Why is it "difficult to make money" for Chow Tai Fook?
Source | BohuFN
Author | Dream
No wonder it is said that "the world only says that gold is expensive, and does not buy young people from Tiangong." ”
Recently, the international gold price has risen significantly, and the price of the domestic gold retail market has also risen, even exceeding 600 yuan. The aunt, who was once ridiculed for following the trend to buy gold, now "despises" everyone as a king. Nowadays, it is no longer the era of aunts on gold, but all employees, especially young people.
According to the "2021 China Gold Jewelry Consumption Survey White Paper", the main domestic gold jewelry consumption is developing in the direction of youth, and the current consumer group, 25-35 years old accounts for 75.59%, of which 55% of Chinese mainland consumers aged 25 to 34, ranking first.
On the surface, the gold business is becoming more and more "beautiful". Taking the head brand Chow Tai Fook as an example, according to the financial report, its revenue growth reached 24%, 41% and 29% in 2021, 2022 and the first half of 2023, respectively. Among them, the number of Chow Tai Fook's stores has soared, and the latest financial report for the first half of 2023 shows that Chow Tai Fook Jewellery has a total of 7,500 retail outlets, plus other brand retail outlets, a total of 7,740. Other brands have seen varying degrees of revenue and store growth.
But is that really the case?
01 Domestic gold brands can only eat "small fish"
A hot knowledge, gold is expensive, but those gold brands are not popular. In fact, the profitability of gold jewelry brands is generally worrying, and they can get a net profit margin of 3%, even if they are industry leaders. For example, the three giants of gold and jewelry, Lao Fengxiang, China Gold and Chow Tai Fook, had revenues of 63.01 billion yuan, 47.124 billion yuan and 98.938 billion yuan respectively in 2022, but their net profits were 1.7 billion yuan, 765 million yuan and 5.49 billion yuan. And that's just the results of the giants.
(Source: Internet)
On the one hand, the main raw material of gold jewelry is gold, but the gold price of gold is determined by the international gold price, and the brand as a supplier of gold jewelry has almost no pricing power, but only charges a fixed cost fee, so for the brand, the cost cannot be controlled.
On the other hand, according to industry analysis, the retail gross profit margin of gold is 10%-20%, resulting in the current gold jewelry brand to improve profitability, must work brand premium and craftsmanship.
But this stumped domestic gold jewelry brands. Although young people now prefer gold, according to the report, young people are not so loyal to domestic gold brands. When choosing gold jewelry, young consumers will pay attention to the style first, followed by the quality price, and finally the brand, real and cruel.
In this regard, domestic gold jewelry brands have also made a lot of efforts, especially in terms of being close to young people.
First, the gold jewelry category has accelerated diversification. Now gold jewelry is not only necklaces, rings, gold bars, earrings, etc., for example, in the past two years, 1-3g "golden melon seeds" and "golden beans" are very popular among young people. For young consumers, the price of 1-3g of small golden beans is about 500-1500 yuan, which not only satisfies the desire for shopping, but also is an alternative way to save money.
The second is to work the style design. Because young people value style and design, Chow Tai Fook launched a blockbuster heritage series of ancient gold jewelry in 2018, using matte and frosted textures, plus traditional Chinese crafts such as engraving, inlay, enamel, and filigree to match the "low-key and high-class" aesthetic orientation of modern people.
The results are also obvious, with data showing that in the first half of FY2023, the retail value of Chow Tai Fook's heritage collection in the mainland gold jewellery and products has reached 40%. Among them, Gen Z and millennials contributed more than half of the series. But the fruit of this victory Chow Tai Fook can not be enjoyed exclusively, after the fire of ancient gold, Zhou Tai Sheng has "extraordinary ancient gold", Lufu jewelry has "Zodiac Series", Caibai has "Heirloom Series" and so on, and all have achieved good growth.
In addition to craftsmanship, in order to be closer to young people, gold brands have also made joint names that young people like. For example, Chow Shengsheng and Harry Potter, Luk Fook Jewelry and Easy Bear, Chow Tai Fook and Zootopia and so on. These strategies have attracted young people to pay for it to a considerable extent.
(Source: Internet)
For example, Lion Academy Xiaowang, who is a die-hard Harry Potter fan, once told Bohu Finance that because of the joint name of Zhou Shengsheng and Harry Potter, many friends around him bought gold for the first time because of the joint money. In the grass farming community Little Red Book, there are more than 2,100 articles of grass planting information related to Zhou Shengsheng and Harry Potter.
According to the World Gold Council's 2021 China Gold and Jewellery Consumption Survey White Paper, 76% of gold shop shoppers are now aged 25-35, with 18-24 year olds buying jewellery up from 16% in 2016 to 59% in 2021. Even if the entire industry is working hard, it is clear that the craftsmanship and design between brands are not competitive enough, so it is still difficult to get rid of the endless cycle of "which one is cheaper and which one buys".
