Sales of luxury gold products show sustained upswing despite headwinds

Luxury gold products have shown remarkable resilience despite mainstream jewelry sales being hit following 40 record-breaking surges in gold prices, with spikes going up to 30 percent.

Laopu Gold Co Ltd's share price skyrocketed by over 70 percent on its inaugural trading day at the Hong Kong stock exchange in June.

It is estimated that the company's revenue will surge by 136 percent year-on-year to 7.5 billion yuan ($1 billion) in 2024, with net profits increasing by 187 percent to 1.2 billion yuan, according to investment bank China International Capital Corp Ltd (CICC).

CICC said although the rapid rise in gold prices affected mainstream jewelry sales last year, sales of high-end gold products remained resilient.

It remains optimistic about the growth prospects of Laopu Gold this year and has raised its net profit forecasts for the current and next year by 15 percent and 18 percent, to 1.2 billion and 1.7 billion yuan, respectively.

In contrast, the broader scenario for gold consumption is less optimistic.

Data from the World Gold Council indicate that while there was a 19 percent quarterly rebound in gold jewelry demand in the Chinese market during the third quarter driven by seasonal trends, the quarterly figure declined 34 percent compared to the same period in 2023, and dropped by 36 percent compared to the 10-year average.

From the year's onset until now, total gold jewelry demand in China has been 373 tons, marking a decrease of 23 percent year-on-year and representing the weakest performance for this period since 2010.

Gold retailers are finding themselves navigating turbulent waters.

Leading jewelry enterprise Chow Tai Fook reported a 44.4 percent year-on-year drop in net profits to HK$2.53 billion ($324.8 million) in its interim results. During the reporting period (April to September), the number of retail outlets decreased by 239 to 6,968.

Chow Tai Fook attributed the impact of gold consumption demand to the sustained macroeconomic influence on consumer behavior and persistently high gold prices.

These challenges are not confined to Chow Tai Fook alone.

Chow Sang Sang's interim report showed a 36 percent year-on-year profit decline to HK$526 million for the reporting period (January to June). Lukfook Jewellery and Lao Feng Xiang similarly experienced varying degrees of declines in profit.

In the prevailing environment of lower profits for mainstream products, Laopu Gold has taken a bold approach by implementing a series of high-cost strategies: it is only operating in upscale shopping centers, it has not established franchise stores, and has set its costs at over 1,000 yuan per gram.

Typically, traditional top-tier brands like Chow Tai Fook price their products at around 700 yuan per gram.

Laopu Gold underscores thesignificance of selecting high-end store locations to attract a high net-worth clientele, while premium store environments serve to bolster brand allure.

Topsperity Securities analyst Yi Dingyi said, "The outlook for high-end gold luxury goods has surpassed expectations, as consumers exhibit a willingness to invest in innovative designs and traditional culture-embedded products."

Highlighting Laopu Gold's profits last year, Yi said the company's early promotion of the concept of "Heritage Gold" — embedding traditional Chinese gold-making techniques and styles — and innovative products like "gold inlaid with diamonds", has effectively blended traditional Chinese culture into its offerings and garnered attention from high net-worth individuals.

The spending power of China's high net-worth individuals is truly formidable.

Laopu Gold's prospectus reveals that products priced between 10,000 and 50,000 yuan contribute to 65 percent of revenue, while those priced over 50,000 yuan account for 24.7 percent of revenue, with 5.7 percent derived from products exceeding 250,000 yuan each.

A recent report by Kaiyuan Securities highlighted that China's high-end jewelry market has exceeded 60 billion yuan to date, and that there is vast growth potential for high-end gold products.