Economic Development

Perfect timing: Hong Kong’s Renley Watch Group can count on double-digit growth in China

October 05, 2015

Asia

October 05, 2015

Asia
James Chambers

Former senior editor

James is Bureau Chief for Monocle, Hong Kong. Prior to this he worked as a Senior Editor with The EIU's Thought Leadership team for over three years researching business, technology and cities. He has also written about business and technology for The World In 2015 and economist.com. James has previous experience from IR magazine, a finance publication, where he was research editor in London and Shanghai. Additionally he contributed to Legal Week, a weekly legal magazine, and worked on the FT Innovative Lawyers Awards in the US and Europe. James is an English law-qualified solicitor (currently non-practising) and holds post-graduate legal qualifications from BPP Law School and an LLP in Law from the London School of Economics.

Hong Kong’s Renley Watch Group can count on double-digit growth in China following strategic shift from factory owner to brand retailer

As the links between Hong Kong and mainland China have developed, in step with the Chinese economy, the mainland has transformed from a manufacturing base for Hong Kong firms into arguably their most promising market. Well-established trade and cultural links, and the rising affluence of many mainland consumers, have made it an ideal destination for Hong Kong brands seeking to expand beyond a relatively small domestic playing field.

But despite the ample common ground the two markets share, success in mainland China is by no means a sure thing for Hong Kong firms. Companies that successfully establish a brand presence—as opposed to a simple production centre—across the border must navigate a host of challenges, from China’s sheer size and (outside of major cities) more limited infrastructure, to a different legal environment, business networks and consumer preferences.

Renley Watch Group is one such firm. The Hong Kong-based watchmaker has transformed itself from a contract manufacturer into the owner of a stable of brands that enjoy a strong and rising cachet with consumers on the mainland, where sales are currently growing at double-digit rates annually. Managing director Stanley Lau believes the roots of this achievement lie in the firm’s Hong Kong identity, as well as a steady effort to move up the value chain.

Established in 1983, Renley was virtually alone in maintaining its manufacturing base in Hong Kong while the rest of the industry moved factories to the mainland in the 1990s. Instead, Lau travelled to the home of watchmaking, Switzerland, with an eye to creating higher-end products and acquiring local marques. By 1992 it had taken over several, including Jean d’Eve, a well-established, family-run producer of fine watches, and soon after established sales offices on the mainland to market Swiss watches to China’s emerging ranks of affluent. “Even then, I knew it would be a great market; not only for us, but the whole world,” Mr Lau says.

When the Hong Kong and mainland governments concluded the Closer Economic Partnership Agreement (CEPA) in 2003, giving many Hong Kong-made products duty-free access to the mainland, Mr Lau saw it as a game-changer. He decided to dust off a brand owned by Jean d’Eve but long mothballed, Temporis, to seize the opportunity. “I thought: why not take the brand back to Hong Kong and design, assemble and make (Temporis) watches in the factory here?” he recalls. “Since I never moved my factory we could do that easily, and ship the watches to China under the CEPA arrangement.”

 

Made in Hong Kong

Of course, making a product is one thing—convincing people to buy it another. To build the Temporis name on the mainland Renley invested in recruiting local television stars as brand ambassadors, as well advertising campaigns that spanned magazines and public transport. The fact that Temporis is a brand based and manufactured in Hong Kong is one the group has taken pains to highlight.

“We believe that ‘made in Hong Kong’ is still a label that is very well accepted by mainland consumers,” Mr Lau says. “Products coming from Hong Kong have an advantage because people are more confident in them.”

The brand has also thrived by targeting a specific segment of the mainland market, and choosing its branding battles. Most Temporis models retail for 1,000-4,000 yuan ($155-$623)—moderately expensive by local standards, but reasonable compared to other imports and considering the Hong Kong pedigree.

“China’s a huge market; there are different groups of consumers,” Mr Lau explains. “Some like imported luxury products, but we don’t have to compete with Rolex, because if the consumer has that in mind, they’ll never buy a Temporis watch instead. Apart from that group, there’s still a huge market for medium to lower-end products. A lot of young people can’t afford to buy luxury watches but will consider something less expensive.”

Amid its growth on the mainland Renley has faced several challenges, including rising domestic competition. However, Mr Lau sees that as a given, regardless of product or industry. “You don’t need to be afraid of competition, but you have to know how to upgrade yourself, how to offer something value-added with your products. Consumers like Hong Kong products because of the design and the quality, and we assure our customers that the quality is good by guaranteeing our products for a certain number of years.”

Intellectual property infringement is also a potential hazard for brands seeking to extend their mainland presence, though according to Mr Lau it’s less of a concern than it used to be. “Of course it’s still an issue, but compared to 10 years ago it’s really improving. The central government has a clear message that infringement needs to be addressed, so fakes or imitations can’t be sold as openly. Still, you need to make sure go through procedures to register your brand and your designs before you go into China.”

 

Branded together

By far the biggest barrier many Hong Kong brands face on the mainland is, in Mr Lau’s view, establishing a local network. This is due in no small part to the country’s vast size. “If you don’t have any connections, regardless of what products you have, you won’t find a way to sell it,” says Mr Lau. “Choosing the right partners is not easy because there are so many different cities; in China it’s difficult to find one partner that will cover all of them.”

To deal with this Mr Lau advocates a methodical, step-by-step approach to mainland expansion. Renley made its first forays into the market as part of a group of Hong Kong watchmakers, setting up a flagship store that sold products from all of them. It took years before the company was ready to break out on its own, though it now has shops in several key cities stocked with Temporis and other labels.

Nowadays establishing a foothold in China is simpler. There are existing resources that companies can tap into, such as the Hong Kong Trade Development Council’s Design Gallery outlets, which offer Hong Kong brands a ready-made retail platform in cities like Wuhan, Xian and Harbin. E-commerce has also become “one of the faster and more efficient channels to get into mainland China,” Mr Lau says, making it easier than ever to connect directly with shoppers even in far-flung areas. This is an area in which Renley intends to concentrate future investment as the likely “way to success in the long run.”

Renley’s enthusiasm for the mainland market is undimmed despite the country’s growth slowdown. Indeed, for mid-market brands like Temporis, the shift may even provide opportunities. “We can’t expect that the Chinese consumer will have the strong spending power they did two or three years ago,” says Mr Lau. “Maybe they will buy less expensive products, fewer luxury watches and jewellery, but brands in the price range like Temporis won’t be affected that much.”

 

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