By Kwong Man-ki (China Daily)
Updated: 2008-02-26 11:29

Hong Kong-listed jeweler Luk Fook Group plans to open more stores on the mainland to cash in on the rising demand for luxury jewelry.

"We plan to open six more self-operated shops this year, in first-tier cities such as Beijing and Shanghai," William Wong, the company's chief executive, told China Daily.

The company now has 335 shops on the mainland, but only nine are self-operated. The rest are franchised outlets. Self-run stores can generate more profits than franchised ones, Wong said.

Thanks to the fast-growing mainland economy and the rising purchasing power of the middle class, the demand for luxury goods has shot up.

"The mainland is a big pie," Wong said. "The market is big enough for us to expand the number of shops 10 times there."

By quickening the pace of expansion, Wong said, the mainland turnover will "hopefully rise from 30 to 40 percent".

"I hope the turnover from the mainland exceeds Hong Kong's in the foreseeable future," Wong said.

Luk Fook posted a 40 percent jump in net profits to HK$118.5 million in the first half of the 2007-08 fiscal year.

The Hong Kong market also did well and the market boom will continue despite rising gold prices, Wong said.

He listed several favorable factors, such as a robust economy, increasing wages, and money flooding from the mainland as major boosters to the firm's Hong Kong business.

"Customers do not mind if the prices are raised by 10 to 20 percent," Wong said.

Since December, the spot gold price has soared because of subprime woes and fears of a US recession. Also because of inflation and negative real interest rates, gold prices in Hong Kong have jumped more than 10 percent, or HK$1,000, to over HK$8,000 per tael - 37.4 grams - a local unit for gold.

Most Hong Kong jewelers, therefore, raised their prices. But that has hardly dampened buyers' enthusiasm.

Wong agreed that if the gold price jumps sharply and suddenly, customers may hesitate to dig into their pockets. But the impact will be marginal if prices pick up slowly because "people will get used to it as prices of many things are rising".

Local consumption is strong, but Wong said mainland tourists contribute significantly to its sales in Hong Kong. "Half of the turnover from our retail shops comes from mainland tourists."

Mainland tourists in Hong Kong are more eager to spend on luxury goods, according to Wong. "They always look for the most expensive products."