The Higher the Gold Price, the Worse It Gets for Gold Stores? Unveiling the Major Reorganization in the Gold Industry During a “Bull Market”
Hello everyone, I’m your financial observer. Recently, you might have noticed a phenomenon that goes against common sense: gold prices have soared, and logically, those selling gold should be making huge profits. However, the reality is that many well-known gold jewelry brands are experiencing their darkest times. Some owners have disappeared without a trace, some established state-owned enterprises have been forced to delist from the stock market, and several giants have been closing down their stores in a frenzy.
What exactly is going on? Why has the “gold bull market” turned into a disaster for gold stores? Today, I’ll break down the logic behind this in simple terms.
Summary of the Key Points
In short, high gold prices, changing consumer habits, and the flaws in the franchise model have led to a major reorganization in the industry.
In the past, gold stores made money by selling large volumes and expanding their store network. Even with thin profits, they could still make substantial earnings. But now, with gold prices so high, people are no longer buying jewelry; instead, they buy gold bars as a form of asset protection. At the same time, franchised stores that are located in crowded areas and offer similar products are closing down on a large scale due to inventory buildup and financial issues. To protect themselves, brand owners shift the risks to their franchisees, causing the entire chain to collapse. This is not just a problem for a single company; it represents the fundamental breakdown of the traditional gold jewelry industry’s business model.
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A Detailed Explanation: Understanding This “Gold Winter” from Five Perspectives
1. Three Types of Failure, All Caused by the Same Problem: Excessive Inventory
The brands that have failed share a surprising commonality: they have a lot of goods but no cash.
- Chiba Jewelry: A typical case of a broken capital chain. This company was once famous for its designs and even had Hollywood celebrities as endorsers, giving it a high-end image. However, its financial reports were shocking: 96% of its total assets were in the form of inventory (gold jewelry), and it only had 930,000 yuan in cash, barely enough to pay its employees. Why? Because gold prices were too high, and no one was buying the jewelry, turning the money into useless gold in storage. To cut costs, it cut off its online live streaming channel, which reduced its online revenue from 70% to 9%, completely killing its business. In the end, the owner disappeared, and the store closed—a classic example of being dragged down by inventory.
- Cuihua Jewelry: A case of loss of control in management and failed cross-industry expansion. This long-established brand from Shenyang made two mistakes: it tried to expand into the already declining lithium salt industry, losing all its profits, and it had serious internal management problems, with discrepancies between the inventory and financial records, resulting in a significant loss of gold. This is similar to the situation with Zhenzidao, a former listed company whose scandal led to its delisting.
- Hangmin Jewelry: A case of active contraction. Although Hangmin is a large company with a complete supply chain, it still faced tough times. Its gold sales dropped by 27% in the first half of the year, and its revenue fell by 46%. It decided to close less profitable online stores and focus on selling higher-end products with higher manufacturing costs and better designs. This indicates that the old model of relying on volume sales no longer works.
In simple terms: When gold prices were stable, goods sold quickly, and funds flowed smoothly. Now, with high prices, goods can’t be sold, and all the money is tied up in inventory. Any minor disruption (such as changes in tax policies or reckless investments by the owner) can lead to a financial collapse.
2. Changing Consumer Behavior: No Longer Buying for Appearance, but for Value
This is the most significant change. In the past, people bought jewelry for its appearance, for weddings, or as gifts. Now, they buy gold for its value.
- Data speaks for itself: In the first half of the year, domestic gold jewelry sales plummeted by 33.88%, while gold bar and coin sales increased by 28.42%.
- Behavioral shifts:
- Wedding purchases have decreased: Instead of buying the traditional “three gold items” (rings, necklaces, earrings), people are buying smaller gold bracelets because of high prices.
- Investment vs. decoration: Young people realize that jewelry comes with high manufacturing costs and low resale values. They prefer buying gold bars, which are pure gold with no added value and can be sold at any time.
- Polarization: People either buy the cheapest gold (directly from Shenzhen’s water markets to avoid brand premiums) or the most expensive gold (from traditional stores for their unique designs and collectible value, with gross margins of over 60%). Traditional jewelry with high brand premiums and average designs is in an awkward position.
