Archive for October, 2013

Analysis of Chinese Diamond Market and Sales Channels

Analysis of Chinese Diamond Market and Sales Channels

In the past, consumers used to buy diamond rings from department stores. However, at present, increasing number of price-sensitive consumers would choose to purchase diamond from on line store or professionals diamond stores. According to statistics, in 2010, the Diamond B2C Website alone had stolen the market share of 5%, and in 3 to 5 years, this share will increase to 20%. Plus with the impact of professional diamond jewelry stores like In Love-all you need is love, MAKELUMER, and Jewelry Square Worldmart, which are endowed with more competitive edge than online jewelry stores, the share occupied by traditional department stores will decline further.

Behind the defeat of the traditional department store in the diamond industry underlies a major reshuffle of the diamond sales channel. For medium and small size brands which used to occupy most of the market share, the room for survival is becoming increasingly scarce. Whereas a few well-known brands, professional chain stores and specialty brand B2C website will become the ultimate winner.

In this March, although the weather was getting warmer, traditional department stores, jewelry brands and distributors can hardly say they felt the same way. As in this month, they are constantly upset by unfavorable news in diamond and jewelry industry.

On March 12, Love-all you need is love, a professional diamond department store featuring diamonds direct supply and cheap and transparent price, held its grand opening in Beijing ‘s bustling East Third Ring district, covering a floor space area of 5,000 square meters. And on March 15, Zbird.com, the B2C website announced that it has completed the third round of $ 50 million in financing, making its next expansion pace legible. By the end of March, the world’s largest rough diamond supplier De Beers Diamond Trading Company increased the quote of diamond by 7%. Experts predict in 2011 annual rough diamond prices would rise by 20% , and from May 2010 till now, the price has risen by 30%.

Under the constant pressure and exploit of the showstoppers in the industry, the seemingly glorious jewelry industry operators are facing great surviving pressure.

The “Sparkling” Diamond Industry

Although China’s diamond market has been truly thriving only for a few years, it has been witnessed the booming of the brands, online purchasing craze and direct discount sale entering the competing arena. The most fundamental reason for these rounds of crazy sales is its vast market potential, attracting countless capital and operators who contends to become the one who laugh to the last.

Image courtesy: wscbrc.com

But exactly how vast is China’s diamond market? by now, there is still no authoritative statistics, however during the 2010 China Diamond Forum, Li Mu, Deputy Director of Shanghai Diamond Exchange Joint Management Office said the consumption growth rate in Chinese mainland diamond market has up by over 20%, surpassing Japan to become the world’s second largest diamond consumer country, second only to the United States. International diamond institutions are generally optimistic about Chinese diamond market’s growth prospects, referring to the next 10 years as the “golden decade’” for China’s diamond. The industry pacesetter such as Chow Tai Fook scored a turnover record as high as 4 billion yuan in the sales of its diamond jewelries. and the turnover of TESIRO, whose major sales are in diamonds also, had already surpassed 1.5 billion yuan.

These figures are only for the stock market, therefore, the incremental market is yet waiting to be tapped into, leaving people unlimited reverie. It is estimated by relevant agencies that in China each year about 10 million pairs of couples would get married, incurring a total of wedding spending of 250 billion yuan. And if 1/ 10 of these spending are for jewelry consumption, there is 25 billion yuan consumer space each year. No enterprise cannot and dare not ignore this huge market. Experts predict that such a market of sufficient capacity can further accommodate at least three or more listed companies, which will inevitably be pursued by capital from various sectors.
 
Three Reforms in Mode

On the basis of the huge diamond consumer market, gold diggers have launched a series of business transformation, each of which has brought about tremendous changes to the industry structure. Of course, the most important result was a bigger cake made under combined effort, so that the sales of entire industry maintained a continuous rise.

It is acknowledged that the first reform is characterized by traditional department store model which sets up the brand name and encloses market space. Famous brands such as Cartier , CTF , Diamend were set up during this period, allowing dealers behind the counter earning pours in the meantime.

Subsequently the sudden emergence of online sales has set off a second change, which quickly grabs away business from department stores. According to the statistics from China Electronic Commerce Research Center, by the end of 2010, the number of proper diamond jewelry online B2C service providers such as www.9diamond.com, www.kela.cn, www.xzuan.com, www.zbird.com, DAVIDNILE, and www.zb166.com has already exceeded100, maintaining a rapid growth momentum , has occupied 5% of the industry share. Industry experts predict that the jewelry market in 2011 shall be increasingly enhanced, and online shopping sales will reach 21.7 billion Yuan, an increase of 155%. In the next 3 to 5 years, online shopping will account for 20% of the total. In the face of menacing and emerging diamond online store, apart from enhancing the in-site experience, department stores has almost no strength to fight back.

