Nowadays, the main force of buying gold is no longer the Chinese aunt who swept the counter in the early years and became famous in the first battle, but the young people who love to "buy some gold if you are not happy".
The price of jewelry gold has also skyrocketed, even exceeding the 700 yuan per gram mark, earning everyone's attention. Along with the high price of gold, there is also the enthusiasm of major jewelry brands to open gold stores in the county.
Walking on the "CBD" of the county seat, there may be more than a dozen gold shops on one street. There's a Chow Tai Fook here, a Chow Tai Sheng over there, and another Saturday Fook on the other side, and there are so many gold shops that they're about to catch up with the density of bubble tea shops.
Why do all the unaffordable jewelry brands go to small counties to open stores? Under the crazy rise in gold prices, is opening a gold store a profitable business?
The big brand of jewelry, the sword points to the county
In recent years, major jewelry brands have made a decision to open stores like crazy. Among them, the most powerful is Zhou Tai Fook.
If you go back in time to 2018, when Chow Tai Fook had only 2,449 stores in Chinese mainland, by the end of March 2023, it had soared to 7,519, equivalent to more than a thousand new stores opened every year, and this does not count the number of closed stores.
The speed of opening stores like a crazy speed makes peers unreachable. In about the same time, Luk Fook Jewellery and Chow Tai Sang have opened less than 3,000 new stores, less than half of the number of new Chow Tai Fook stores.
The reason why Chow Tai Fook was able to open so many stores was due to the fact that it put down its body and entered a field that it had never set foot in before - the sinking market.
In 2018, Chow Tai Fook proposed the "New Town Plan", which mainly focused on increasing the number of counties and towns, and supporting policies were also linked one after another. In 2019, Chow Tai Fook launched the "Provincial Generation Policy", which means that provincial agents authorized by the brand can also independently develop offline franchise stores [1].
With the two-pronged approach, Chow Tai Fook's determination to grab the big cake of the sinking market can be seen, and the final result is really as he wants.
According to the financial report, compared with FY2019, the proportion of retail outlets in Chow Tai Fook's third-tier cities and below in FY2023 increased from 37.5% to 45.9%[2][3].
By virtue of staking ground in the sinking market and expanding its territory, Chow Tai Fook has also secured the throne of the largest number of jewelry brand stores since 2022. The once unattainable, reserved and elegant Hong Kong luxury gold store brand has also been completely reborn and has become a down-to-earth county gold store.
Also grabbing territory in the county seat are Zhou Dasheng and Meng Jinyuan, but compared to Chow Tai Fook, these two can be described as the "old faces" in the county.
As of June 2023, nearly 70% of Chow Tai Sang's 4,735 stores are located in third- and fourth-tier cities and below [4]. Mengjinyuan, which specializes in the sinking market and is located in a small county town in Shandong, is more "radical", with thousands of stores, and has also submitted a prospectus to the Hong Kong Stock Exchange, wanting to ring the bell in Hong Kong [5].
It is no wonder that when we go to the pedestrian street and people's square of the county seat to look around, we will have the feeling of "the city is full of gold shops", which can't help but make people sigh:
In the end, even the luxury gold store lived like Michelle Ice City.
In order to grab business in the county market, the brand gold stores are even more tricky, setting up a ring at the door, beating gongs and drums to perform entertainment programs, attracting attention with giant reward banners and roll-up banners, and stuffing flyers into passers-by.
In order to compete for customers, there were even gold store employees who directly fought and staged a "full martial arts" in the lobby of the mall, and the scene was very chaotic for a time [6].
The county opened a store, what is the gold card
However, the reason why big brands rush to go to the county to "nugget" to open franchise stores is by no means a board taken on a dizzy whim.
You must know that gold consumption has long been different from the past, even in first-tier cities, it is becoming more and more sluggish, and gold brands urgently need to find new growth points.
According to business consultancy Frost & Sullivan, the compound growth rate of the gold jewellery market in first-tier cities from 2017 to 2022 was 6.7%, significantly lower than the 11% in third- and fourth-tier cities and below.
But this is not surprising, in small cities, gold is just needed for marriage. If you don't buy a three-gold hardware one when you get married, I'm afraid you won't even be able to save face in front of your relatives.
At the same time, the "small-town youth" who used to be unknown has gradually become a "consumer upstart" with money and leisure in the past few years. With rising incomes, they are also unleashing huge potential in consumption [7]. Many brands, which are considered to be "standard in big cities", have also begun to enter the sinking market and blossom.
