Bright shining Gold in China

Bright shining Gold in China
Jewellery retailers in China went into 2023 with strong expectations after shaking off the pandem-ic but the recovery has been difficult with facing economic uncertainties and record-level renminbi (RMB) gold price. Understanding current trends and future possibilities is fundamental to jewel-lers’ businesses. Relatively strong sales performances have led to rising dominance of gold prod-ucts in retailer inventories. Heritage, Hard-Pure and mass-appeal gold jewellery products contrib-uted the most to retailer margins; these products make up most inventories.
Lighter products gained traction; their pricing structures are becoming more transparent and while most retailers believe gold jewellery markets in their regions may have reached saturation, some, mainly from high-tier cities, see potential.
Chinese jewellery retailers have expressed mixed feelings so far in 2023. Follow the end of pan-demic restrictions, 2023 has seen improved gold jewellery demand compared to 2022. There was a 17% y/y rebound in China’s gold jewellery consumption in H1 (328t). The post-pandemic econom-ic revival was the major contributor but the recovery story is not all great. Many retailers reported that sales fell off a cliff after the International Women’s Day in March. There was also a stark q/q drop in Q2 (-37%). The weaker than expected economic recovery, a record-high RMB gold price and seasonality drove this decline. Structural changes are also of concern to retailers. For instance, changes in product pricing models and consumer purchasing motivations became a double-edged sword for many. When product popularity shifts, retailer inventories must adapt.
The economic recovery remains uncertain. This, together with the structural trends mentioned above may present challenges to gold jewellery demand. It will be crucial for retailers to be aware of the latest and key market trends if they are to identify and pre-empt opportunities.
However, Gold continues to dominate Chinese jewellery retailer inventories. Retailers reported that gold products account for 67% of their inventories as of H1 2023, a notable pick up from 2021.
Gold’s dominance in retailers’ inventories rose further. Gold products include 24K and plain 18K and 22K jewellery and investment items.
This is closely related to the outperformance of gold compared to other product categories. Most respondents witnessed that there was growth in gold product sales compared to 2022 and pre-pandemic 2019. This is followed by gem, pearl, and other jewellery products, reflecting their in-creasing allure to consumers. Only a few retailers experienced growth in diamond and platinum product sales, which partially explains the declining share of these items in their inventories.
Gold products significantly outperformed other categories. The popularity of gold products is mainly driven by gold’s unique dual nature as an everyday accessory and a financial asset that stores value. As the RMB has depreciated and other local assets have performed poorly, Chinese consumers and investors have paid more attention to gold as a means of value preservation, espe-cially as their tendency to save has remained elevated around its record high. Following a strong 2022 (+10%), gold’s performance in local currency has capped another 12% gain so far in 2023, dwarfing other assets. These factors, combined with the younger generation’s increasing aware-ness of wealth management, have underpinned the rising popularity of gold products among con-sumers and in retailer inventories.
Most retailers see further growth for gold but the inventory shares of diamond and platinum products may trend lower. It is also worth noting that the soaring popularity and recent tightening in supplies of coloured gem and pearl products has caused 21% of the respondents to plan to stock up more on these products.

