Focus

Profits sparkle for gemstone business

By Wang Chao (China Daily)
Updated: 2010-07-12 10:24

Wan Zihong says diamond companies take the biggest slice of the profit. [Zou Hong / China Daily]

Sporting a D&G T-shirt, a pair of Lagerfeld jeans, a Tiffany necklace and a Louis Vuitton bracelet, Wan Zihong, chairman of M&L plaza, is living proof of the grip of elite branding.

But his pursuit of high-street fashion is nothing compared to the other sparkle in his life: selling diamonds by the bucket load.

Over the last six months, the diamond specialist has undercut his competition by selling products at half his competitors' rates.

Crowds are said to swarm his three-story store daily in Solana, called M&L, to check out potential deals and perhaps also make a purchase.

Wan said the first month after opening was intense, pulling in more than 20 million yuan in sales and ranking the company third for the Beijing diamond industry.

"I say 'top-three' because I am humble," Wan said confidently and a little aggressively, loosely gripping a cigarette between his fingers.

"Nobody would dare to claim they are first or second."

While Wan's prices mean high-end products are now available to those beside the super rich, this is not his main intention.

With low prices, Wan claims he can gain profits of 33 percent, the largest in the industry and eight percent higher than the market average.

He said in standard practice, department stores cooperate with jewelry brands, such as Chow Tai Fook or TSL, to sell their diamonds and take a cut (about 30 percent) of the profit. These brands process raw diamonds from factories in Shenzhen, who also earn money (again, about 30 percent) from the sale. The diamond companies take the biggest slice of the profit, about 40 percent.

Wan does away with brand names and purchases his diamonds direct from factories.

"Doing this earns me even more profit," he said, "So I can afford to drop the price accordingly."

Li Pengcheng, market director of M&L, said the company is mainly hurting second-and third-tier brands that sell to moderately wealthy people who care about the cost. He said the very rich never stray far from world famous brands like Cartier.

"This is a testament to Wan's solid public relations skills," said Li.

His actions may appear spontaneous, but Wan said he has thought his business model through.

"I used to invest in gold, but because the price is fluctuating too much and large profits can no longer be made, I turned to diamonds," he said.

Wan said he has invested 100 million yuan in his M&L store, which stocks 2,000 diamonds of more than one carat and at least 50,000 rings and other diamond products.

"I heard that China is the second largest consumer of luxury goods after the US. By 2016 it should become first," he said.

And after half a year of business, the brand is set to expand. Wan will continue to sell luxury diamonds for less, but noted that he will also explore the limitless market of China's nouveau riche.

First comes a store makeover, followed shortly by the classy construction of a "millionaire's palace" on the second floor, which will only sell diamonds priced above 1 million yuan and is open to guests who deposit more than 5 million yuan.

Red wine will be served inside the palace and there will be lectures on jewelry investments.

"The jewelry business will go in two directions - some will be sold cheaply to those who need diamonds for weddings, with the best saved for luxury products that can be sold to the affluent," Wan said.

The money magnet said he also has plans to roll out two more stores in Beijing this year, with another five in 2011, without specifying their location.

"I want to make them into a chain store, something like Wal-Mart," Wan said.