Challenged by the advantages of online store in price and cost, many capitals outside the diamond industry have carried out new trial through drawing successful experience from online store management and marketing mode, the representative of which is the MAKELUMER diamond shopping mall opened on January 1, 2010 in Beijing Blue Harbor. Featuring cheap diamond wholesale mode, it has led to a purchasing craze. On behalf of the traditional channels, it fought back violently at the online diamond store. At present, MAKELUMER has already opened two stores in Beijing at Blue Harbor and Zhongkun Square at Great Bell Temple and its new malls in South and West of Beijing is also under planning. According to Hao Yi, CEO of the MAKELUMER, in 2010, the sales revenue of MAKELUMER is nearly 300 million Yuan. Apart from its expansion in Beijing, it also extends its reach to markets to other cities such as Chengdu, Chongqing, Zhengzhou and Shenyang. While the Love-all you need is love opened in this March put this reform in diamond price to its extreme, which directly put the internal transactions price for international diamond dealers to public, featuring” Loose diamonds “, “international quotation “, ” zero down payment installment “, ” full refund buy-back”. It integrates low prices, transparent costs, financial innovation, and high-quality after-sale service all in one, this new sales model enables the mall to yield more than 10 million yuan in sales in the first weekends since its opening.

Restructuring of the Channel Forces

Under the double impact of B2C websites and professional stores, traditional department stores’ market share would inevitably see a great decline, behind which undergoes the re-shuffling of channels, and some brands and dealers were forced out consequently.

Although the jewelry industry may look glamorous, the actual profit of it is not high. Take a store of 80 square meters as example, the renovation costs, labor costs, fees, upfront purchase would amount to at least $ 6 million. In case when the performance is good and operation is under normal circumstances, it takes probably two years to recover the initial cost. At present, the price of raw materials such as diamonds, gold, platinum are all witnessing a rise, so do labor costs, rental expenses and promotion costs. All these changes in operating costs make it more difficult for us to run a jewelry business.

Against in this backdrop, experts predicted that the jewelry stores will be the first to back out .According to statistics from the industry association statistics, since 2010, there have been at least 10% of companies have chosen to quit. The business of department store’s jewelry counter of is not optimistic either. , although sales are rising, profits continued to decline. Some of the small and medium brands and some dealers who are in operational difficulties will be the first to take leave from quit the market in the very first. The majority of E-commercial dealers will also withdraw from the market. As a result, the final Market structure will be as follows : a small number of high-end brands that emphasis emphasize on quality and service will remain in the department stores, while the remaining low-end market, were shall be carved up by online shopping stores and specialty stores. And most the majority of experts predict that, because as online shopping logistics and distribution would inevitably be subjected to credit have the congenitally deficient credit risk , therefore, the professional chain stores are expected to have a brighter future.

Review of the VC(Venture Capital) obtained by Diamond B2C Websites in recently years.

January 2007
DAVIDNILE acquired $ 12 million venture capital

In 2007
www.zbird.com got the first round of funding of 5 million dollars from Capital Today

In 2007
www.51diamond.com got an investment of 10 million dollars from Capital Today
www.9diamond.com got more than 10 million U.S. dollars in venture capital ;

In the first half of 2008
www.kela.cn got more than 3 million U.S. dollars in venture capital ;

October 2008
Diamond bird announced that it had got the second round of funding up to 10 million USD from Ceyuan and Capitaltoday.

In early 2010
Kela Diamond introduced in venture capital again, the exact amount of which has not been disclosed;

In 2010
Shenzhen diamond E-commerce website Bloves got 30 million of venture capital from the Tiantu Capital.

In March, 2011
www.zbird.com got $ 50 million venture capital from FountainVest Partners and Ceyuan.

Due diligence in China: What to See When Visiting Chinese Factories Part 1

Posted on October 09, 2013  by Xixi  in Safe trading, Sourcing Knowledge   No Comments »
Due diligence in China: What to See When Visiting Chinese Factories Part 1

Seeing is believing.

So when you choose or verify Chinese supplier, the most authentic way is to visit the supplier onsite, either by yourself or hiring a third party service.

So what to see and what to check during the visit?

1) Meet with the owner
A person has character, there are all kinds of persons in the society, good people or bad people, professional people or unprofessional people, people with a mission or shortsighted people.