Furthermore, retailers also see further dominance of gold in their inventories. Heritage and Hard-Pure gold are shining brightly. Turning to gold-specific product ranges, Heritage gold jewellery is the largest category in retailer inventories, accounting for nearly 28% of the total and mass-appeal products maintain a significant share at 24%. As its popularity rocketed, Hard-Pure (24K) gold jew-ellery has also held a crucial place in inventories, at 23%. The rise of “Guochao” has been a major driver of Heritage gold’s popularity. According to JD Research, the number of “Guochao” consum-ers increased by 74% between 2019 and 2022 while related consumption surged by 335%. Innova-tions from the industry, such as lightweight Heritage gold jewellery with different gem inlays, sus-tained vitality in this product range.
Retailers’ gold inventories mainly consist of Heritage, mass-appeal, and Hard-Pure products. Hard-Pure gold jewellery is a relative newcomer, relative to other products. The enhanced hardness of these 24K items enables greater flexibility in product design and attracts fashion-savvy young con-sumers. Furthermore, the combination of 24K fineness and intricate design has won over many 18K and 22K gold jewellery consumers. As the RMB gold price reached record levels, the afforda-bility of these lightweight products further increased their allure to consumers.
Mass-appeal gold jewellery products have been and are likely to remain a key component of most retailer inventories. After all, traditional consumers make up a large proportion of China’s gold jewellery market, and whether their motivation is buying for good luck or investment purposes, they prefer simple products with reasonable labour charges. And it is believed that the industry’s efforts to innovate and upgrade traditional mass-appeal product design has also helped improve attractiveness.
Hard-Pure gold products contribute the most to retailer profit margins. Heritage gold jewellery items are a close second. But their price competition is becoming fiercer as this niche market gradually reaches saturation, potentially putting downward pressure on product margins. The new products bring the most profit. The outperformance of both Heritage and Hard-Pure gold jewellery has both outperformed other products in sales and profitability proves that product in-novation is key to unlocking the potential for growth.
Lighter and cheaper products are even more popular. The surging local gold price, combined with an uncertain economic recovery, led many consumers to cut their gold jewellery budgets. Prod-ucts lighter than 10 grams have made the largest contribution to H1 revenue for retailers. Since lighter products naturally have a lower per-unit ticket price, we can conclude that they have a no-tably higher turnover ratio than heavier ones.
Affordability and industry innovation has played a vital role in the rising popularity of lightweight products. By combining various gems with these items and constantly upgrading designs, the in-dustry has successfully grabbed the attention of the younger consumer.
The retailer inventory share of per-gram priced products is rising too. Survey results show that 66% of gold inventories are made up of per-gram priced products while the rest are priced per-piece. Compared to 2021, it is obvious that the per-gram pricing model is being increasingly adopted by retailers.
The price of a 24K gold jewellery product includes the labour charge, the cost of the gold, based on weight and the store’s gold price, which is often higher than the Shanghai Benchmark Gold Price as it includes other expenses such as store rent and brand premium but nowadays, more and more young consumers demand higher pricing transparency. Younger consumers tend to research products before making a purchase decision. Vagueness in pricing is exactly what they are trying to avoid and the per-gram pricing model has the advantage of making costs clear to these custom-ers.
The industry has made strides towards a healthy and sustainable future by increasing its pricing transparency. A transparent price presentation, reasonable labour charges, and designs that meet consumer taste, will benefit both consumers and retailers.
Offering consumers greater pricing transparency by specifying weight and labour charges is the best way to gain their trust. Various surveys have pointed out that young consumers, driven by self-indulgent consumption, are economical, always practical in purchasing necessities, but at the same time they are openhanded, willing to pay for premium products that suit their tastes.
Major Chinese gold jewellers have been expanding rapidly over recent years. Based on available data from the annual reports of listed jewellery companies, their point of sales (POS) expansion has averaged 17% per year over the past five years and the pace remained elevated, even during the pandemic, averaging 18% per year between 2020 and 2022.
As China’s gold jewellery consumption has contracted over recent years, mainly due to the local economic downturn and the pandemic, the question naturally follows: is there still room for ex-pansion?
Survey results show that 73% of the respondents believe that their cities already have enough gold jewellery retail stores, or even have too many but the remaining 27% think there is still room for more. Interestingly, most of the retailers who believe there is still room for more gold jewel-lery stores are in high-tier cities where competition is fierce. This is likely driven by retailers’ opti-mistic expectations of economic growth in high-tier cities as well as the fierce competition itself, which constantly weeds out poorly performing shops and leaves opportunities for upcomers.

Most retailers who plan to expand, want to open stores in large commercial complexes. This has been the top choice for retailer expansion in recent years. They know that young consumers are more likely to spend their money and time in commercial complexes with their various entertain-ment and dining options.
With pandemic-related restrictions confined to the past, 2023 has, so far, been a year of optimistic expectation. There was recovery in gold jewellery consumption during the first half and, more re-cently, festivals and major jewellery industry events have brought vitality back to the sector but the relatively tepid Q2 sales are a concern, and the future remains uncertain to many.
In 2023, gold products’ dominance in retailers’ inventories rose further compared to previous years, with heritage gold and Hard-Pure products accounting for the lion’s share and contributing the most to profits. Meanwhile, consumer preferences have shifted. The surging local gold price, together with manufacturers’ innovations, have encouraged consumers to favour cheaper and lighter products. Encouragingly, against this backdrop, retailers are offering increasing transparen-cy in pricing to consumers, especially for Hard Pure gold products.
It is interesting to observe that, while most retailers agree that gold jewellery markets in their re-gions have reached saturation or over-saturation, some believe there is still opportunity for growth. Most of these optimists are from high-tier cities where competition is fierce. A healthy and sustainable jewellery market should offer consumers abundant product choices and high pric-ing transparency. While gold’s domination in China’s jewellery market rises further, other catego-ries are indispensable to a robust ecosystem.