The price of gold approached 700 yuan, and Chow Tai Fook "fell" in the county

"Core Tips"

At the end of March, the international gold price once again broke the historical record, and the listed price of jewelry in domestic brand gold stores was also approaching 700 yuan per gram. People's enthusiasm for gold consumption has been rising, are "Chow Tai Fooks" more profitable?

Author | Song Zihao

Edit | Liu Yang

Every time the price of gold on the other side of the ocean hits a record high, there are more orders from gold shops in domestic counties.

In 2023, the price of gold has rushed from the lowest of $1,804.5 to the all-time high of $2,146.79, and gold has once again become one of the brightest performing assets in the global market.

In 2024, the international gold price will continue to rise. As of press time, London gold broke through $2,260 per ounce, hitting a new all-time high. According to media reports, on April 1, the listed price of jewelry gold in some domestic brand gold stores reached 693 yuan / gram.

Although the enthusiasm of domestic gold consumption has risen along with the gold price, gold brands such as Chow Tai Fook may not be able to laugh. The higher the price of gold, the more obvious the investment attributes of gold, the more rational consumers are, and the more difficult it is to sell products with high premiums.

In the past five years, Chow Tai Fook, who has entered the sinking market, has expanded its territory all the way, occupied the mountains and planted flags, but when they closed the net, they suddenly found that the enthusiasm of county consumers for gold brands is not so high.

1. The county is full of "gold"

At a time when the price of gold is rising, gold brands are not necessarily making more money.

On the one hand, rising gold prices represent rising costs, and gold brands earn the difference between the average inventory price and the selling price. On the other hand, although customers have the inertia to chase up, the price is too high and will also affect consumer enthusiasm.

In fact, for a long time, the gross profit margin of most gold brands was not high.

The gross profit margin of brands such as Lao Fengxiang and Zhou Dasheng is less than 10%. Mengjinyuan's gross profit margin in the first half of 2023 was only 5.7%, while China Gold's gross profit margin in the first three quarters of 2023 was as low as 4.23%.

As an industry top student and big brother, Chow Tai Fook's gross profit margin in FY2023 is 22.36%.

If you want to make money, there are generally two ways, one is to hit the high-end and hit the price.

For example, the old shop gold played the concept of aristocracy that is common in the luxury industry, and played the "ancient gold" that served the exclusive use of the royal family, and the gross profit margin remained above 40%, by the way, let foreign luxury brands know how China's old money plays gold.

In 2008, Chow Tai Fook changed some of its products from selling by the gram to selling by the piece, virtually creating a premium space for gold jewelry.

Although Chow Tai Fook was ranked among the top 10 luxury companies in the world with sales of more than 80 billion yuan in fiscal year 2022, its gross profit margin of more than 20% was far inferior to that of Hermes and Rolex, which fell off the list.

Another solution for Chow Tai Fook is to move to third- and fourth-tier cities. Since 2018, Chow Tai Fook has launched the "New Town Plan" to open up the sinking market to join. In 2019, the "provincial generation" model was launched, and in the following five years, the number of Chow Tai Fook stores increased from 2,800 to 7,599 in one fell swoop, and the number of franchised stores accounted for 76.5%.

The reason is easy to understand, the growth rate of gold jewelry consumption in first- and second-tier cities has slowed down, but there is still a broad space in the third- and fourth-tier cities.

According to Frost & Sullivan, the scale of the gold jewellery market in third- and fourth-tier and lower-tier cities is growing rapidly, with a compound annual growth rate of 11.0% and 11.5% respectively from 2017 to 2022, much higher than the 6.7% and 8.3% in first- and second-tier cities.

In 2018, it was the era when Pinduoduo became a god with the sinking market, milk and honey flowed outside the "Fifth Ring Road", and gold was everywhere in third- and fourth-tier cities.

Similar statements are still popular today, and some consumers who have settled in the third and fourth tiers, have high disposable income, have no mortgage and car loan pressure, and have explosive spending power are even called "county ladies" on the Internet. Correspondingly, consumers who cut back on food and clothing and downgrade their consumption in the first and second lines are called "first- and second-line Lossers".

On the other hand, the income of gold brands mainly comes from service fees such as plain gold jewelry, inlaid jewelry, and franchise fees.

