David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Chow Tai Fook Jewellery Group Ltd. got rich surfing the wave of China's consumer boom. With luxury spending stagnating, it's switching to chasing shoppers' yuan downmarket.

The company will target younger buyers with cheaper, more fashion-oriented products costing about 2,000 yuan ($291) on average and sold through a new store chain named Monologue. That's about one-third of the prices at the company’s flagship Chow Tai Fook-branded stores, Managing Director Kent Wong told Daniela Wei of Bloomberg News last week.

If that strategy and the cartoon character-themed pendants it hopes to sell to younger Chinese look familiar, it's because they are. Pandora A/S, the Danish maker of charm bracelets and other low-priced silver trinkets, has been targeting a very similar demographic -- and its sales in China are booming.

Fool's Gold
Chow Tai Fook has overtaken Pandora in terms of blended forward 12-month price-earnings ratios
Source: Bloomberg

Revenue in the country more than doubled in the third quarter from a year earlier, and increased 40 percent at stores open at least 12 months. That's an astonishing outcome when set next to Chow Tai Fook, which has seen such same-store sales decline in nine of the past 11 quarters.

Chow Tai Fook's same-store sales growth has been in an almost unbroken slump for nearly three years
Source: Bloomberg

And Pandora is barely getting started: Its first store on Alibaba Group Holding Ltd.'s TMall site only opened in October, and mainland Chinese store numbers are forecast to double from the current 81 outlets by the end of 2018.

Middle Kingdom
Chow Tai Fook has the biggest mainland Chinese store network among its Hong Kong competitors
Source: Bloomberg; company reports

Even that headlong growth would leave Pandora a distinctly niche player. If it hits its target for outlet growth, the company would place a long way below Chow Sang Sang Holdings International Ltd., which is only Hong Kong's third-ranked mainland jewelry player. Chow Tai Fook, despite years of sales weakness, has more than 2,000 points of sale in the country.

While Pandora's breakneck sales growth has demonstrated, somewhat embarrassingly, that Denmark appears to have a better understanding of mainland Chinese shoppers than Hong Kong, that physical advantage is good reason not to count out the incumbent market leader.

Chow Tai Fook should try to be bolder, though. The new products will still be priced well above the sub-$100 range where Pandora appears to be doing so well.

That caution would make sense as a prophylactic against dilution of the company's high-end cachet, but selling the products in the separately branded Monologue chain ought to be protection enough. If Chinese consumers are showing an appetite for $50 heart pendants, Chow Tai Fook should try selling more of the things.

These Danish invaders will show no mercy for weakness. Chow Tai Fook needs to combat them head-on.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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David Fickling in Sydney at

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