A company also has a character, the company’s character is determined by the owner’s character. In good time, people/companies are good to disguise themselves, pretending they are nice, charming, reliable, professional, moral people or companies. If your relationship with the people or companies go through down times(like contractual dispute, quality issue, late shipment), from how they handling those situations, you can see their true face.

So to know what kind of company you are dealing with, the best way is to meet with the owner, see what kind of person he/she is, dig a bit of his/her background/experience, if you have a chance to travel with the owner or live with the owner for a few days, if it allows, take it.

2) Meet with the salesman
Salesman is a window of a company. In many cases, you can tell if a supplier is capable, reliable, professional by looking at the salesman, is he/she reliable, capable and professional enough to handle your order well?

As a matter of fact, many factories in rural areas are struggling to attract talented staffs to work for them. Talented colleague graduates choose to stay in city(where trading companies gathered). So do you have a feeling that people from trading companies are more professional, capable and organized than people from factories?

Don’t choose suppliers that can give you good price, but have terrible salesman to deal with you, they can’t understand your English and requirement, they don’t deliver what they promise, they don’t understand the value that their service add to their products.

3) Check the warehouse
When I visit supplier, I often request to see their warehouse, the things you see in the warehouse suggest the business standing of the supplier, which they might try to disguise.

When I choose a supplier, if I have choices, I don’t want to choose suppliers that don’t have business, I want to choose suppliers that have good business, but is not too busy to take care of your business.

If a factory don’t have enough orders to keep the machine running, there must be something wrong with them. Quality not good? Product not competitive?

So supplier try to cover it up when you visit, they will keep the machine running during your visit, but if you visit their warehouses, you will find out the truth.

If they have good business, the raw material warehouse must be filled with raw material, if you are a door mat suppliers, you will have tens of tons of rubber, plastics, carpets there. If you go to the finished product warehouse, there must be packed orders there ready for shipping.

If in the factory you are visiting, the production line is operating, warehouse is empty, then this factory is not in good standing.

Chinese Jewelry E-commerce: Rivalry in full swing

Posted on October 04, 2013  by Xixi  in B2C Ecommerce, China Ecommerce, China Retail, Jewelry   No Comments »
Chinese Jewelry E-commerce: Rivalry in full swing

No industry can stay put in the e-commerce tide, and jewelry industry is no exception to this general rule.

In recent years, many jewelry industries have launched online store, with the dazzling advertisement announcing their diamond of the same quality shall only be half the price of those sold in the shopping mall. As a new market channel, the internet has generated great and unavoidable impact on the traditional market. It has become a must for all the jewelry industries and investment institutions to consider whether to adopt the online store managerial mode or not,

The jewelry industry: the new apple of the investor’s eye

Only days after the online jewelry store: In Love-all you need is love entered the market, in July; two more investments were made into the jewelry industry. For one thing, Mclon jewels, the traditional jewelry chain had got the first round of investment amounting to 52 million RMB mainly from Wangcen, the senior partner of the Tiantu Capital. For another, the e-commerce enterprise, Dionly jewelry, had got 20 million worth of investment form the Hongkong Tai Fok. Of the traditional mode and the online mode, which one is more promising, has thus become the controversial topic in the industry and the investment community.

Changing and dividing of the channel

Acquiring customer flow online + closing deals in real experience store, is the common practice among O2O jewelry E-commerce suppliers. Traditional companies often choose to open jewelry stores in shopping malls in the downtown business district, which can acquire customers, and the shops would serve as natural billboards. While O2O jewelry E-commerce suppliers acquire their customers online, and do not launch excessive amount of advertisement in traditional media, besides, the rent of their experience stores are much lower than that of the shopping malls’.

In 2007, Cao Huiying, CEO of thewww.aegean.net.cn predicted that 3 years later, 80% of the jewelry stores in shopping malls would disappear. While 5 years later, at present, Chou Tai Fu, whose 80% of income comes from Mainland China’s shopping malls, has been successfully listed. In 2011, its turnover amounts to 46.4 billion RMB, scoring a net interest of 5.199 billion RMB and making it the world’s top jewelry enterprise with the high market value.

Meanwhile, the online jewelry store has been also developing vigorously. According to statistics, currently there are over 100 online jewelry stores, among which there are Kela diamond, Zbird.com, Dionly, and BLOVES, etc, over just several years, there has been rapid growth in their sales, scoring over hundreds of millions of turnover respectively.

According to statistics from China Jewelry Industry Association, in 2010, China’s jewelry market sales amounted to more than 240 billion yuan, and in 2011, more than 300 billion yuan, China’s jewelry industry has been maintaining a rapid growth.

