Mentoring for - Hong Kong Institute of Certified Public Accountants

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gust 2010 after his time at SJM did much to raise Mok’s profile in Hong Kong’s business community. “I’d been in finance and accounting for 25 years so my name might have been recognized in some places. The chairman of Sparkle Roll [Ivan Tong] called me and asked if I was interested. I thought: ‘Rolls-Royce! That’s great!’ ” Spreading sparkle Despite the seemingly unlimited future of luxury brands in China, Mok says his job is not without its challenges. “I think one is how to control the cash flow and inventory levels,” he says. “Luxury goods have a high value and we cannot keep too much on Luxury world counts on China demand While annual growth in sales of luxury goods in Mainland China is still strong, market observers are wondering if the pace will be less break-neck in future years. Overall, luxury goods sales in China rose at a slower pace last year than in 2011. According to a recent report by Bain and Company, a consultancy in the United States, luxury goods sales rose 7 percent last year, compared with 30 percent in 2011. “The impressive double-digit growth rates we have witnessed probably will not be replicated in the future,” says Daniele Zito, a Bain consultant in Milan. There are good reasons for a smaller growth spurt. First, China’s economic expansion eased during 2012, with GDP rising 7.8 percent, compared with 9.3 percent in 2011. Second, a national campaign against extravagance, and increased emphasis on thrift and prudence – particularly for public sector employees – may have discouraged conspicuous consumption. Such changes have hit the stock price of some luxury goods makers and analysts are less bullish about the sector’s prospects. “We believe [these] significant changes will send an alarm to the luxury sector,” says Dionne Cheung, an analyst with Quam Securities in Hong Kong. Additionally, the government’s proposed ban on the advertising of certain luxury products, announced last month as part of its crackdown against extravagance, may affect future sales. These policies are alarming because China is an increasingly important market for luxury goods makers in Europe and the Americas. A McKinsey & Co. report released in December 2012 showed that Chinese consumers accounted for about US$18.6 billion in worldwide luxury consumption, or 12.8 percent of the estimated US$145 billion global market that year. An earlier PricewaterhouseCoopers report last year forecast that China would overtake the U.S. as the world’s largest luxury goods market by 2015. “Half of luxury goods sales are made to customers in emerging markets, led by China,” Nicola Anzivino, a PwC partner in Milan, noted in the report. “[Retail] expansion is mainly driven by new openings in China.” Some individual sectors, such as vehicles, reflected more modest expansion. According to ChinaAutoWeek magazine, six major super-luxury car marques — including the Bentley, Rolls-Royce and Lamborghini brands distributed by Sparkle Roll Group – sold 5,557 cars in 2012, an increase of 12.8 percent over 2011, but far short of the 94 percent year-on-year growth seen the previous year. Although high-end sales and auctions of fine Bordeaux and Burgundy moderated in 2012, China remains the world’s fifth-largest wine market, with the equivalent of 155.4 million nine-litre cases sold in 2012. The market expanded more than 24 percent last year, far outstripping growth in other major markets. Sales of Bordeaux rose 55 percent by volume in 2012. The watch market remains robust, with Hong Kong maintaining its position as the No. 1 importer of high-end watches from Switzerland, by far the largest source of luxury timepieces. The Mainland is the No. 3 export destination, after the U.S. However, Swiss watch exports grew just 0.6 percent last year to total 1.65 billion Swiss francs (HK$13.72 billion). Bain estimates that about 60 percent of luxury purchases by Chinese consumers occur outside the Mainland, especially in Hong Kong and Europe. The numbers of Mainland visitors to Hong Kong in 2012 increased 24.2 percent over 2011, according to the Hong Kong Tourism Board. A PLUS March 2013 35
Success ingredient Unlike the West, where car showrooms are often in grim industrial areas on the city’s fringes, luxury goods in China are sold in high-end neighbourhoods that match the products. hand – we call it possible impairment in value. Cost issues include capital expenditure and depreciation of showrooms and other facilities.” Unlike the West, where car showrooms are often in grim industrial areas on the city’s fringes, luxury goods in China are sold in high-end neighbourhoods that match the products. In Sparkle Roll’s case, that means 36 March 2013 luxury addresses in major city centres. Mok says the cost of showroom leases can be a major headache. “We have to negotiate with the property owners and we try to engage in long-term and stable leases.” Mok has recently innovated with customer relationship management software. “We try to keep a good relationship with our customers but we also use IT to reduce our human resources.” The company employs about 400 people, including a staff of 15 based in its Hong Kong office in the Sun Hung Kai Centre in Wanchai. As well as expanding its brand portfolio, Sparkle Roll is looking at extending its geographical reach. “At the moment it’s Beijing, Shanghai and Tianjin but I think we are quite interested in the coastal area around Shanghai – Zhejiang province – or somewhere in Sichuan or Wuhan in Hubei province.” There are also plans to build the Sparkle Roll name as an entity in its own right rather than just as a brand vehicle. In 2011, the company opened its Sparkle Roll Luxury World mall in Beijing to house all its brands (except cars) under one roof. A similar mall opened in Tianjin in August 2012.
Page 1 and 2: ISSUE 3 VOLUME 9 MARCH 2013 HK$70.0
Page 3 and 4: REGULARS REGULARS 01 President’s
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Page 27 and 28: Success ingredient Henry Mok CFO an
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