Hing Wa Lee and CH Premier Jewelers carve up the Californian market for Chinese customers between them. Interestingly, the former has Rolex as its anchor brand and the latter has Patek Philippe. Neither has both brands, but David Lee, CEO of Hing Wa Lee might change that by acquiring prestige watch retailers in other parts of the United States. What other growth plans does he have and how did the Hing Wa Lee group grow into today’s $300 million enterprise? WatchPro’s Rob Corder spoke to Mr Lee to find out.
WatchPro: WatchPro: Hing Wa Lee is one of the largest luxury watch retailers for Chinese customers in the United States today, but how did it all begin?
David Lee: My father was born in Southern China. He lost his father in the Cultural Revolution when he was only ten. They took his father to a “reprogramming camp” where he died. Mr father’s mum, his older brother and three younger siblings had a very difficult life. My father tried to be a farmer, he tried to be a merchant, but he was not making enough money to live. So he decided something radical needed to be done or they would starve.
It was decided that my father and his older brother would escape to Hong Kong. A lot of people at that time wanted to escape the grip of China and the Cultural Revolution so a lot of people were attempting it. The most common way in my father’s area was to hide on a stowaway boat to Macau and jump overboard at the closest point to Hong Kong, which was normally several miles off the coast in dangerous waters. They would have used two volleyballs in a net to use as a flotation device.
My Dad told stories that there would be 30 people hidden in the hull and they would jump out together to try to swim to Hong Kong. But many did not make it because they were not strong enough, the water was freezing and there were a lot of sharks. Half the people would not make it.
If you survived the cold, the sharks and the exhaustion, you still had to get past border patrols. If they caught you they might beat you to death. If you survived, they would send you back to China.
Amazingly, my father and his older brother both made it to Hong Kong, and then they had to find jobs. My father became an apprentice to a gem-carving master. He spent five years in that business before starting his own manufacturing workshop in 1965. That is the year we say was the beginning of our company and he started exporting gemstone carvings worldwide.
In the early 1970s the Smithsonian Museum in America invited my father to the United States to work on restoring priceless Chinese antique carvings and he was such an expert and specialist that they organized a green card for him so he could emigrate. He first lived on the East Coast in Bethesda, Maryland, where he started a wholesale business importing gemstone carvings and selling them to retailers and galleries throughout the United States.
In 1980 he moved to Southern California and set up his wholesale business in Downtown Los Angeles importing and selling imperial jade and other gemstone jewelry to retail jewelers throughout the United States. He also added fine jewelry to the wholesale business, which did well.
In the 1990s, I graduated from University of Southern California and joined the family business and, after a year, I suggested to my father that we move into the retail business and start importing watches to sell. He supported my idea, but told me that it was my responsibility to make it work. I would be in charge because he was ready to retire.
That was the point at which I opened my first store in San Gabriel [Los Angeles County] in 1993, and targeted the niche Chinese market. I was responsible for bringing in watch brands and developing the retail business.
Twenty six years later, I have been through a lot of ups and downs. I have seen the market change for the Chinese and Asian community in Southern California, but we have grown to become the company we are today in San Gabriel and Walnut.
Along the way, my father would invest the money that I was making in the store into real estate. He did really well for our family by buying a lot of property here and in Asia during downturns. Because he was focused on that full time, he saw opportunities that others missed. Over time, he dragged me into the investment and real estate business, so I learned about that as well. We did not want to keep paying rent on property, we wanted to pay a mortgage so we would own it and we have seen the values rise. Now we are vertically integrated so we own our Walnut and San Gabriel superstores.
WatchPro: I read an article about Hing Wa Lee in the New York Times that talked about a $300 million empire. I assume that has not come about from running two watch showrooms, albeit very large and very high end superstores?
David Lee: No, that includes our real estate business as well, which is the larger part of our group.
WatchPro: The watch business was very different in 1995 to today, and it has never been easy to get the right brands and to expand. Tell me more about that journey for the retail side of Hing Wa Lee.
David Lee: At the beginning, I was a new name in retail. We had a strong business in wholesale, but retail was different and I did not know very much about the Swiss watch industry. They did not welcome newcomers and were not quick to give us a chance. The only brands we could get were not hot at the time. We had the old Van Cleef, the old Dior and the old Swiss Army. The first good brand we got was Breitling.