There have been three managerial modes in the current jewelry industry, currently. the first one is the traditional enterprise, typical of which are Chow Tai Fook, Chow Sang Sang, etc.; the second one is reasonable priced diamond chain, represented by In Love-all you need is love, MAKELUMER, etc.; while the third type is a so called Mouse + cement (Online To Offline)mode, such as Kela diamond, Zbird.com, etc . “Kela Diamond PR Director Fang-Fang Chen told the China Business News reporter, these three business models differ mainly in their business channels.

Needless to say, the growth of the emerging online channel cannot be belittled. Statistics show that in 2005, online sales channels accounted for only 0.16% of the market share, while in 2009, this proportion had increased to 0.24%. However, compared with developed countries, this proportion is still relatively low. Obviously, there is still tremendous room for growth.

Acquiring customer flow online + closing deals in real experience store, is the common practice among O2O jewelry E-commerce suppliers. Traditional companies often choose to open jewelry stores in shopping malls in the downtown business district, which can acquire customers, and the shops would serve as natural billboards. While O2O jewelry E-commerce suppliers acquire their customers online, and do not launch excessive amount of advertisement in traditional media, besides, the rent of their experience stores are much lower than that of the shopping malls’. Moreover, the O2O jewelry E-commerce suppliers mostly adopt homegrown whole industry chain model, covering raw material procurement, product design, production all the way down to the sales.

image courtesy of fanpop.com

Jewelries like diamonds and gold can be counted as “Standard Goods”: as diamonds and gold have international prices for raw materials and fluctuate with the international market, and their purity can be identified according to international standards, their costs are relatively transparent, thus making it acceptable among customers.

However, as a single piece of jewelry product would cost several thousand or dozens of thousands, consumption obstacles can readily be created. Take diamond E-commerce suppliers as an example, the average customer price amounts to 4,000 yuan to 5,000 yuan, when compared with the mainstream e-commerce suppliers whose average customer price amounts to only several hundred, it would be more difficult for customers to make the decision for purchase, and there are also hidden dangers in logistics and payment links.

“Our customers shall finish transactions online and pay the deposit, and our experience stores are more like Jingdong Mall’s delivery point. The consumers can complete the transaction in our store and take away goods. But overall, 70% of our sales are accomplished off-line. “Chen Fang-Fang said.

Debate about the profit

Over the years a reality has always been in existence, the two types of jewelry business beyond the traditional model, though growing rapidly, is never far from controversy and doubt.

As far as the O2O model is concerned, no one denies that E-commerce is the future trend of development; moreover, jewelry E-commerce suppliers enjoy price advantage, and also is attractive to younger consumers. However, in the short term, which type of companies can survive the fierce competition is still unknown.

“At this stage, jewelry E-commerce suppliers ‘profit margins are not large.” Electricity supplier experts Li Chengdong told reporters thusly, jewelry O2O E-commerce providers today are in the primary stage of being in an open market and the striving for expansion. As a result, these brands are not yet mature, and there is not enough influence. Besides, in various brands, their flagship shops’ diamonds and gold products are also similar in terms of design and share high degree of homogeneity. “In the case of a mature online price relation system, in order to compete for customers, each of these brands has pulled the price low— the so-called half cheaper than the mall. They do not compete to grab customers and traditional enterprises, but as a result of online competition. “In the case of a clear business model, the living environment for e-commerce suppliers is just like so.

In the future, the average prices will fall in the jewelry industry, making them no longer luxuries. When traditional corporate brands’ value also reduces, the advantages of electricity suppliers shall be highlighted”said Yang Yun, CEO of the Dionly.

However, according to Li Chengdong, the prospects for the jewelry electricity supplier are quite promising. He believes that there is no essential difference between the online and offline jewelry products. As the online channels provide cheaper price, consumers will certainly tend to choose online channels, therefore, it is just a matter of time for them to develop their consumer habits. What’s more, although the profit margin of jewelry electricity supplier is not very high , compared with the 3C digital , garments , baby products , luxury goods and other categories of electricity suppliers who “burn money in competition”, it is quite rare and commendable. Compared with other categories, gold and diamonds price have appreciated for several years, making companies have no pressure on the stock.

Case 1 Success story of Jewelry O2O
Nowadays, the O2O jewelry E-commerce suppliers’ acquiring customer flow online + closing deals in real experience store have been proved a profitable business model. But as the repeat purchase rate in the diamond industry is relatively low, companies need to constantly marketing for new users. And with the networking and offline marketing costs continue to rise, advertising and other marketing costs in accessing to new users of is bound to increase year by year. Therefore, in addition to the production and supply chain, for O2O jewelry e-commerce suppliers such as Kola, the access of customer flow and experience store are the two most important aspects of survival in maintaining its survival.