For example, in order to enhance the premium ability, Chow Tai Fook once launched the "Four Beauty of Life" series, with a 0.16 carat gold and diamond bracelet of 12,600 yuan and a 0.16 carat gold and diamond earring of 11,800 yuan. In order to promote the new product, Chow Tai Fook not only paid a high price to hire a spokesperson, but also gave the product names such as "Gentleman Rulian" and "Ruyi Feather". But consumers don't seem to be buying it. Some netizens on social platforms expressed doubts about the gram price as high as 700-1000. In the Tmall flagship store, the monthly sales of the above two products are 0.
More paradoxically, brand premium, craftsmanship money is difficult to earn, at present, the competitiveness of domestic gold brands is concentrated in the competition for market share.
02 Gold brands accelerate their sinking
According to various financial reports, Chow Tai Fook has 7,740 stores in the total sales points of all brands; Chow Tai Sang stores exceeded 4,700; Lao Fengxiang has 5631 marketing outlets. Taking Chow Tai Fook as an example, although revenue has been growing by double digits in recent years, it has been questioned due to the decline in gross margin. According to the financial report, the gross profit margin of Chow Tai Fook for the financial year 2020-2023 was 29.6%, 28.2%, 23.4% and 23.7%, respectively.
The main thing is to sink into trouble.
In the early days, in order to create a "high-end" character, Chow Tai Fook was mainly deployed in first-tier and new first-tier cities, but with the gradual saturation of the gold market in large cities, from 2018, Chow Tai Fook implemented a new town plan in the mainland, and in May 2019, it launched the "provincial generation" policy to accelerate the pace of sinking.
In 2022, more than half of Chow Tai Fook's new stores will be located in the sinking market, and the retail value of third-tier, fourth-tier and other cities has reached 36.8%. Although a large number of franchisees maintained Chow Tai Fook's revenue, profit margins were gradually compressed. Chow Tai Fook said that on the one hand, this is due to the reduced benefits caused by the decline in gold prices in the second half of the year, and on the other hand, because of the high sales contribution of Chinese mainland wholesale business, which mainly involves franchised retail outlets.
(Source: Internet)
In a way, this can almost count as a commonality for the entire industry. For example, as of the first quarter of 2023, the number of franchised stores and self-operated stores of jewelry brand Zhou Taisheng were 4,368 and 269 respectively, with franchised stores accounting for 74.54% of revenue and self-operated accounting for only 11.87%.
Therefore, although brand sinking can seize more market share, it also poses great challenges to its management. As of August this year, Chow Tai Fook has received more than 3,356 complaints on the Black Cat complaint platform, most of which are product return disputes and product quality problems, and most of the complaints are from second-tier cities and counties. In the long run, it is difficult to say whether the franchise will be a help or a burden.
Of course, in addition to sinking, brands are also playing tricks, such as e-commerce and multi-brand strategies, but in fact, the impact on gross profit margin is still very small, as can be seen from the decline in gross profit margin of Chow Tai Fook in recent years. As Zhou Ting, president of the VIP Research Institute and a luxury expert, said, "If Chinese jewelry companies want to improve their profit margins, they must learn to make money from brands, not from trade." ”
The question is, how do brands make money?
03 Write at the end
In this regard, we can look at the international luxury giants. For example, Van Cleef & Arpels' explosive "four-leaf clover" series, although the materials used are non-rare 18K gold, white mother-of-pearl, chalcedony and other ordinary materials, but the price of the product is staggering, but everyone is happy.
That's brand power.
One is that Van Cleef & Arpels often appeared in the royal palace aristocracy and legendary women with extraordinary status, showing their scarce and noble qualities; In addition, Van Cleef & Arpels does have a unique craftsmanship. According to the official website, its "hidden setting" process can set gemstones tightly together without revealing any prongs, highlighting the beauty of gemstones.
We can't tell if it's aesthetically pleasing or not, but the process is extremely difficult, only a few master craftsmen can complete it, and it takes nearly 8 hours to cut a gemstone. According to statistics, the production of a brooch requires jewelry craftsmen and gem cutters with covert setting techniques, taking up to 300 hours on average. The process was also patented in 1933.
In order to meet a larger consumer market, Van Cleef & Arpels launched ordinary series such as four-leaf clover, "you can wear the same style of princess and aristocracy for a few thousand dollars", so that Hollywood stars and other influential people bring goods for it, "four-leaf clover" is popular out of the circle, and even has become one of Van Cleef & Arpels' classic products. So far, the four-leaf clover style has been launched every year, although it is only a simple change in color or style, but it has made Van Cleef & Arpels a lot of money. At present, Van Cleef & Arpels' "ordinary series" already account for seventy percent of total sales. To sum it up: you can tell stories, have exclusive skills, and know how to market.
Of course, compared with these luxury brands, it is not fair to domestic gold brands. But the current gold brands, in order to get rid of low gross margins, improve their profitability, and become "luxuries", must find their own characteristics. In fact, some brands have already tasted some sweetness, such as DR diamond rings, which have quickly emerged from the circle with the story that they can only customize one ring in their lives and grabbed a place; Chow Tai Fook also relied on the innovation of ancient gold to drive revenue.
It's just that brands still have too much to learn on the way to becoming a "luxury".
Reference source:
Competition status of mainland gold jewelry industry: obvious trend of heading, channel expansion and brand marketing
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