We had a lot of people say no, but with a bit of luck and timing we persuaded some of them to work with us. It was the period when Rolex did not want to be in chain stores anymore and wanted to move into independent stores. I reached out to them and tried to persuade them to sign us.
Alen Brill, who later became president of Rolex Watch USA, was a national sales manager at the time and he seemed to like my sincerity and the concept that I proposed to him and he opened me as an authorized dealer. I was only the second store to open with Rolex in San Gabriel and one of the first Asian dealers in the whole of the United States in 1995.
That changed a lot of perceptions about Hing Wa Lee and suddenly a lot of other brands wanted to talk to me.
WatchPro: Was there an understanding even then that there was a specific opportunity selling watches to Chinese customers?
David Lee: That was really undiscovered at that time. Allen Brill used to say to me that meeting me was like when President Nixon met with Chinese leader Mao Zedong. It was really unknown what would happen. I was the first company to speak to Rolex about the non-mainstream market in the United States. As we worked together and Rolex saw I was one of the highest grossing independents in the country at that time, they came to understand it.
WatchPro: I am familiar with retailers working within territorially protected areas for the watch brands, but this is the first time I have heard of an authorized dealer effectively having a demographic or nationality-based patch.
David Lee: It happens more in certain areas like Southern California and New York because the demographic mix is so big. In the past there would have been retailers covering areas like Beverly Hills or Newport Beach, but now there are a lot of niche target markets to go after. There are more focused retailers that have specific expertise.
WatchPro: For those that do not know the area, would it matter where you were located geographically in Southern California, or is there a particularly strong Chinese population in Walnut and San Gabriel?
David Lee: It is very important where we are located. And being the same ethnicity makes it doubly successful.
WatchPro: Other than being 95% Chinese, what more can you tell me about your customer base?
David Lee: They say that the Chinese community is about three million people in LA [the official figure is far lower]. And we do not just serve local Chinese or visitors from mainland China. There is Hong Kong, Taiwan and other Asian markets like Vietnam. It is a big market. That is how we have maintained our position as one of the highest producing points of sale in the country for most brands we work with.
WatchPro: How do sales break down between domestic customers and visitors to the United States?
David Lee: A few years ago, there were a lot more tourists coming in and they accounted for around 50% of our turnover. Now, it would be less, and one reason for that is that a lot of people that used to be tourists now have homes here. Today, I would say that tourists account for around 15%.
WatchPro: The dollar is so strong these days. Does that hurt?
David Lee: That is true and it does have an effect. Chinese are smart shoppers and they like to spend in countries where the exchange rate is most in their favor. That does have an impact on where they choose to travel and shop.
WatchPro: In what ways has the current trade dispute between China and the United States affected your business?
David Lee: Our clients are 95% from Asia, mostly China. The factory owners in China that are now producing products to export to America are having a tough time. Their customers here are not buying because the 25% tariffs added on are making those goods impossible to sell. Everybody is holding up and waiting to see whether Trump is able to negotiate a deal that is acceptable to everybody. Those people are thinking twice about making big purchases. Those that are here, the local Chinese, do not consider most of the watches we sell — certainly at prices under $30,000 — as expensive, so they can keep buying.
Housing has been more impacted because you can only wire $50,000 per day and a Chinese person might not have access to credit and has to buy with cash. That would stop them making a $2 million purchase of property because they could not get that sort of cash.
For us, we are facing the issue that we cannot get enough product to fulfil the demand, especially Rolex, which is what we sell the most. But with Richard Mille and Audemars Piguet it is the same issue.
WatchPro: Are there any similarities to the situation today with the trade dispute to the time when the Chinese government was discouraging gifting of luxury watches as part of an anti-corruption drive?
David Lee: Five or six years ago before the policy came in, there were hundreds and hundreds of tourists coming through on tour buses and they really wanted to buy Vacheron Constantin, mainly Patrimony models, which I guess might have been for gifting to Chinese government officials.
When there was a big crackdown that really dried up. Suddenly they stopped buying them. It was specific to that brand. We did feel a big slowdown in sales overall at that time. But it seems like we are dealing with a new dynamic right now because there is such strong demand for different brands today. So there is some similarity in that there is a slowdown, but the brands are different.
