The small county town is crazy about "absorbing gold", and Chow Tai Fook has made a lot of money in the sinking market
A 500-meter-long street in the author's hometown is crowded with nearly 10 gold shops, and new ones are about to open.
The convention of "every festive season, gold, silver and jewelry are popular", superimposed on the special meaning of the Year of the Dragon, makes gold consumption "hot and hot" in this Spring Festival.
Walking into a gold store in a county in northwest China, the counter of gold products in the warm light and the counter of platinum and diamond products in the cold light are completely separated, and on the one hand, it is crowded, crowded with the old, middle-aged and young groups who buy gifts for relatives and friends, or buy gold to please themselves;
Ms. Li, who was on duty that day, told the author during the busy time, "Six or seven waves of guests came in half an hour, all of whom consulted gold, and their mouths were almost tired." ”
In media reports, "more than 1,000 Zodiac Dragon gold bars were sold in one day", "It is better to buy gold than to buy a bag", "There are gold stores in Shanghai that sell more than 1,000 gold bars a day", "Some people bought more than 200,000 yuan of gold jewelry in one go"...... It also depicts the scene of gold sales at all times.
01 Gold consumption is "hot and hot"
Objectively speaking, the price of gold in recent years has not been friendly to ordinary consumers.
Global central banks have increased their efforts to purchase gold, geopolitical conflicts continue, and supply and demand are tight, driving the international gold price (COMEX gold) from about $1,500 in 2020 to more than $2,000 in 2023, and will still be high at the beginning 518880.SH of 2024.
▲Source: Oriental Fortune, Tencent self-selected stocks
Converted into a more "visible" unit, the price of gold has risen from about 350 yuan/gram at the beginning of 2020 to more than 627 yuan/gram by the end of 2023, nearly doubling in three years. However, this has not dampened consumers' enthusiasm for gold.
According to data released by the China Gold Association, the country's gold consumption in 2023 increased by 8.78% year-on-year. Among them, the consumption of gold jewelry increased by 7.97% year-on-year, and the consumption of gold bars and coins increased by 15.70% year-on-year.
According to the data of the Ministry of Commerce, from February 10 to 14, the sales of gold, silver and jewelry of key monitoring enterprises in the country increased by more than 10% year-on-year, and Zhejiang Province soared by 23%.
Combined with the situation of the on-site visit, you might as well make a bold guess that the so-called gold and silver jewelry is controlled by gold throughout the whole process, and the others are responsible for making soy sauce.
The reason behind it is not difficult to understand. As the saying goes, who can't get along with money? The price of gold continues to rise, and the financial management attribute is prominent, so that many consumers have turned from skepticism to "entering the pit". On social forums such as Xiaohongshu and Weibo, young people "save golden beans" and "little yellow croaker" experience stickers abound.
Secondly, gold itself has the connotation of hard currency beyond the sovereign currency, depreciates slowly, has anti-inflation and inheritance value, and has become a "hot commodity" for consumer supporters.
Su Ran, born in the 90s, said: "It is difficult to explain the stock speculation, it is far less stable than gold, at least you can see the real thing, and there are fewer traps and cats." ”
Of course, the boiling "gold rush" is also inseparable from the hard work of manufacturers. Lao Fengxiang, Chow Tai Fook, Chow Tai Sheng, Chow Sang Sheng, Chow Sang Sang and other enterprises specializing in gold, silver and jewelry, keep up with the fashion trend, use high-value designed products, novel marketing methods, including Disney, the Palace Museum and other major IPs to promote co-branded models, in the Mid-Autumn Festival, National Day, Christmas, Valentine's Day and other major festivals to promote customized and exclusive models, to capture the hearts of consumers.
Take this year's very best-selling dragon zodiac series of gold jewelry as an example, various shapes of transfer beads, pendants, rings, etc., combined with the auspicious dragon Xianrui, dragon Teng Wanli, dragon and phoenix auspicious blessings, anyone is estimated to be tempted, the difference is only in whether to pay for it or not.
▲ Source: Brand Tmall flagship store
The "hot, hot" "buy, buy, buy" sentiment is transmitted to the supply side, and the gold brands have a "rich year" with little suspense.
02 A business with high sales but small profits
In June 2023, Chow Tai Fook's management mentioned: "During the rise in gold prices, consumers may wait and see for a while, and there may also be a situation of concentrated purchases. Customer demand for gold jewellery and products remains strong. ”
It turns out that the higher the price of gold, the more customers love it. In terms of data, Chow Tai Fook's retail value increased by 46.1% year-on-year in the third quarter of FY2024 (three months ended 31 December 2023), with gold jewellery and products all recording significant growth in Chinese mainland, Hong Kong and Macau.
▲Source: Chow Tai Fook's financial report
As an industry benchmark, although Chow Tai Fook is a spot, it can generally see the "leopard body" of the entire track.
As of the first three quarters of 2023, the report cards of A-share listed companies such as Chow Tai Sang, China Gold, Lao Fengxiang and Yuyuan Co., Ltd. are all outstanding, with double-digit growth in revenue and profit; Chow Sang Sang and Luk Fook Group's interim reports as of June 2023 have revenue growth of 34.32% and 28.81% respectively, and profit attributable to shareholders has increased by 43.34% and 75.34% respectively; Profit attributable to shareholders increased by 6.43% and 36.44% respectively.
