In-Depth Analysis of Structural Contradictions Between Inventory Management and Sales in the Gold and Jewelry Retail Industry
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In 2025, international gold prices staged an ‘epic rally’, with an annual increase of about 70%, marking the largest annual gain since the 1979 oil crisis. Gold rose from $2,600 per ounce at the start of the year to above $4,500 per ounce by the end of the year, with spot gold hitting a new all-time high 50 times throughout the year [1]. Domestic gold prices also rose significantly, with gold jewelry prices increasing from around RMB 800 per gram at the start of the year to around RMB 1,360 per gram by the end of the year [2].
Gold prices continued to rise driven by the following core factors:
| Driver | Specific Performance |
|---|---|
Monetary Policy |
The Federal Reserve entered an interest rate cut cycle, and the weakening U.S. dollar reduced the cost of holding gold |
Geopolitics |
Stalemate in the Russia-Ukraine conflict, turmoil in the Middle East, tariff wars, and other factors boosted safe-haven demand |
Central Bank Gold Purchases |
Global central banks accelerated reserve diversification, with net gold purchases reaching 297 tons during the year [1] |
U.S. Dollar Credit |
U.S. federal government debt exceeded $38 trillion, eroding investor confidence in U.S. dollar assets |
According to data from the China Gold Association, national gold consumption fell 3.54% year-on-year in the first half of 2025, with gold jewelry consumption dropping as much as 26% [3]. Data from the National Bureau of Statistics shows that retail sales of gold, silver, and jewelry by enterprises above designated size still maintained an 11.3% year-on-year growth, indicating a profound shift in consumption structure - consumers prefer investment-oriented gold products over jewelry products.
China Gold (600916.SH) released its 2025 annual earnings pre-reduction announcement on January 13, 2026, expecting net profit attributable to parent company shareholders to reach RMB 286 million to RMB 368 million, a year-on-year decrease of 55% to 65% [4]. Net profit after deducting non-recurring gains and losses is expected to be RMB 246 million to RMB 328 million, a year-on-year decrease of 58.44% to 68.80%.
The main reasons for the earnings decline can be summarized into the following three aspects:
- Impact of gold market fluctuations and “new policies” (specific policy content is not detailed, but may involve gold transaction taxes, regulatory policies, etc.)
- Sales of core investment-oriented and consumption-oriented gold products have been impacted
- Customer traffic at terminal stores has decreased, and the company’s overall sales are temporarily facing phased pressure
This is the core contradiction of this analysis. China Gold clearly stated in the announcement:
“The company’s gold leasing business applies different accounting standards and measurement methods on the asset and liability sides of the financial statements. The gold price rose significantly faster than inventory turnover, resulting in a temporary negative impact of fair value change gains and losses on the company’s profits” [4]
This statement reveals a common accounting challenge faced by gold and jewelry enterprises - inventory is measured at historical cost, while liabilities arising from gold leasing business are measured at fair value. When gold prices rise rapidly, the fair value of liabilities increases far faster than the value appreciation of inventory on the asset side, resulting in negative gains and losses.
| Financial Indicator | 2024 Same Period | 2025 Forecast | Change Range |
|---|---|---|---|
| Net Profit Attributable to Parent | RMB 818 million | RMB 286-368 million | -55%~-65% |
| Net Profit After Deducting Non-Recurring Items | RMB 790 million | RMB 246-328 million | -58%~-69% |
| Earnings Per Share | RMB 0.49 | - | - |
Against the backdrop of sustained gold price increases, the gold and jewelry retail industry faces dual structural contradictions:
Gold Price Upturn Cycle:
├── Inventory Side: Hold inventory to benefit from value appreciation (potential gains)
├── Sales Side: Consumer purchase willingness declines (actual sales decrease)
└── Outcome: Slower inventory turnover, increased capital occupation costs
According to Chinese Accounting Standards for Business Enterprises, different businesses apply different measurement methods:
| Business Type | Measurement Method | Impact When Gold Price Rises |
|---|---|---|
| Inventory (Merchandise Inventory) | Lower of cost and net realizable value | Measured at cost, appreciation not recognized |
| Gold Leasing (Liability) | Fair value measurement | Liability appreciates, recognized as loss |
| Hedging | Hedging gains and losses after effectiveness test | Partially deferrable or recognizable |
This asymmetry in accounting treatment leads to “nominal losses” on the enterprise’s income statement when gold prices rise rapidly, even though cash flow may not be actually damaged.