WatchPro: What brands do your domestic Chinese customers living in the United States prefer right now?
David Lee: Rolex of course, AP, Richard Mille, Patek Philippe, which I do not have but is often asked for. They love Omega, Longines, they are the go-to popular brands. But we also sell a good number of Blancpain, Breguet and Vacheron watches now. They are rising in popularity.
WatchPro: You appear to be a master of the massive showroom and making it a destination store. This is a growing trend because brands and customers want the maximum range of choice when they visit multibrand stores. How did you come to the decision to invest in such huge stores when your competitors must still be trading out of 5000 square foot or smaller stores?
David Lee: My San Gabriel store is 15,000 square feet, my Walnut store is 22,000 square feet. Ten years ago when the brands started to consolidate their points of sales, at that point I had four stores. I had stores in Irvine and Arcadia. I noticed that, even though I had a store close to customers in these neighborhoods, they were driving to my bigger stores because they had a better selection.
What we sell is not a daily or weekly shopping trip like groceries. It is once or twice a year and people are willing to travel in order to make the best decision. That is why a multibrand store is good because you have a wider selection in one place. Also because, in our group Hing Wa Lee, for which I am the chairman, we have three divisions. One division is the retail business that is now 54 years old. We also have a real estate division, which is now the biggest part of our portfolio. We are vertically integrated in acquisition, development, management and brokerage.
We are in the real estate business in a big way, so it was natural for us to build our own facility where we could make it exactly how we like it and we can make Hing Wa Lee jewelers anchor stores at our shopping centers.
Customers certainly do like bigger stores. At the time we built the San Gabriel store in 2013, we needed a big enough place for all the tourists to come through because we had hundreds and hundreds of people coming through at one time. We needed to have a store that could accommodate all those people.
WatchPro: Does the current drought of key models from the likes of Rolex, Richard Mille and Audemars Piguet cause you difficulties, or is it nothing but good news?
David Lee: It is good that we have something of a drought because the brands can command top dollar for their watches. The secondary market having such a premium price for these watches has the effect of helping authorized dealers like us sell at full MSRP. That is great because we get the full margin that we should be getting.
But the drought is too strong, so we do not have enough watches to sell at MSRP. We are having to choose which customers get certain watches and that is getting people upset. We are in a situation where demand is so strong and supply is so limited that the balance is not right.
If there was more product so that we could sell at the margins that we are supposed to then everybody would be doing much better but I know that this is a problem that is not easily solved.
WatchPro: What do you think of the trend towards brands wanting their retail partners to open monobrand stores? Is this something you are planning?
David Lee: This is definitely a trend and I think these monobrand stores work in certain markets. They can be very effective but it is not the only way and is not right in all markets. I think the brands are starting to understand that. Conversations need to be detailed and brands should not insist that it is the only way to go.
WatchPro: How do you view ecommerce?
David Lee: For most of the brands I work with, their websites are just for information about the watches and where to find a retailer. I think that is good. Selling online goes against their territorial model and they have not figured out how to do that. We could have ecommerce but service our market area, which could be good. But not having any territorial control would be tough for the brands. I notice that brands are more understanding about social media, how that works and how it is going to be the marketing of the future for a new generation. That is improving.
WatchPro: Do you think the US retail market needs to consolidate so that you have fewer much larger groups? Does what Bucherer and Watches of Switzerland are doing influence your thinking?
David Lee: Guys like Watches of Switzerland and Bucherer come in with a lot of resources. They are big corporate structures. That could be good, and they will do well with Mayors and Tourneau. But I do not think brands will want all their eggs in one basket.
They are already reducing the number of doors, but if those big companies are allowed to keep gobbling up competitors, then when it comes to a financial or economic downturn, certain brands might find themselves at too much risk.
That is the position that Rolex took in the early 1990s when they started doing business with all the chain stores, but they came around to selling to independents like me.
Watchpro: Do you think you will use the resources and finances of the Hin Wa Lee group to expand?
David Lee: We are actively looking for acquisitions, and I would welcome inquiries from businesses that are looking to sell.
WatchPro: Are there any particular criteria you would need to proceed with an acquisition? Would it need to be West Coast? Would it have to be a Rolex authorized dealer?
David Lee: We would consider acquisitions outside this area and, no, it would not have to be a company that stocks Rolex.