“We see ourselves as e-commerce businesses, relying on online customer flow and the transformation of it. When customers’ spending habit matured, and our brand has enough credibility and off-line store experience, it will become a pure service platform provides only cleaning and modification. For enterprises, this mode would be more cost-effective. “Chen Fang-Fang said so. Kela’s current cost on customer acquisition is not high, because Kela did not conduct traditional media advertising, it primarily tracks and analyzes on the Internet for users behavior, or to purchase search keywords, etc.

With regard to the operation of experience store, Wangyong, vice president of Kela Diamond said that in accordance with Kela’s current experience, there is no big difference between the operational cost of the experience store and logistics costs of the same scale. The price for diamond product is relatively high, take SF Express as an example, a single order would worth at least $ 20, and insurance must be made against the loss of goods. Currently, the insurance for a single order of Kela diamond shall be 0.5% of the total.

In addition, the locations of the Kela experience store are not in shopping malls or centers but in office buildings. According to Chen Fang-Fang, at the precisely same location, office rents are much lower than retail rents, almost 70% cheaper. Taking the Xidan experience store as an example, the office rent is 5 yuan / square meter / day, while the Xidan Joy City’s retail rent is as high as 30 yuan / square meter / day.

When it comes to the mode of Cheap Diamond Plazas, their sustainability and profitability issues are also highly controversial. Many consumers still remember the promotional activity of “buying ring get diamond for free” when In Love-all you need is love is officially opened and the MAKELUMER’s powerful advertising campaign. The so called Cheap Diamond Plazas are generally located in the downtown business district, with a 1000 square meters or even larger shop area, the enterprise will, in a certain period, launch large amount of advertising in various media, which is also known as the product is” half cheaper than that is in the mall .” However, their raw materials prices would not be lower than the CTF, plus rent, advertising costs, labor costs, etc., their financial pressure is quite obvious.

Case 2 improving supply chain by using the traditional enterprises

Different from Kela diamonds, Dionly mainly open experience stores in the form of franchise, especially in some second and third tier cities, the number of the current Dionly experience store has reached more than 100, which is far more than that of Kela.

“Our experience store both can provide experience and the marketing service. In most cities, the franchisees’ resources and strength possess more advantages than the agents directly sent by the company. Yang Yun thusly told the “China Businessn News” reporter. The rapid growth of experience store is due to its franchisees’ solving of problems of customer flowing and goods supply. It is understood that although initially franchisees to Dionly need to pay a franchise fee and deposit, they can get goods from Dionly with a profitable low price, and can also share in the customer flow online.

As the number of stores becomes increasingly large, Yang Yun once felt that the customer flow is so huge that Dionly’s production capacity and supply chain cannot meet that demand. Therefore, Yang Yun chose to conduct cooperation with traditional enterprise Tai Fook. “Tai Fook’s investment to us is a strategic one, they can help us improve and reinforce the entire supply chain and aftermarket systems, which I think is difficult for other electricity supplier companies. Apart from the investment, we get more resources.”  In addition to its cooperation with Tai Fook, Dionly also engaged in wholesale diamond business. What they fancy is the upstream resources.

Originally Dionly had a small factory, whose process and standardization are no comparison to that of the Tai Fook’s. As Tai Fook injected its shares, Dionly can use their factories. “In the future we will be Tai Fook ‘s online channels, and we will basically be responsible for their online business, after all, we have great experience in E-commerce,”said Yang Yun.

However, as for Dai Ouni and Tai Fook specific form of cooperation, Yang Yun did not disclose whether it will be the substitute of Tai Fook ‘s Web store or something else ,. After all, as the traditional enterprise m Tai Fook is much different with Dionly. Even if it is planning to go for E-commerce, it will, at the same time, certainly maintain its off-line price system. For example, in the Tmall flagship store of CTF, the price of their goods is exactly the same with its goods in real store.

As for Dionly’s planning for the future , Yang Yun still identifies it as a homegrown whole industry chain, even with the Tai Fook cooperation, Dionly does not intend to be a  pure online sales channel. In his opinion, after all, sales channel does not involve the production links, profit would only depend on the customer flow. He believes that jewelry e-commerce supplier cannot rely on customer flow only because most people do not need much diamonds and gold in their lives, so most customers would buy only once, there is no second-time or third-time consumer spending. Therefore, selling products on behalf of the others is difficult to make money, while homegrown business can effectively reduce costs and generate profit.