According to the 2025 China Jewelry Retailer Survey jointly conducted by the World Gold Council and China Gold News [5]:
| Time | Percentage Planning to Reduce Inventory | Percentage Planning to Increase Inventory | Percentage Planning to Maintain |
|---|---|---|---|
| 2023 | 28% | 32% | 40% |
| 2024 | 40% | 25% | 35% |
| 2025 | 42% | 20% | 38% |
The data shows that the percentage of retailers planning to reduce gold inventory has exceeded those planning to increase it for the second consecutive year, reflecting the industry’s cautious attitude towards inventory management in a high gold price environment.
Sustained gold price increases have strengthened retailers’ “reluctance to sell” mentality, as they expect inventory appreciation; at the same time, consumer purchase willingness has declined. These dual factors have significantly extended inventory turnover days. According to industry data, inventory turnover days have risen from approximately 85 days in 2023 to around 170 days in the third quarter of 2025 [6].
The franchise model, once the engine of rapid industry expansion, has now become an “invisible burden” for enterprises. The main manifestations are [7]:
- Profit Compression: High gold prices, rising rent and labor costs have severely compressed franchisees’ profits
- Capital Risk: “As soon as you stock up, capital is tied up, the risk is too high”, many franchisees have chosen to exit
- Slower Turnover: Franchisees have reduced purchases more significantly due to stock-up costs and capital turnover considerations
From 2024 to 2025, major gold and jewelry brands experienced a large-scale store closure wave:
| Brand | Number of Stores at End of 2024 | Number of Stores at End of September 2025 | Net Reduction |
|---|---|---|---|
| Chow Tai Fook | 6,685 | 5,663 | -1,022 stores |
| Chow Tai Seng | 5,008 | 4,675 | -333 stores |
| Lao Feng Xiang | 5,807 | 5,362 | -445 stores |
| Sat Luk Fook | 4,129 | 3,857 | -272 stores |
Notably, almost all the stores closed by these brands are franchise stores [7].
The performance of major gold and jewelry enterprises showed obvious differentiation in the first half of 2025:
| Enterprise | Revenue (RMB 100 million) | Revenue Growth Rate | Net Profit Attributable to Parent (RMB 100 million) | Net Profit Growth Rate | Gross Profit Margin |
|---|---|---|---|---|---|
| Laopu Gold | 123.54 | +148.3% | 5.88 | +198.8% | 40% |
| CHJ Jewelry | 41.02 | +19.5% | 3.31 | +44.3% | 24.2% |
| Caibai Co., Ltd. | 152.48 | +38.8% | 4.59 | +14.8% | 15% |
| Sat Luk Fook | 31.50 | +5.2% | 4.15 | +11.9% | 25% |
| China Gold | 465.75 | +12.7% | 7.46 | +0.6% | 27.5% |
| Lao Feng Xiang | 334.00 | -16.5% | 12.00 | -13.1% | 9.39% |
| Chow Tai Seng | 45.97 | -43.9% | 5.94 | -1.3% | 30.34% |
Laopu Gold achieved counter-trend growth through the following strategies:
- High-End Positioning: Positioned as “Hermès of the gold industry”, with a 77.3% consumer overlap rate with international luxury brands such as Louis Vuitton, Hermès, and Cartier [3]
- Professional Advantage in Ancient Method Gold: Continues to lead in the “ancient method gold” track, building differentiation through master of arts and crafts studios and IP collaborations (such as the Forbidden City series)
- Scarcity Pricing Strategy: Adjusts prices two to three times a year to create a sense of purchase urgency
- High Gross Profit Margin Support: Gross profit margin has remained stable above 40% for a long time, more than twice the industry average
CHJ Jewelry delivered stable performance in the first three quarters of 2025, with coping strategies including:
- Differentiated Positioning: Creates differentiated characteristics with fashion jewelry, and fixed-price gold products align with consumption trends
- Counter-Trend Channel Expansion: Net increase of 126 franchise stores, maintaining expansion amid overall industry pressure
- Gold Leasing Hedge: In the first half of 2025, 36.7% of the gold raw materials used by the company were purchased through gold leasing contracts, effectively mitigating the impact of gold raw material price fluctuations on the cost side [6]
- Inventory Turnover Optimization: Inventory turnover days dropped to 115.26 days, a record low
Caibai Co., Ltd.'s growth mainly relies on:
