Once branded a copycat jeweler, Zhou Liu Fu seeks gold in Hong Kong

The company, whose name resembles two popular Hong Kong rivals, has filed for a Hong Kong IPO after its application to list on China’s A-share market went nowhere

Key Takeaways:

  • Zhou Liu Fu has applied for a Hong Kong IPO, reporting its net profit rose nearly 15% last year to 660 million yuan 
  • The jeweler is controversial due to its heavy reliance on franchising, and also because its name resembles two popular Hong Kong rivals

By Lau Chi Hang

Rising gold prices fueled by geopolitical tensions has sparked a parallel rally for new listings by Chinese jewelers who make their living by selling the precious metal. The latest of those saw Laopu Gold (6181.HK) raise HK$830 million ($106 million) in a Hong Kong IPO late last month, as rival Mokingran is also in the process of listing. Now, another rival, Zhou Liu Fu Jewellery Co. Ltd.,is also seeking gold on the Hong Kong Stock Exchange by filing of its own listing application late last month.

Unlike the others, Zhou Liu Fu is somewhat controversial due to the likeness of its Chinese name with two other popular Hong Kong jewelers, Chow Tai Fook (1929.HK) and Luk Fook (0590.HK). It is actually related to neither, and its use of a name similar to two better-known brands was a common practice in earlier times in China as young new brands tried to capitalize on the greater recognition for their global peers.

Chow Tai Fook is Hong Kong’s leading jeweler with a history of nearly 100 years, and Luk Fook is also well-known and more than 30 years old. Ironically, Zhou Liu Fu, whose history dates back just two decades, is now suing some of its own upstart competitors in China for the kind of infringement that it was previously accused of. 

No one named Zhou in this shop

Zhou is a popular surname in China and is the Mandarin equivalent of the Chow in Chow Tai Fok, which is based on a Cantonese pronunciation for the surname. In fact, there is no one surnamed Zhou or Chow at the top of Zhou Liu Fu, whose predecessor, Zhou Tian Fu Jewelry, was founded by Li Weipeng and Chen Chuangjin in Shenzhen in 2004. Li’s brother, Li Weizhu, bought out Chen’s 50% of the company in 2005, and it was renamed Zhou Liu Fu in 2012.

Over the years, the two brothers have built up an empire totaling 4,383 stores by the end of 2023, though only 95 of those were self-operated and the rest are franchised. According to third-party data in the listing document, Zhou Liu Fu ranked fourth among Chinese jewelry brands in terms of store count in China last year.

As the Li brothers’ ambitions grew, the capital market became one of their favorite gold mines – though they have yet to find riches there. Between 2019 and 2023, the pair filed to list their company three times on the Mainland’s A-share market, but with no success. That’s leading them to Hong Kong, where they’re hoping for a warmer reception.

The company’s listing document shows it had a good run over the past three years. Its revenue grew from 2.78 billion yuan ($383 million) in 2021 to 5.15 billion yuan last year, while its net profit rose from 425 million yuan to 660 million yuan over that time. Despite those solid results, the company is still subject to frequent criticism over its brand and also its business model.

It says its business model integrates jewelry product development and design, procurement and supply, as well as franchising and brand operation. But a closer look shows most of its revenue actually comes from the franchise model.

Franchising overreliance 

While the franchise model has helped Zhou Liu Fu to grow rapidly for more than a decade, it’s also a risk factor due to the company’s heavy reliance on franchisees. In reviewing the company’s previous A-share listing application, the China Securities Regulatory Commission (CSRC) noted that Zhou Liu Fu’s franchise model accounted for more than 80% of its revenue and that revenue from its main business was growing much faster than its peers. That led it to question why the growth was so much faster than its competitors.

To address the heavy reliance on the franchise model, the company has been developing its online sales channels. That portion of its business has grown rapidly to account for nearly 34% of its revenue last year, while the share from franchising has dropped to 55%.

The franchise model is prone to problems without good management, particularly over issues like consistency in the quality of goods. Underscoring that weakness, some Zhou Liu Fu franchisees were found to be selling substandard products in a sampling test to boost their profits.

Some of Zhou Liu Fu’s franchisees have also been criticized and fined by China’s market regulator for fleecing customers through use of unclear price tags and for using practices counter to standardized measurements. Complaints about lack of professionalism by store staff also appear on the popular Black Cat Complaint platform. The combined result of such negative publicity has taken a toll on the company’s reputation.

Infringement litigation

Trademark and infringement disputes have also plagued Zhou Liu Fu over the years. When the company filed for its A-share listing, the regulator asked it to explain the reasons behind its many trademark disputes.

Zhou Liu Fu was involved in 628 legal disputes as of February last year, including 333 involving trademark infringement, Chinese media previously reported, citing business databases Qichacha and Qiyeyujingtong. Chanel was among the plaintiffs suing for trademark infringement, and the lawsuit was only withdrawn after Zhou Liu Fu agreed to pay 560,000 yuan in compensation. The company has also been sued by Chinese celebrities for illegal use of their names and likenesses.

The company’s apparent distaste for big spending on marketing coincides with its similarly low R&D spending. Zhou Liu Fu has spent a meager sum of just over 9 million yuan annually on product development in each of the last three years, accounting for less than 0.5% of its revenue. What’s more, it ceased all of its own production in 2022 and now sources all of its products from third parties. 

In a nod to past criticism about trademark infringement, Zhou Liu Fu raised the subject in the “risk factors” section of its listing document – though in regard to others stealing its trademarks. “We may fail to protect our intellectual properties or be subject to counterfeiting, imitation or other intellectual property infringement by third parties who manufacture and sell products under ‘copycat’ brand names and trademarks that are very similar to ours,” it said. “While we take stringent measures to protect our intellectual property rights, we cannot assure that such counterfeiting or imitation will not occur in the future.” 

Thus, it seems this company that was once accused of copycatting is now worried about being copied by others – a sort of turnabout that often haunts many Chinese companies once they make it to the big leagues.

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