Diamond rings in China
Having been investing for more than 15 years, I find that I am still constantly learning on how to invest.
No matter how much you read, you never really learn unless you make a mistake.
It is human nature to learn by making mistakes, which is why you shouldn't really repeat a mistake.
One of my favourite anecdotes on making mistakes is a story about a young executive at a large multinational firm.
His decision had effectively cost the company $50m and he submitted his resignation to take responsibility for his actions.
However, the president of the company refused to accept it. The employee was confused and asked why the company did not want to fire him.
The president replied: "The company has just spent $50m to train you, I don't think we will be letting you go so easily."
:: Last month, I looked at one of Korea's largest casual wear retailers, which also has a fast-growing presence in China.
This is not surprising in a way, given how crazy all things Korean are in the rest of Asia.
Growth prospects in China looked enormous, with the retailer looking to open 150 stores in China from zero two years ago - and with a target for 250 stores within the next two years.
However, having visited a number of casual and fashion wear makers and retailers in Hong Kong, Taiwan and Korea, it was clear that the casual wear business was undergoing some difficulties throughout the region.
Casual wear - defined as clothes that do not really change every season, are affordable, but not fashionable - was fine for consumers five to 10 years ago.
But with rising income, consumers in Asia were now leaning more towards fashionable wear - more expensive, seasonal and trendy - resulting in stale and sometimes negative growth in casual wear business across the region.
Looking through some of the stores in Korea, we wouldn't probably have been amiss standing in a Giordano or a Bossini store.
Having said that, I was seduced by the Chinese growth story, and was prepared to give Korean casual users the benefit of the doubt.
Recent results from the Korean retailer showed I was a little optimistic in assuming that Korean casual buyers would be any different from other casual wear buyers in the region.
The casual wear market is stagnating, and although sales growth had been propelled in Korea by the rapid expansion of hypermarket stores, the spectre of rising inventory risk also came with it.
The company had to make significant provisions and discounts for past season stocks, and sales growth is expected to slow even for some of its newer casual brands.
Although in the longer term the China growth story will probably overshadow current concerns, there are probably going to be some adjustment pains in the short term.
:: I recently visited an alloy manufacturer's factory in Shanghai.
The company has started opening auto service centres in the city and is looking to expand its service centre rapidly.
Most Chinese are only starting to buy their first car and as such are still new to the concept of accessorising their new vehicles.
Alloy wheels are currently considered luxuries which the average Chinese is unlikely to be focusing on at the moment.
But if the trend across Asia holds true, this is going to be big business in China in the coming years.
Alloy outsourcing still remains low and demand for good quality alloy manufacturing capacity remains strong.
With full order books for the next three to four months, this factory is selling as fast as it can produce or increase capacity.
However, if readers think this is not a competitive market, think again. In China, the pricing goes by the kilo! The heavier the more expensive, which somewhat defeats the purpose of actually changing to alloys!
However, quality and brand awareness is starting to seep through as new manufacturing technologies actually reduce the amount of aluminium required per wheel, reducing the weight of the alloy whilst improving the performance.
As Chinese consumer awareness increases, so will sales of branded alloy manufacturers.
:: I recently visited a chain of jewellery stores in Shanghai. The chain currently has around 15 retail outlets in China, with plans to open another 10 or so a year over the next few years.
The shops were well laid out and modern looking, and wouldn't be out of place in other Asian cities.
Their best selling jewellery items are wedding bands, or infinity rings, which make up almost a quarter of their total sales.
The purchase of engagement rings is still relatively rare in China, with fewer than 10% of new couples even purchasing engagement rings.
However De Beers is working hard to educate the Chinese consumer on the importance of buying a diamond ring that costs two months' salary' for their wife-to-be.
In China anything that can be seen to imbue status is all the rage, and diamond jewellery is undoubtedly one of the highest status symbols you can wear.
Taking quick stock, I also noticed that fewer than 30% of women walking on the streets had pierced ears, let alone earrings.
By the way I got some funny looks for staring at women's ears, but hey, it was all in the name of due diligence. I have no doubt that growth in this segment is going to be enormous.
