Luk Fook sets sights on stronger wholesale business

It also has plans for e-commerce.

The management of Luk Food expects wholesale business in China to be strong because 3-D Gold will source gem-sets from Luk Fook from this year.

According to a research note from Nomura, meanwhile, on E-commerce, the bestselling products are within the price range of HKD800-900 and the majority of items sold is below HKD3K, as per management.

The report noted that although online sales currently account for ~1% of overall sales, Luk Fook management said it will still allocate resources to E-commerce to expand the company’s boundary reach and catch more youngsters’ eyeballs.

The company expects to see growth in this space to double in this fiscal year.

Here's more from Nomura:

Luk Fook’s management gave more color on performance during the Golden Week. In HK, while the SSSG of stores in the disrupted areas declined 20-30% y-y, those in other locations, on the other hand, saw +40-50% SSSG in the week. In Macau, SSSG was in negative territory during the same period. Post-Golden Week growth y-y has slowed down but management stated this is largely in line with historical trends.

In October, month-to-date, customers look to divert many of their purchases to stores in Shatin, Sheung Shui and Tsuen Wan from the affected areas in HK.

Luk Fook now has significant sales volumes in the below-HKD10K price range, as per management, and the company will take more efforts to boost sales in this price range as well as in the gem-set category.

Hence, it expects to see gem-set jewellery to account for a higher-than-normal share of overall sales (>35%) this year. Inventory of gem-sets would thus rise as the brand deliberately increases SKUs in this space.

Luk Fook currently has ~1,200 stores in China covering >300 cities. Management expects to see a continued store expansion plan, at a pace of a 15% increase in store numbers each year, until it reaches a more saturated level of 2,000 stores.

Its strategy has not changed over the past two years.

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