In simple terms: Consumers are more discerning. They no longer just want the jewelry to look good; they want it to retain value.
3. The Franchise Model Collapses: Brand Owners Shirk Responsibility, and Franchisees Suffer
The Chinese gold jewelry industry is heavily reliant on franchised stores. Brands like Zhou Dasheng, Lao Fengxiang, and China Gold have over 90% of their stores operated by franchisees.
- Past logic: Brands provided the brand, and franchisees invested in opening stores. When gold prices were stable, both parties benefited. Brands made profits by supplying goods, and franchisees made retail profits.
- Current logic: With volatile gold prices, the risks are huge.
- What brands are doing: They are shifting responsibility. For example, they no longer supply goods directly but let franchisees choose suppliers, and they have increased the franchise fee from 12 yuan per gram to 24 yuan. This means franchisees must bear the risks of buying goods.
- The consequences for franchisees: Most are small businesses without financial tools like futures hedging. When prices rise, they不敢 stockpile goods for fear of losses; when prices fall, they have high-priced inventory that they can’t sell. As a result, many close down.
- Data support: In the first half of 2026, the number of listed gold jewelry companies’ stores decreased by 4,781, with most of these closures being franchisees.
In simple terms: The franchise model amplifies profits in good times but also magnifies risks in bad times. Brands shift the risks to franchisees, who can’t withstand them and thus close down in large numbers. While brands save themselves, they lose their direct sales channels, which is detrimental in the long run.
4. Major Retreat from Expansion to Survival Strategies
The gold store industry experienced rapid expansion from 2019 to 2023, with the number of stores increasing from 20,000 to 30,000. However, this trend reversed in 2024, with a significant retreat in the first half of 2026.
- Reasons for closures:
- New stores didn’t mature: It takes about six years for new gold stores to become profitable. Many opened in 2022-2023 failed due to soaring gold prices and weak demand.
- Severe competition: Three gold stores on the same street offer similar products at transparent prices. With fewer people going out, these stores have become unprofitable.
- Efficiency improvements: Brands are closing low-performing stores in less profitable areas. For example, Lao Fengxiang closed 342 franchise stores in the first half of the year, accounting for 63% of all closures.
In simple terms: In the past, having stores meant more profits. Now, more stores lead to greater losses. Both brands and franchisees are cutting back on unprofitable stores that take up space and hold inventory.
5. Future Directions: Moving Beyond Just Selling Gold
Since the traditional model no longer works, gold stores are exploring new approaches:
1. Optimizing existing stores: Focusing on improving store efficiency and customer satisfaction.
2. Building customer loyalty: Using social media and communities to provide personalized services and encourage repeat purchases.
3. Flexible supply chains: Producing goods only after orders or in small batches to reduce inventory risks and respond quickly to market demands.
A Case Study: Lao Pu Gold
Lao Pu Gold had a good first half of the year, with revenue of 19.8 billion yuan and a net profit of 4.2 billion yuan. However, its growth was mainly due to the initial surge in gold prices. Its profits declined in the second quarter. It focuses on “ancient-style gold” with fixed prices and gross margins of over 60%, significantly higher than traditional brands’ 15%-25%. This shows that only products with unique designs, high added value, and strong brands can survive in today’s market.
In simple terms: Future gold stores will be more like jewelry designers and personal advisors, providing unique designs, quality services, and flexible supply chains. Those that only sell standard gold will be eliminated.
Conclusion
This “gold winter” is essentially a harsh market purge.
It highlights that:
1. There are no eternal bull markets: Even gold, as a hard currency, can suppress demand when prices are too high.
2. Business models must adapt: Franchise models can be beneficial in good times but can be detrimental in bad times.
3. Consumers are always rational: When prices exceed their perceived value, they will switch to more valuable or unique products.
For individuals, buying gold bars or coins might be a better investment. For those looking for jewelry, consider brands with unique designs and strong brands or buying directly from source markets like Shenzhen. For store owners, it’s time to move away from passive profits and focus on product quality, services, and management.
Gold may still shine, but the business of selling it has changed dramatically.