Ring master

Successful jewelry brands normally take decades or even centuries to develop, but the rise of domestic diamond jeweler Hiersun has been so rapid it has taken many industry observers by surprise.

Venerable brands steeped in tradition might doubt the eight-year-old upstart's chances for success, but as 34-year-old company founder and chairman Li Houlin says, "we break rules of the game, so we win".

After working in a State-owned jewelry company for two years, Li started his own business and hit his first mother lode with the help of 2 million yuan borrowed from friends and at the age of only 24 started a wholesale gold business.

As domestic brands were fighting fiercely among themselves on prices eight years ago, Li realized that he could sell diamond jewelry as a luxury item. The products should be glamorous, the shopping experience should be luxurious, the service should be from the heart, and most importantly, prices should never be compromised.

With that philosophy, Li opened his first diamond palace at Beijing's Oriental Plaza. With an investment of 50 million yuan at that time, the boutique sprawls over 1,000 sq m. Fees for operations and staff cost the shop 12 to 15 million yuan a year.

Many at the time were shocked at Li's huge investment, thinking "this young man must be crazy".

With products of European design, an opulent interior and high-level service, the Oriental Plaza boutique started making a profit after two years. Li soon opened four more, in Beijing, Shanghai, Harbin and Tianjin, and all started to break even within only two months.

Now, with the increasing rent and staff costs, each shop of that size costs 80 to 100 million yuan. Knowing the market is huge, but not massive enough for many such large-scale outlets, he has opted to open 50 smaller stores of 200 sq m in the coming three years.

The Hiersun brand targets the premium market, selling some products priced over 100,000 yuan. Li says there are a large number of affluent Chinese who can afford them. Over 30 percent of the company's revenue is from 100,000-yuan pieces.

The diamond business is the only jewelry sector in which domestic companies have a chance to beat the world's renowned luxury brands, Li believes. Unlike other industries, where history and culture play crucial rule, in the diamond business "as long as you have the right resources, top-quality raw materials, the best designs and the right branding efforts, you are going to make it", he explains, citing the US jeweler Harry Winston as an example, which grew into a top brand in only a few decades.

In addition to the premium brand Hiersun, the company has just conceived a medium-priced wedding band brand called "I Do", and will begin efforts in e-commerce, targeting price-consciousness customers.

The firm has found that more than 70 percent of domestic customers buy diamond jewelry for weddings. Yet there is not a single brand that targets only the wedding market.

It took Li over three years to get prepared to launch "I Do".

"As I knew the customers are there, I started examining my resources to see if I was qualified enough to implement it. I do not want to be just an inventor for such an idea. Instead, I want to be the largest profit gainer from it," Li notes.

As he considered the concept, Li had just completed seven years in the diamond business, had about 700 employees and five large diamond boutiques. He had business relationships with the world's leading diamond supplier and designers, as well as public relations and advertising agencies, and had his own diamond design patents.

To operate wholly owned outlets or to franchise them out was another decision to make. Wholly owned stores need longer time to develop and require large capital resources. Hong Kong brands such as Chow Sang Sang and Chow Tai Fok had already established nationwide networks. Quick action was the key.

Li's decision for the company was to develop one-third of its own "I Do" shops and the rest would open through franchisees.

"Sometimes even if you have money, you cannot buy the retail channels or locations. You need local partners to expand quickly," Li believes.

The first "I Do" boutique opened in Beijing last September. By the end of next year, the company plans to open 100 outlets nationwide. Its goal for 2010 is 300.

At the recent Shenzhen International Jewelry Fair, the company spent 3 million yuan on an "I Do" booth, which brought the firm over 400 franchise partners. Li rules out the worry that quick expansion through franchising will risk service quality and brand image.

"All we need from franchisees are their capital and distribution channels. Hiersun will put all its effort in management and operations," he says.

Li projects sales revenue of "I Do" will reach 3 billion yuan by 2010, convinced that by that time the brand will be the driving force for the firm.

The company is planning to begin its e-commerce business at the start of next year. Brand designs and trademark registration have been completed, but Li declines to reveal the look at the moment. All online diamond jewelry will be 20 to 30 percent lower in price than those sold in shops, he says.

If a customer wants to spend about 200,000 yuan to buy a diamond ring at Tiffany's, she can get a 1-carat diamond ring, at an ordinary jewelry shop it will buy her 1.5-carat diamond ring, but online she can get a ring of at least a 2 carats .

The business may be suited to an online approach to selling diamonds because well-known names and long histories are less important than the "four Cs" of carat, clarity, cut and color, Li explains.

He says the principal challenge is to ensure the quality of products, and contends that Hiersun's brand image is a good guarantee.

Li is taking a long view, saying his business is still at the end of winter and marching to spring.

"The first 10 years is for me to lay a solid foundation and the business will take off in the next decade," he says. The company is now in negotiation with several investment banks and is planning for a public listing within two years. "The total company value is now at least $500 million," Li says.

(China Daily 11/05/2007 page7)