Young Chinese are developing an appetite for affordable foreign brands even as fine jewelry reigns supreme

Kasey Zhang, a Beijing-based young professional in her late twenties, believes that women always need a piece of jewelry in their lives. It is an important element of their daily routines, helping them to dress up a working outfit or adding a special touch to a party ensemble.

However, she does not believe that diamonds are a girl's best friend. She personally prefers crystal jewelry over fine jewelry because of its affordability and delicate designs.

"I like buying crystal jewelry pieces because of their beautiful designs and because they are much cheaper than other jewelry creations," explained Zhang. "So if I lose them, I will be sad but it is not a tragedy."

Traditionally, the purchase of jewelry in China has been driven by conservative reasons related to its perception as an economic asset.

For this reason, the Chinese jewelry market continues to be dominated by fine jewelry, particularly by pieces with precious metals and stones.

Total retail sales value of the jewelry market in China surpassed 500 billion yuan ($77 billion) in 2015, of which retail sales value of gold jewelry accounted for around 75 percent, according to research and consulting group Frost & Sullivan.

"Chinese consumers consider fine jewelry an investment tool to maintain their wealth under the more challenging conditions of economic downturn," explained Olaya Huo, research analyst at Euromonitor International.

However, young Chinese like Zhang are quickly developing an appetite for affordable fashion jewelry from foreign brands because of their innovative designs and good reputation.

As the income level of the younger consumers is comparatively lower than that of the elder generation, affordable jewelry products with fashionable and stylish designs are gaining more favor among the younger generation, explained Neil Wang, global partner and greater China president of Frost and Sullivan. "As a result, affordable jewelry products are becoming more and more popular in China."

Austrian crystal brand Swarovski entered the Chinese market in 1995 using a franchise model to distribute its products in the country.

Nowadays, almost half of its stores are directly managed by Swarovski, with the company now gradually trying to take over some of the franchises to strengthen its control over distribution.

Swarovski, which defines itself as a premium, yet affordable name for everyday use, expects to open around 30 more new stores this year to reach 300 commercial spaces across China.

The crystal jewelry group plans to be present in 90 different cities across the country this year, covering 10 more locations than in 2015.

"Our main focus is to keep expanding into third- and fourth-tier cities because the retail landscape is becoming more mature in these locations," explained Francis Belin, Senior Vice-president of Asia Pacific at Swarovski. "We see more opportunities to open stores there."

Swarovski believes that increasing distribution and accessibility of the brand are crucial elements to keep its expansion.

For this reason, the company is drafting an online strategy to drive sales up.

Last year, the company was one of the first foreign jewelry brands to open a storefront on Alibaba Group Holding's online marketplace Tmall.com.

Department stores and specialized jewelry retailers remain the leading distribution channels for jewelry in China, explained Huo of Euromonitor. "However, Internet retailing continues to increase dynamically."

Swarovski, which also sells products online through its own website, remains cautious over its online strategy because Chinese customers still prefer to visit their shops to check first-hand the volume, shape and characteristics of the pieces.

"For online purchases, we see limited growth now. Currently, less than 10 percent of our sales in China come from online channels," said Belin. However, at some point this year or next year, we will start exploring other options to team up with other online players."

With around a third of its total revenues coming from Chinese consumers, including purchases overseas done by Chinese travelers, China remains a crucial market for the brand.

Although the company refuses to disclose annual revenues, it hints that the turnover generated in China amounts to a couple of billion yuan. This year, the company expects to grow in high single digits.

Because Chinese consumers still have a preference for precious metals and stones, Swarovski decided to launch an exclusive line of fine jewelry in 2012 specifically designed for the Chinese market.

The collection of fine jewelry combined the traditional designs of the brand with the use of precious stones, producing 18-karat gold diamond swans necklaces and amethyst hearts.

"We thought that it would be a smart strategic move for us to enter that market," said Francis. "Both fashion jewelry and fine jewelry are growing at similar speeds here, which means that in the last years we have not seen fine jewelry losing ground to fashion jewelry."

Danish silver jewelry manufacturer Pandora entered the Chinese market in 2010 by signing franchise agreements with three different local partners in Harbin, Shanghai and Shenzhen.

It was only six months ago when the company changed its business strategy to be more directly involved in the stores and start investing in marketing campaigns.

"We are struggling to get the business foundation to operate across China," said Kenneth Madsen, president of Pandora Asia. "We want to grow quite fast at the moment, but we need a controlled expansion strategy."

The retailer, which had a retail network of 72 stores in 2015, plans to open 30 additional stores this year, concentrating on opening full-size commercial venues and further expanding into second-tier cities.

This year, the company will open stores in smaller cities like Chengdu, Dalian, Chongqing, Nanjing and Tianjin.

"We were very surprised by the strong demand from smaller cities and we realized we can be very successful in some of these second-tier cities," added Madsen.

Pandora, which defines itself as an accessible luxury, produces hand-finished silver jewelry pieces at competitive prices, with a focus on beads and charms with different motives to personalize the pieces.

Although Pandora does not disclose figures for individual markets, it notes that the Asia Pacific region accounted for 16 percent of the company's total revenue last year, a figure significantly higher than in 2014.

"Asia Pacific, with China being the largest market in this region, is taking a bigger and bigger share of Pandora," said Madsen. "This region is an absolute priority for us."

In 2015, Pandora recorded global annual revenues of 16.7 billion yuan. For this year, Pandora expects to reach revenues of 19 billion yuan, with the Asia Pacific region driving growth and taking a large share of the company's turnover.

The company is now examining options to team up with online stores to increase its sales in the country.

"We do not have an e-commerce platform at this point, but it is certainly a big, if not the largest, priority for us right now," added Madsen.

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