- Hot Sales of Investment Gold Bars: Strong demand for investment-oriented products such as gold bars
- Strong Online Channels: Breakthroughs in e-commerce business
- Supplementary Investment Income: Part of net profit comes from bank wealth management and equity instrument investment income
Traditional leading enterprises such as
- Gross profit margin of wholesale business is only 9.39%, far lower than the 23.6% of the retail segment
- The proportion of franchise stores is too high (over 90% at the end of 2024), making it difficult to ensure consistency of service and experience
- Brand upgrading lags behind, and the franchise model inherently has low gross profit characteristics that restrict development
- Plain gold products are most affected by gold prices, with revenue dropping 50.94% year-on-year
- Revenue from franchise business dropped 56.34% year-on-year
- Over-reliance on the franchise model leads to insufficient risk resistance capabilities
According to the 2025 interim report of Mengjinyuan Gold Jewelry Group [8], the scale of gold leasing business increased by 84.2% year-on-year. Enterprises can optimize through the following methods:
- Increase Leasing Proportion: Borrow gold raw materials from banks, pay leasing fees as agreed in the contract, and return equivalent and homogeneous gold raw materials upon maturity
- Adjust Hedge Ratio: Luk Fook Group hedged about 20% of its basic gold inventory in FY2025, effectively hedging against gold price fluctuation risks
- Match Leasing Terms: Reasonably arrange leasing terms based on sales expectations to avoid term mismatch
| Strategy | Specific Measures | Expected Effect |
|---|---|---|
| Lightweighting | Increase the proportion of gold jewelry under 10 grams (increased from 37% in 2023 to 45% in 2025) | Reduce price sensitivity per gram, increase purchase frequency |
| High Gross Profit Margin Products | Strengthen sales of heirloom and hard pure gold products | Increase profit contribution (heirloom and hard pure gold products have the highest profit contribution) |
| Pre-Sale Model | Lock in customer order prices in advance | Reduce inventory backlog, reduce fair value fluctuation risks |
Shift from “scale expansion” to “quality improvement”, with the core being reducing reliance on the franchise model:
| Transformation Direction | Specific Measures | Target |
|---|---|---|
| Increase Self-Operated Proportion | Eliminate inefficient franchise stores, strengthen self-operated system | Increase self-operated proportion to over 30% |
| Strengthen Online Channels | E-commerce achieves counter-trend growth (Chow Tai Seng’s e-commerce grew 17.68%, Sat Luk Fook’s e-commerce accounted for 52%) | Increase online proportion to over 15% |
| Improve Sales Per Unit Area | Focus on core business districts and high-efficiency areas | Increase single-store output by 20% |
- Craftsmanship Upgrading: Shift from traditional pure gold to high-craftsmanship products such as ancient method gold, hard pure gold, and 5D/5G gold
- Design Innovation: Strengthen IP collaborations (such as Chow Tai Fook’s “Chuan Fu Series” with sales of approximately HK$4 billion) and cooperation on intangible cultural heritage craftsmanship
- Scenario Segmentation: Strengthen the “self-wearing” scenario (accounting for 37% of sales, far higher than 27% in 2024), reduce reliance on wedding-related demand
Drawing on Laopu Gold’s experience, brand upgrading can be achieved through the following paths:
- Service Experience Upgrading: Shift from “selling gold prices” to “selling brands”, unify service standards
- Member System Construction: Lock in high-net-worth customer groups
- Scarcity Building: Limited edition and customized product strategies
- Intelligent Inventory Management: Use AI to predict sales and optimize inventory levels
- Omnichannel Integration: Connect online and offline inventory systems to improve turnover efficiency
- Private Domain Operation: Build a brand’s own traffic pool to reduce customer acquisition costs
- Upstream Layout: Participate in gold raw material procurement to enhance bargaining power
- Downstream Extension: Enhance brand control to increase terminal gross profit margin
| Risk Type | Specific Content | Impact Level |
