The gold market has been experiencing a turbulent ride this year, with prices fluctuating dramatically much like a roller coasterSurprisingly, this volatility has created a state of anxiety among jewelry retailers, a sector that traditionally boasts stability and consistent demand.

In the first half of the year, major players such as Chow Tai Fook and Luk Fook Holdings found themselves closing around 100 stores, while competitors like Lao Feng Xiang and Chow Sang Sang reported only marginal gains in their storefront numbersThis trend reveals a significant shift in consumer behavior, as high gold prices and their erratic movements have stifled demand.

Statistics highlight a worrying trend: nationwide gold consumption in the first half of 2024 dropped to 523.753 tons, marking a 5.61% decline compared to the previous yearThe structure of gold consumption has also shifted, with investment purchases significantly outpacing traditional retail sales, leaving many jewelry retailers struggling.

In fact, the consumption of gold jewelry plunged by 26.68% to 270.021 tons, while gold bars and coins saw a remarkable increase in demand, with sales rising by 46.02% to 213.635 tons

This bifurcation in the market signals a critical adjustment where jewelry brands are forced to reevaluate their strategies.

To cope with this changing landscape, several jewelry brands are attempting to pivot their focus from purely investment-driven sales to a more consumer-oriented marketStrategies like cross-brand collaborations and optimizing manufacturing processes are becoming the new norm as retailers seek to adaptYet, the fundamental question remains: can the jewelry market truly pivot when it has been so tightly tethered to investment mentality? Will the cyclical nature of gold prices allow them the time to successfully transform?

Slowing Expansion of Jewelry Retailers

Following the recent surge in gold prices post-Chinese New Year, many jewelry shops seemed to be thriving, celebrating record profits as prices climbed above previous highs

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However, gold mining companies like Zijin Mining and China National Gold reaped immense rewards, with profits soaringFor instance, Chi Feng Gold is ambitiously planning to capitalize on this wave by pursuing an IPO on the Hong Kong stock exchange, aiming for a dual listing.

Nonetheless, for retail jewelry companies, the financial landscape is far from rosyDuring the first quarter of fiscal year 2025 (April 1 to June 30, 2024), Chow Tai Fook reported a staggering overall retail value drop of 20%, with retail values in mainland China falling by 18.6% and significant declines in Hong Kong, Macau, and other markets by 28.8%. This was particularly disheartening given the previous fiscal year had marked record highs in terms of revenue and operating profit.

Under mounting pressure, Chow Tai Fook announced plans at the end of May to cease operations at its factory in North Shenzhen and relocate to Shunde in Guangdong province to cut costs

Additionally, they closed 91 stores in mainland China during the first half of the year, bringing the total number of closures to 180.

Sixth Fook Group mirrored this trend with a retail value decline of 18% and a total revenue drop of 23%. It, too, closed numerous stores, seeing a net loss of 108 locations in the mainland market.

Even established A-share jewelry brands like Chow Sang Sang and Lao Feng Xiang saw minimal net increases of only five and six stores respectively in the first half of the yearIn fact, Chao Hong Ji experienced a reduction of eight stores compared to the previous year.

Stock market performances for these companies haven't fared much better, with the likes of Luk Fook, Chow Sang Sang, and Chao Hong Ji seeing drops of approximately 30% from their peak prices this yearLao Feng Xiang’s stock price plummeted nearly 40% from its high.

Changes in Gold Consumption Patterns

So, why are jewelry retailers becoming more anxious despite high gold prices? Part of the explanation lies in the rampant expansion within the industry over the past few years

During the initial stages of increasing prices, retailers hastily opened more locations, hoping to capitalize on growing consumer interestHowever, as time passed, this expansion failed to enhance operational efficiency, leading to a decline in overall productivity.

Moreover, as gold prices escalate beyond consumer expectations, cautious behavior sets in—consumers are less inclined to purchase when prices rise sharplyThis year, there’s been a notable divergence in gold consumption—while overall demand plummeted, the investment segment flourished.

The data reveals that while overall gold consumption declined, the breakdown is striking: gold jewelry purchased dropped significantly, while gold bars and coins thrived, emphasizing where consumer sentiment currently liesDuring the first half of 2024, nationwide consumption of gold jewelry was only 270.021 tons (down 26.68%), juxtaposed against 213.635 tons of gold bars and coins (up 46.02%).

For many buyers, gold has become more than just a commodity

With rising prices driving a speculative mindset, many consumers are now viewing gold primarily as an investment, given that bars are priced more favorably than jewelry options which can be marked up considerably more.

In response to dwindling sales amidst rising prices, many retailers in Shenzhen's Water Bay, known for its dense jewelry market, have begun slashing prices drastically to attract customers, with some small businesses reportedly dropping their ancient gold processing fees to as low as 3-5 yuan per gram.

A New Battleground for 'Consumerization'

The erratic behavior of gold prices has posed significant challenges for jewelry companies' profitabilityHow can they navigate this treacherous landscape?

In recent years, we’ve observed several gold brands engaging in cross-industry collaborations to stimulate the jewelry marketFor instance, Chow Tai Fook has collaborated with a wide array of popular brands, including Ultraman, Disney, LINE FRIENDS, Sanrio, and the Palace Museum, among others

These partnerships are aimed at creating attractive jewelry offerings that speak more to the consumer mentality rather than investment alone.

Chow Sang Sang isn't lagging behind, having joined forces with brands like RIO, Wei Long, KFC, and the popular mobile game "Peacekeeper Elite." Traditional player Lao Feng Xiang has also ventured into this space, producing a limited-edition golden Gundam robot with a staggering price tag of 880,000 yuan.

These cross-brand collaborations generate significant excitement and potential sales, evidenced by the substantial margins seen in popular productsFor instance, the golden Gundam offered by Lao Feng Xiang commands a retail price significantly higher than its gold value, resulting in exceptionally high gross marginsHowever, while popularity may spike temporarily from such collaborations, their rarity often excludes the average consumer from participating, limiting the potential for broader market impact.

On top of collaborations, brands are increasingly launching creative traditional gold pieces, actively promoting these products across social media platforms, hoping to tap into the younger demographic