The reason why Mengjinyuan's gross profit margin is so low is because as a gold brand, it almost only sells gold. According to its prospectus, the gross profit margin of Mengjinyuan gold jewelry is only 4.9%, but the gross profit margin of K gold and diamond jewelry is 25.6%. In the first half of 2023, 98.1% of Mengjinyuan's revenue comes from gold jewelry, and less than 2% of the revenue from K gold and diamond jewelry will be generated.

Many gold consumers ridicule diamonds as an IQ tax, but in fact, gold brands are crying at De Beers' high premiums.

What is more profitable than mosaic products is the franchise fee and other service fees. In the industry, Liuliufu, who has no blood relationship with Chow Tai Fook but has a name like a brother, has done the best. According to the prospectus of Liuliufu, for each new franchise store, Liuliufu can charge a one-time service fee ranging from 185,000 to 350,000 yuan from the franchisee, and there will be a renewal fee of 11-250,000 yuan per year in the future.

From the perspective of revenue structure, the service fee only accounts for 17.5% of the company's revenue, but it has played a considerable role in raising the gross profit margin of the company.

However, there is a problem here, if you want to have a steady stream of franchisees, you have to let the franchisees make money, and if the franchisees want to make money, they have to sell high-premium inlaid jewelry. The county ladies with strong purchasing power can accept high consumption, but it is difficult to accept high premiums.

2. How did gold striking become popular?

Zhou Xiao, who is engaged in gold processing in a small county town, told Leopard Change: "Now there are more and more handmade gold shops. ”

"We just make a hard money, in fact, a few years ago, we all thought that pure handmade gold would be eliminated, but I didn't expect that today's customers are very good at planning, go to the bank to buy gold bars, and then come to our small shop for processing. Zhou Xiao said.

"Gold struck" is a new popular gold consumption in the sinking market in recent years, consumers in the bank, online, gold wholesale market and other channels to buy cheap gold, find a gold shop, pay manual fees to customize gold jewelry. After the rise of gold mining, many gold mining shops also provided gold purchase services, and the price was not much different from the international gold price.

Zhou Xiao's family has been working and selling gold jewellery in the local area for more than 30 years, "My mother-in-law started learning gold processing from her grandfather when she was 19 years old, and she is now 50 years old. ”

During this period, Zhou Xiaojia not only did a handmade gold shop, but also joined brands such as Lao Fengxiang and Chow Tai Fook. She said that the hottest thing in recent times is the handmade gold shop. "My uncle's gold shop has to make more than a dozen bracelets every day, and the orders are lined up for a few months, so I earn a craft fee, thousands of yuan a day. ”

"If you are not happy, save some gold" has become a true portrayal of young people today, from the "three golds" (gold rings, gold necklaces, gold earrings) for marriage to gold jewelry for pets, young people's demand for gold is very diversified.

But big demand doesn't mean spending money is just a big deal, young people are more concerned about the price of gold, and they have wider access to information. With the help of young netizens, the ancient gold prime circle has become popular on social platforms.

Netizen Peach Flavor Cat Department told "Leopard Change": "I often pay attention to the price of gold, and I usually watch it on Alipay. Chow Tai Fook's rings and necklaces are finely worked, very good-looking, but too expensive, a gram costs more than 600, and the gold is played according to the gold price of the day one gram plus ten yuan, which is equivalent to more than 500 grams per gram, the price is more affordable, and the ancient gold workmanship is relatively not very difficult, and the master's gold effect is also good. ”

Netizens who love to drink lemon tea are from Changzhou, she said: "The premium of gold brands is too high, I buy gold bars from ICBC to find a master with good craftsmanship, and the business of local gold shops with good craftsmanship is very hot." ”

With the help of short videos and "planting grass" social platforms, gold shops continue to break the circle. Xiao Qi, who is far away in Haidian, Beijing, placed an order through the gold shop in the county seat online. "I found a master from Xiaohongshu, the price of gold is cheaper, and it can also be customized, and the master with good craftsmanship is better than Chow Tai Fook and other brands, and it is very textured. ”

According to Frost & Sullivan, the scale of the gold jewellery market in third- and fourth-tier and lower-tier cities has grown rapidly in recent years, with a compound annual growth rate of 11.0% and 11.5% respectively from 2017 to 2022, much higher than the 6.7% and 8.3% in first- and second-tier cities.