|---|---|---|
| Gold Price Fluctuation Risk | Rapid gold price increases suppress consumer purchase willingness | High |
| Consumption Recovery Falling Short of Expectations | Macroeconomic pressures affect discretionary consumer spending | High |
| Franchise System Risk | Franchisee exits lead to channel contraction | Medium-High |
| Policy Uncertainty | Changes in gold transaction taxes and regulatory policies | Medium |
| Intensified Competition | Crowded ancient method gold track with severe homogenization | Medium |
| Company | Code | Core Logic | Risk Warning |
|---|---|---|---|
| Laopu Gold | 6181.HK | High-end positioning + ancient method gold + counter-trend growth | Sustainability of high-price strategy to be verified |
| CHJ Jewelry | 002345.SZ | Fashion differentiation + channel optimization + gold leasing hedge | Impact of gold price fluctuations |
| Sat Luk Fook | Proposed Listing | Hong Kong stock listing + e-commerce breakthrough | Pressure from franchise model transformation |
- Cautious Add: Lao Feng Xiang, Chow Tai Seng (traditional model under pressure, transformation effect to be observed)
- Hold: China Gold (central enterprise background provides risk resistance, focus on inventory management improvement)
- Buy: Laopu Gold, CHJ Jewelry (differentiation strategies are effective, suggest accumulating on dips)
- Gold Price Trend: Monitor Federal Reserve monetary policy and geopolitical changes
- Channel Structure: Changes in the proportion of self-operated and franchise stores
- Inventory Turnover: Trend of changes in turnover days
- Gross Profit Margin: Effect of product structure optimization
- Same-Store Growth: Terminal sales recovery situation
China Gold’s expected 55%-65% earnings decline in 2025 is a typical microcosm of the structural contradictions faced by the gold and jewelry retail industry against the backdrop of sustained gold price increases. The gold price rose significantly faster than inventory turnover, resulting in negative impact of fair value change gains and losses on corporate profits, a contradiction that is widespread in the industry.
-
Essence of the Contradiction: Temporal mismatch between rapid gold price increases and slow inventory turnover, as well as accounting mismatch between inventory cost measurement and liability fair value measurement, together lead to enterprises “increasing revenue without increasing profits” or even experiencing significant profit declines.
-
Industry Differentiation: High-positioning enterprises (Laopu Gold) achieved counter-trend growth, while enterprises with traditional franchise models (Lao Feng Xiang, Chow Tai Seng) are under significant pressure. The industry is undergoing in-depth adjustment from “scale expansion” to “quality improvement”.
-
Coping Strategies:
- Short-term: Gold leasing hedge, inventory lightweighting, pre-sale model
- Medium-term: Channel self-operated transformation, product high-endization, digitalization
- Long-term: Brand upgrading, digital transformation, industry chain integration
-
Future Outlook: Against the backdrop of medium- to long-term bullish gold prices, gold and jewelry enterprises need to shift from “relying on gold price increases” to “creating brand premiums”, achieving sustainable growth through product differentiation and channel optimization. Enterprises with high-end positioning capabilities and refined management capabilities are expected to stand out in the industry adjustment.
[1] 2025: Gold Price Hits Record Highs Repeatedly, Where Will It Go? - Xinhua Daily Network
[5] 2025 China Jewelry Retailer Insight: Gold and Self-Wearing Remain Key - Discovery Report
[6] In-Depth Research Report on CHJ Jewelry - Eastmoney
[7] 2,000 Gold Stores Closed, Gold and Jewelry Industry Accelerates “De-Franchiseization” - Sina Finance
Insights are generated using AI models and historical data for informational purposes only. They do not constitute investment advice or recommendations. Past performance is not indicative of future results.
About us: Ginlix AI is the AI Investment Copilot powered by real data, bridging advanced AI with professional financial databases to provide verifiable, truth-based answers. Please use the chat box below to ask any financial question.