In light of the recent developments in the jewelry retail sector, we sat down to discuss the implications of rising gold prices and store closures with representatives from major brands.
With gold prices reaching new heights, companies like Chow Tai Fook, Chow Sang Sang, and Luk Fook Holdings are facing significant challenges. Chow Tai Fook recently reported a 21% decrease in retail value for the second quarter of fiscal year 2025, resulting in the closure of 145 stores in China. In contrast, Luk Fook Holdings experienced a 16% drop in overall retail value, with same-store sales down by 35% and a net reduction of 76 outlets. Chow Sang Sang also reported a 13% decline in retail revenue, closing 22 stores in the first half of this year.
“When gold prices fluctuate dramatically, it directly impacts our financials,” a spokesperson from Chow Tai Fook explained. “On September 30, 2024, we reevaluated our outstanding gold loans based on current market prices, which led to non-cash unrealized losses. This was a stark contrast to last year’s revaluation that actually yielded gains, ultimately contributing to our net profit decline.”
Luk Fook also noted that high gold prices have weakened consumer sentiment, with same-store sales of gold products dropping by 38%. However, they indicated a slight recovery in sales figures beginning in October, suggesting that despite short-term spikes in gold prices affecting sales, improved gross margins could mitigate the overall impact on their bottom line.
According to the latest figures from China’s National Bureau of Statistics, retail sales of gold and silver jewelry reached 245.4 billion RMB (approximately $34.4 billion) from January to September this year, marking a 3.1% decrease. Notably, the growth rate for gold and silver jewelry retail sales ranked lowest among 16 categories of consumer goods in September.
Moreover, there’s a prevalent sentiment among consumers regarding gold jewelry purchases. Reports from the First Financial indicate that rapid increases in gold prices, alongside high manufacturing costs and brand premiums, have heightened consumer caution, leading to suppressed demand for gold jewelry.
The China Fund News highlighted the duality faced by firms in the gold jewelry sector: while rising gold prices can enhance inventory value and potentially boost revenue through increased product pricing, excessively high prices may stifle consumer demand and sales volume. Without corresponding revenue growth, the rise in acquisition costs could jeopardize profitability and increase operational expenses.
As the jewelry retail landscape continues to evolve amidst fluctuating gold prices, it remains to be seen how these companies will navigate the challenging market conditions ahead.
