Current situation of China’s jewelry industry in the post epidemic era and detailed explanation of various brand channels
In the post epidemic era, China’s jewelry market will realize the transition from “V” rebound to recovery and stabilization. (1) Stage: after the contraction of covid-19 epidemic in 2020, the jewelry market, driven by the release of deferred wedding demand, showed a “V” rebound in 2021. The retail sales of jewelry increased by 34.1% from February to November, leading the optional consumption sector. According to Bain’s prediction, the recovery of the global jewelry industry is expected to continue until the middle of 2023. Under the influence of the epidemic, consumers’ online and localized jewelry consumption is expected to continue, and the industry opportunities and challenges coexist; (2) Pattern evolution: overseas, mainland and Hong Kong jewelry brands are tripartite, and the competition in the medium and high-end market is intensified; Brand online layout, low unit price products occupy the share by quantity and price, while the high-end market still needs to be filled; (3) Growth model: the growth of traditional jewelry is driven by channels. For example, Chow Tai Seng Jewellery Company Limited(002867) ranks among the top three in the Chinese market by virtue of its sinking channel card position advantage; Emerging jewelry is driven by marketing, such as Dr deep binding marriage scenes, online publicity and offline drainage. Higher roe can be achieved in both modes; (4) Value distribution: upstream raw materials depend on imports, and the gross profit is as high as 51% after diamond mining monopoly; Downstream retail has high added value, and the gross profit is close to 50%. China’s jewelry industry cluster effect is significant in Guangdong, Hong Kong, Macao and the Yangtze River Delta; (5) Industry trend: gold jewelry has both investment and appreciation attributes. 1) the market scale of ancient French gold products carrying cultural value has expanded, and 2) live broadcasting with goods has driven the expansion of gold jewelry channels; Diamond jewelry demand is positively related to income. 1) the millennials have gradually become the main force in the market, and 2) diamond wedding rings are accelerating to sink into the low-line market under the trend of consumption upgrading. The scale is expected to exceed 100 billion yuan in 2025.
Operation and Valuation: jewelry sector from recovery and stabilization to repricing. Traditional jewelry is highly dependent on channels, the epidemic flow is reduced, and the revenue is declining in 20h1, but the H2 recovery is generally started, and the growth is resilient; DEA Co., Ltd., an emerging jewelry brand, relies on brand marketing and grows against the trend under the epidemic, and its gross profit of about 70% is much higher than that of traditional jewelers; In terms of valuation, under the vertical comparison, the jewelry sector is currently at a historical low: the performance recovery of the sector has brought three rounds of valuation digestion since 2021, and the PE of the current sector is close to the 25th percentile value in the past three years. From the perspective of branches, except for the high valuation of Chow Tai Seng Jewellery Company Limited(002867) share price rise, Chow Tai Fook and Guangdong Chj Industry Co.Ltd(002345) PE are close to the historical 50th percentile, and Lao Feng Xiang Co.Ltd(600612) is significantly lower than the historical 25th percentile in three years. Horizontal comparison, we believe that the business performance growth of jewelry brands has recovered and stabilized in the post epidemic era, and the future growth trend is relatively certain, and the matching degree of performance valuation of some enterprises is relatively reasonable. As of January 18, 2022, the dynamic PE of Chow Tai Fook / Chow Tai Seng Jewellery Company Limited(002867) / Lao Feng Xiang Co.Ltd(600612) / Guangdong Chj Industry Co.Ltd(002345) / DEA shares was 18 / 20 / 15 / 36 / 84 times respectively, and the PE / g was 1.1 / 1.0 / 2.0 / 1.9 / 2.6 respectively based on the compound growth rate of predicted business volume and performance in the next two years.
Chow Tai Fook: sink the market, accelerate the expansion of franchise stores, establish an e-commerce center and actively layout private areas. After more than 90 years of accumulated technology and quality, Chow Tai Fook is a leading brand of jewelry in China. In the past 20 years, the channel has experienced four stages of change, from a single franchise to a diversified composite channel under o2o integration. Each channel has made a smooth transition, effectively integrated resources and boosted brand strength. Offline channels: the number of Direct stores of the company decreased by 54 in fiscal year 2021, but contributed to the increase of retail value by 26.6%. The expansion of franchise stores supported the growth of overall stores, with a total of 4866 stores by the end of September 2021. The expansion of stores in the third and fourth tier cities accelerated, and the proportion in 21 years increased from 33.6% of 16 to 45.7%. Online channel: the company began to expand its e-commerce layout in 16 years. From April to September of 21 years, online revenue accounted for 9%, of which o2o platform accounted for 45.6%. The company actively promotes sales through online popular live broadcasting and online affordable fashion products. At the same time, small programs are used to contact customers, increase customer stickiness, and obtain 10 times the sales conversion rate of the e-commerce platform on the premise that the average sales price is 80% higher than that of the e-commerce platform.
