Big Luxury’s new China threat is mini-Richemont

About this update from Laopu Gold Co. Ltd. Class H

By Yawen Chen European luxury groups have been grappling with a weakening Chinese market for the past year. Shares in the likes of $270 billion LVMH EURONEXT:MC have been whipsawing on news of softness in the region. But now, a Chinese competitor may make it harder for brands like Richemont’s SIX:CFR Cartier and LVMH’s Tiffany & Co. to stage a comeback. Laopu Gold HKEX:6181 has enjoyed a meteoric rise. Sales of its high-end, handmade and vintage-style gold jewellery, surged by nearly 170% to 10 billion yuan ($1.4 billion) last year, fuelling the Hong Kong-listed company’s share price. It is now worth $20 billion, making it the seventh-largest luxury group in the world by market value behind France’s $25 billion Gucci-owner Kering EURONEXT:KER.That success runs counter to the challenges facing Laopu’s established competitors. Executives say China’s economic headwinds including a real estate crisis have dented luxury spending. Even Richemont, which outshined peers thanks to the popularity of its jewellery, endured a 23% collapse in China sales in the fiscal year that ended in March 31. Meanwhile, industry bellwether LVMH’s Asia sales – mainly from China – fell 11% last year.Still, European bosses are so far downplaying the risk from Laopu. Last month, when Richemont’s chairman and controlling shareholder Johann Rupert was asked about the company, he said he “absolutely respects them and watch them”, but his brands like Cartier and Van Cleef & Arpels appeal universally and have investment value at international auctions. LVMH’s deputy CEO Stéphane Bianchi, meanwhile, explained that domestic brands may be in favour because of the rise of Chinese nationalism.But Laopu is on a mission to take market share by mirroring successful European brands like Hermès International EURONEXT:RMS. It markets directly to customers via its own shops, offering a premium service via a growing army of sales assistants. It also sells at fixed prices despite fluctuating gold prices. And perhaps, more importantly, its products contain more gold and gemstones than rivals, which offers consumers more bang for their buck. Laopu’s best-selling gold and diamond pendant necklace in its Chinese online shop, for example, costs 11,268 yuan ($1,566), while the cheapest Van Cleef bracelet in the UK online store costs 1,360 pounds ($1,840).For now, investors are keen to get in on Laopu’s succes...

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