Another more enticing reason is that every brand still has a chance to be the industry leader. At present, the brand concentration of the jewelry market in Chinese mainland is far from high enough, and in layman's terms, the entire jewelry industry has not yet emerged as an absolute hegemon [8].
Love to fight to win, who can "fast and saving" to open a store, the first step to occupy the market, who can seize the opportunity, and joining is the best solution to this problem.
After all, gold is a capital-intensive industry, with large capital investment, and the unit price is expensive, and it is slow to sell.
Most brands only need to hand over the product to the franchisee, and even if the transaction is completed, the direct sales model must sell the product to the customer in order to recognize revenue [8]. Instead of waiting for the "golden seed" to germinate, it is better to sell it directly.
And as we all know, the cost of opening a directly operated store is also very high, and the salaries of salespeople, rent, property, utilities, ...... It's all gold-swallowing beasts. If you open a franchise, you can pass on these "hot potatoes" to the franchisee, and make it easy for yourself.
In addition to saving money, brands can also develop a lot of ways to make money by joining, such as franchisees have to pay brand usage fees and management service fees. Franchisees not only have to pay for wholesale gold, but also share the bill with the brand after selling it [4].
By continuously opening up to franchises, Chow Tai Fook has not only successfully reversed the decline in operating income and net profit margin, but also maintained its position as one of the "Top 10 Global Luxury Goods Companies" [9].
It can be said that in Chow Tai Fook, the model of joining the gold store is not only a "life-saving straw", but also a golden key.
The county gold store is really not good to make money
However, the gold brands are making a lot of money, but the franchisees are not as good as everyone thinks.
Looking through Chow Tai Fook's financial report, you will find that in its franchise universe, it is still easier for stores in first- and second-tier cities to make money compared with county gold stores.
As of the end of March 2024, Chow Tai Fook's stores in Tier 1 and Tier 2 cities accounted for 54.1% of all stores, which together generated 62.1% of turnover, compared to 45.9% in Tier 3 and Tier 4 cities, which contributed only 37.8% of retail sales.
The same gap is also reflected in the comparison between Chow Tai Fook direct stores and franchised stores. Franchise stores concentrated in lower-tier markets accounted for 76.5% of the total number of stores, but only contributed 66.2% of retail sales [3].
One of the reasons for this is the product structure of the gold store. In addition to gold, jewelry brands usually also sell jewelry, watches, etc.
As the saying goes, gold has a price, but jade has no price. The price of gold in jewelry itself is very transparent, and it is difficult for people to be fooled or fooled. Therefore, when brands sell gold, they often only earn a little retail price difference and processing fees, and the gross profit is not high. Guosen Securities once calculated that the overall terminal gross profit margin of gold products denominated in grams is about 10%, and all the money earned is hard-earned money [10].
If you want to make more money, you have to rely on silver, platinum, and even more profitable gold and jade. According to Chow Tai Sang's financial report, the gross profit margin of his plain gold jewellery is only 8.71%, while that of inlaid jewellery is 32.24%, which is a huge difference between the two [4].
However, the market is so magical, gold sales are soaring, but inlaid jewelry is not selling, especially franchisees, when restocking brands with gold instead of inlaid jewelry [4].
Many jewelry brands are facing the same problem. Chow Tai Fook, for example, has seen its gold jewellery and products account for 76.9% of its retail sales, from 66.1% in 2019 to 76.9% in 2023, while the share of other products in its retail sales has been declining.
It is not difficult to understand why gold sells more, but it is still difficult for franchisees in the sinking market to make money. In the face of this wave of "gold chasing craze", pragmatic consumers go to gold stores and buy gold that is not bullied.
In addition, the cost of joining a gold jewelry store is high. Opening a gold store is not as simple as opening a Mixue Bingcheng, for example, opening a 100-square-meter gold jewelry store in a third-tier city can cost at least 6.5 million yuan [10]. If you don't have enough cash flow on hand, you can't get into this business.
Moreover, in order to attract consumers to choose themselves in the gold store street, the gold stores are becoming more and more "rolled", and they are full coupons, and they buy gold jewelry and give silver jewelry, etc., which will also affect the profit margins of franchise stores.
Perhaps, when this passion for chasing gold fades, it is destined to be a big wave to welcome the county gold store.
But before that, young people who are obsessed with gold may want to ask, when will the gold price of jewelry, which is now unattainable, fall back to the days when it is more than 400 yuan per gram?