▲Data source: financial reports of each company
It is necessary to mention that, contrary to what many people think, gold jewelers who peddle symbolic meanings such as wealth and scarcity are not operating a luxury business like Moutai, Hermes, and LV, but with small profits but quick turnover.
Take Chow Tai Fook as an example, in the interim report as of September 2023, its revenue is as high as about 50 billion yuan, gross profit is 12.34 billion yuan, and the gross profit margin is only 24.92%, a decrease of 8.57 percentage points compared with the same period in 2020.
▲Data source: financial reports of each company
In-depth analysis shows that jewelers, who seem to be getting fatter and fatter, do not have too strong a voice in the industry chain. Due to the acceleration of upstream gold mining and production costs, even if the downstream gold market is hedged upward, because gold jewelers are basically not involved in raw materials and rely on external procurement, the expenditure items will seriously consume the income items, which will still greatly weaken the profit margins.
At the same time, the fierce homogeneous competition in the market makes it more difficult for gold jewelers who are not satisfied with only earning processing fees and want to rely on brand premiums to "just eat".
A consumer said frankly that in order to choose a long-life lock for her nephew who is over one year old, she visited more than a dozen gold stores in the shopping center. ”
In her opinion, Chow Tai Fook's craftsmanship and packaging are good-looking, but the price is expensive, and in the end she chose to place an order in Lao Fengxiang, the gram weight is about the same, and she can save hundreds of dollars.
03 Ushering in the "golden age" in the sinking market?
Like most formats such as milk tea, beauty, and beer, gold jewelers are also betting on the hope of making a lot of money and breaking the "ceiling" of performance in the sinking market, relying on franchisees to win the "second spring".
"The commercial district of our city is almost full of gold stores. In the Spring Festival of 2024, Qiqi, who returned to his hometown in Gansu (a fifth-tier city), sighed.
On the pedestrian street, which is about 500 meters long and 20 meters wide, there are nearly 10 gold shops such as China Gold, Chow Tai Fook, Chow Tai Sheng, and Laomiao Gold. What puzzled Qiqi was that it was obviously a street that was not wide enough, and China Gold had actually opened a two-story gold shop on both sides of the road, and there was a kind of posture of fighting face-to-face; Chow Tai Fook had a branch in the middle of the pedestrian street, but he had set up a stove at the intersection two or three hundred meters away from the entrance of the street, and the storefront had already been renovated, and three big white characters were clearly hanging on the pink and purple shop signs, indicating his ambition of "grabbing the market."
▲ Source: Taken by Qiqi
"Are there so many people who buy gold?" Obviously, Qi Qi was too worried.
Through the investigation, as well as chatting with parents, seven aunts and eight aunts, Qiqi learned that the local "gold fever" is mainly driven by a large number of retired, rich and idle old women, their love for gold jewelry hides a little bit of showing off their worth, plus a little bit of collecting knowledge, especially women, almost everyone has to buy one or two pieces every year, and benefit from the price control system in lower-tier cities is not strict enough, and adds weight to the strong popularity. Gold jewellers have long been aware of this trend and have been actively taking action to translate it into real sales.
According to public data, the per capita annual consumption level of gold jewelry in third-tier cities and below increased from 460.7 yuan in 2017 to 617.5 yuan in 2022, with a compound annual growth rate of 6.0%, exceeding the average baseline of first- and second-tier cities and the national average.
Behind this, Chow Tai Fook began to implement the new town strategy in 2018, opened a provincial agency in 2019, and reaffirmed the new town strategy at the 2022 fiscal year briefing; in 2023, Laopu Gold, Mengjinyuan Jewelry, and Liuliufu successively sprinted to the capital market, and the main common purpose of raising funds is to accelerate the pace of store opening; Yuyuan Co., Ltd. threw out a fixed increase plan of up to 8 billion yuan in March 2023, and the weight of the funds was also invested in jewelry fashion offline sales channels and brand expansion projects, namely the expansion of Laomiao and Yayi stores.
Not only that, Yuyuan also pointed out that in order to narrow the gap with Chow Tai Fook, the company plans to add 2,679 stores in the next three years, bringing the number of stores in Lao Miao and Yayi to 7,244, catching up with the scale of Chow Tai Fook's mainland stores at the end of March 2023, while Chao Hongji has set a KPI of 2,000 stores in 2025.
▲Data source: financial reports and public information of each company, etc
As of the end of 2023, Chow Tai Fook has 7,501 jewelry stores in mainland China, a net increase of 1,873 stores from the end of 2022, with franchised stores accounting for 77%, far ahead of its peers, with Lao Fengxiang, Chow Tai Sheng, and Yuyuan Co., Ltd. having 5,900, 5,106, and 5,061 stores respectively.
Looking at the gold shops in the city, thinking that there are more gold stores that are about to open or pour in, Qiqi is both excited about the active consumption, but also worried: this is just a small city with a permanent population of less than one million and young people have been outgoing in the past ten years, does it need so many gold stores, and how many gold products can it digest?
It is worth noting that since FY2024, Chow Tai Fook has no longer focused on store expansion and has slowed down the pace of opening new stores. Cheng Chi Man, Vice Chairman of the Group, said, "Growth is not just about adding stores, we must develop the brand". The words "rebranding" appear repeatedly in Chow Tai Fook's financial statements for the 2024 financial year.
Many times, the foresight of the dragon will always send some kind of unusual signal.