No matter how much you read, you never really learn unless you make a mistake.
It is human nature to learn by making mistakes, which is why you shouldn't really repeat a mistake.
One of my favourite anecdotes on making mistakes is a story about a young executive at a large multinational firm.
His decision had effectively cost the company $50m and he submitted his resignation to take responsibility for his actions.
However, the president of the company refused to accept it. The employee was confused and asked why the company did not want to fire him.
The president replied: "The company has just spent $50m to train you, I don't think we will be letting you go so easily."
:: Last month, I looked at one of Korea's largest casual wear retailers, which also has a fast-growing presence in China.
This is not surprising in a way, given how crazy all things Korean are in the rest of Asia.
Growth prospects in China looked enormous, with the retailer looking to open 150 stores in China from zero two years ago - and with a target for 250 stores within the next two years.
However, having visited a number of casual and fashion wear makers and retailers in Hong Kong, Taiwan and Korea, it was clear that the casual wear business was undergoing some difficulties throughout the region.
Casual wear - defined as clothes that do not really change every season, are affordable, but not fashionable - was fine for consumers five to 10 years ago.
But with rising income, consumers in Asia were now leaning more towards fashionable wear - more expensive, seasonal and trendy - resulting in stale and sometimes negative growth in casual wear business across the region.
Looking through some of the stores in Korea, we wouldn't probably have been amiss standing in a Giordano or a Bossini store.
Having said that, I was seduced by the Chinese growth story, and was prepared to give Korean casual users the benefit of the doubt.
Recent results from the Korean retailer showed I was a little optimistic in assuming that Korean casual buyers would be any different from other casual wear buyers in the region.
The casual wear market is stagnating, and although sales growth had been propelled in Korea by the rapid expansion of hypermarket stores, the spectre of rising inventory risk also came with it.
The company had to make significant provisions and discounts for past season stocks, and sales growth is expected to slow even for some of its newer casual brands.
Although in the longer term the China growth story will probably overshadow current concerns, there are probably going to be some adjustment pains in the short term.
:: I recently visited an alloy manufacturer's factory in Shanghai.
The company has started opening auto service centres in the city and is looking to expand its service centre rapidly.
Most Chinese are only starting to buy their first car and as such are still new to the concept of accessorising their new vehicles.
Alloy wheels are currently considered luxuries which the average Chinese is unlikely to be focusing on at the moment.
But if the trend across Asia holds true, this is going to be big business in China in the coming years.
Alloy outsourcing still remains low and demand for good quality alloy manufacturing capacity remains strong.
With full order books for the next three to four months, this factory is selling as fast as it can produce or increase capacity.
However, if readers think this is not a competitive market, think again. In China, the pricing goes by the kilo! The heavier the more expensive, which somewhat defeats the purpose of actually changing to alloys!
However, quality and brand awareness is starting to seep through as new manufacturing technologies actually reduce the amount of aluminium required per wheel, reducing the weight of the alloy whilst improving the performance.
As Chinese consumer awareness increases, so will sales of branded alloy manufacturers.
:: I recently visited a chain of jewellery stores in Shanghai. The chain currently has around 15 retail outlets in China, with plans to open another 10 or so a year over the next few years.
The shops were well laid out and modern looking, and wouldn't be out of place in other Asian cities.
Their best selling jewellery items are wedding bands, or infinity rings, which make up almost a quarter of their total sales.
The purchase of engagement rings is still relatively rare in China, with fewer than 10% of new couples even purchasing engagement rings.
However De Beers is working hard to educate the Chinese consumer on the importance of buying a diamond ring that costs two months' salary' for their wife-to-be.
In China anything that can be seen to imbue status is all the rage, and diamond jewellery is undoubtedly one of the highest status symbols you can wear.
Taking quick stock, I also noticed that fewer than 30% of women walking on the streets had pierced ears, let alone earrings.
By the way I got some funny looks for staring at women's ears, but hey, it was all in the name of due diligence. I have no doubt that growth in this segment is going to be enormous.
posted by Kenneth | 12:19 PM
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