a very chic brand with smart design. We wanted to create a targeted campaign for its wedding collection that really stands out and exhibits the brand’s personality as well as its wide selection of wedding ring designs.” said Vivian Ma, general manager of Ogilvy Fashion & Lifestyle.

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