The popularity of gold striking also shows that the road of high premium may not be able to go through in the third and fourth tier gold markets.

The essence of gold striking is to be close to the gold price of the day, and only charge a lower manual fee, which has a more resounding name in the domestic gold market - Shuibei model.

3. The countryside surrounds the city

With the brand power and craftsmanship level accumulated over the years, the competition between the gold brand that is going to the sinking market and the local individual gold stores in the small county town is like the regular army fighting the militia regiment.

The elimination of a period of eradication, the incorporation of co-optation, many brand franchise stores in third- and fourth-tier cities are local gold stores that have paid franchise fees.

According to CCTV Finance and Economics, in Quzhou, Zhejiang, there are 15 gold stores on a street less than 200 meters long, most of which have been opened in the past two or three years.

But these stores may not have done well in recent years. In November 2023, in a shopping mall in Shandong, the employees of Lao Fengxiang and Zhou Dasheng were ridiculed by netizens as "Golden Saints" because they grabbed land and staged a full martial arts.

What puts pressure on brand franchisees such as Chow Tai Fook is the so-called Shuibei model.

To put it simply, the gold jewelry of the Shuibei model is priced according to the (international gold price of the day + labor cost) multiplied by the gram weight, because it originated from the Shenzhen Shuibei market.

In 2020, China's jewelry industry fell into a trough, the collective live broadcast of merchants on the first floor of Shenzhen Shuibei Jinzhan Jewelry Plaza, with the rise of Douyin e-commerce and the popularity of community marketing, the Shuibei market quickly became popular, and the industry circulated the saying that "the national jewelry looks at Shenzhen, Shenzhen jewelry looks at Shuibei, and Shuibei jewelry comes to the gold exhibition".

After three years of development, mature logistics conditions and perfect sinking channels, after the 2023 Shenzhen International Jewelry Exhibition, the Shuibei model began to accelerate the spillover to the national gold jewelry market.

Among them, the more significant nodes are Shandong and Sichuan, two important demonstration markets for the gold and jewelry track, and have begun to follow up the "Shuibei model" in the local gold and jewelry wholesale city.

In this process, many individual gold stores and brand franchise stores are quite uncomfortable, and some shopkeepers simply identify the Shuibei model as a price war.

In fact, if it can run through the channel and ensure a stable source of customers, the gold store of the Shuibei model can save the high rent of opening a physical store and reduce the salary cost of sales staff through live streaming and community marketing.

Secondly, low gross profit margin and high turnover can also reduce financial costs, leaving room for merchants to reduce prices.

But for franchisees, operating expenses, financial costs, brand premiums, etc., can't be sold at a low price.

Zhou Xiao told "Leopard Change": "In the past few years, brand franchise is very good, but in recent years, brand stores are not as good as small stores like gold shops. ”

On the one hand, gold brands tend to have high product premiums, and on the other hand, consumers in third- and fourth-tier markets are far less loyal to brands than in first- and second-tier markets.

Zhou Xiao said: "In the past, I made money by doing brand stores, and I have opened them for more than ten years, Lao Fengxiang and Chow Tai Fook, but since last year, brand stores have become more and more difficult to do, and we have closed 3 brand stores one after another, mainly because the information is too transparent now." ”

Similar to Zhou Xiao's gold shop, other shops in the sinking market have an attitude towards the Shuibei model of "join if you can't win", and gold striking can be said to be a special form, adding the concept of ancient handicraft to the Shuibei model.

In this form, the Shuibei model has formed a situation of the countryside surrounding the city for the gold brand.

Statistics from the China Gold Association show that in 2023, the national gold consumption will be 1,089.69 tons, an increase of 8.78% compared to the same period in 2022. Among them, gold bars and coins were 299.60 tons, a year-on-year increase of 15.70%, exceeding the 7.97% of gold jewelry.

As mentioned in the "2024 China Jewelry Industry Development Report", the proportion of the gram pricing method will further increase, and the price structure will be more transparent in the future.

For many consumers, the enthusiasm for buying gold is higher than that of gold jewelry, and the general trend of meter-based billing is also greater than that of piece-by-piece billing.

(At the request of the interviewee, the names of the people in the article have been changed)