Chow Tai Seng Jewellery Company Limited(002867) : the provincial representative has given the franchise model the momentum to expand stores and set up a private domain team to precipitate traffic. Chow Tai Seng Jewellery Company Limited(002867) deeply engaged in the diamond field, it is one of the largest diamond jewelers in China. It is mainly engaged in inlay and plain gold jewelry. The channel is flexibly adjusted according to the development of the times. In recent 20 years, it has experienced four channel changes: self operation – franchise – e-commerce – provincial generation. Offline channel: the company displays its brand image through its own stores in the core business district of high line + the strategy of seizing share through the low line franchise mode. The low line market has the advantage of channel card position. By the end of 21q3, there were 4357 stores, of which 70.7% were located in third and fourth tier cities. Chow Tai Seng Jewellery Company Limited(002867) introduce the provincial representative model in 21q3, undertake the functions of platform service provider, wholesaler and franchise service provider, and transmit benefits and values to franchisees. It is expected to continuously and effectively integrate customer resources, improve store efficiency, stimulate channel vitality and store expansion motivation; Online channels: tiktok started online layout in Chow Tai Seng Jewellery Company Limited(002867) 13, set up an electronic business team, and broadcast live for 16 years. By the end of 21, fans and sales of shaking platform were higher than those of the same industry. Set up a private domain team in 18 years to accelerate the accumulation of private domain traffic through R & D + operation; In terms of product strategy, the company’s online product differentiation layout focuses on low-cost plain gold products, and opens up incremental space through the fast selling mode of high frequency + low price + high re purchase.
Guangdong Chj Industry Co.Ltd(002345) : franchise stores in East China’s low line market have made steady progress and accelerated digital transformation during the epidemic. Guangdong Chj Industry Co.Ltd(002345) focus on color gold jewelry, always committed to professional brand management, and fashion jewelry contributes to the main revenue. The company’s channel strategy has been flexibly adjusted. In recent ten years, it has presented a Phased Evolution of “focusing on department store channels – composite channel mode – o2o integration, all channel upgrading – low line market franchise store sinking”. Offline channels: by the end of 2021q3, the company has a total of 1001 stores. It is planned to double the number of total stores to 2000 in the next 3-5 years, steadily expand the franchise stores in the sinking market, and increase the proportion. The low line market in East China has an obvious trend of concentration. At the same time, the company continued to liquidate its poor stores. The store efficiency has continued to rise since 2020h2, and the store efficiency of franchise stores in 2021h1 was + 127.7% year-on-year; Online channel: during the epidemic period, accelerate the digital transformation and increase the online traffic, which is conducive to the release of the benefits of the smart cloud store. In 2021, the company accelerated the construction of omni-channel user ecosystem, built a digital 2.0 project, and continued to explore the flow transformation path from public domain to private domain. In the future, or continue to increase the marketing modes such as live broadcasting and goods, accelerate the transformation of public and private traffic and stimulate performance growth.
Lao Feng Xiang Co.Ltd(600612) : join in with heavy positions, strengthen turnover and expansion, and improve the layout of online channels. Lao Feng Xiang Co.Ltd(600612) mainly engaged in gold jewelry, it is a classic jewelry brand spanning three centuries in China, and its business extends to the upstream raw material end. Offline channels: Based on the “five in one” offline marketing system, the company promotes channel expansion and increases brand influence and radiation. At the end of 2020, the number of marketing outlets increased by 557 to 4450 compared with that at the end of 19, reaching a record high, and the proportion of franchise stores expanded to 95.96%. Under the franchise mode, the company’s accounts receivable turnover days in 2020 are only 1.82 days, the collection capacity leads the industry, and can realize the rapid expansion of stores at the same time. The company actively promotes the construction of Hong Kong procurement center and expands overseas market. At present, it has 19 stores in Hong Kong and overseas. In 2020, the gross profit margin of Hong Kong and overseas business was 20.64%, higher than that of mainland business by 7.94%.
Online channel: the company explored online marketing channels. In 2019, the company implemented Lao Feng Xiang Co.Ltd(600612) membership system for the first time in Shanghai, and its China lead company improved the construction of e-commerce platform. In 2020, the sales of Jingdong and tmall’s self operated stores of China lead increased by 33% and 52% respectively year-on-year.
DEA shares: opening experience stores to explore new retail transformation, with significant advantages in online traffic transformation. DEA is a new leader in diamond wedding rings established in 2010. Its main diamond wedding ring products have the characteristics of low repurchase rate. The sales price band of diamond rings presents a long tail distribution, and the average price of diamond rings below 10000 yuan is 3700 yuan. Offline channels: all direct marketing mode is adopted, which are concentrated in high-speed cities in East China. From 2018 to 2021, the number of stores under the middle line increased from 250 to 375, an increase of 50%. There are more than 300 true love experience stores across the country, and all stores have fixed purchase processes, which helps to solve the two pain points of insufficient identification ability of traditional channels and insufficient communication ability of consumers’ needs, Realize the transformation from “B2C” to “c2s2m” under the new retail mode “Online channels: the main function is to channel, and most consumers buy offline. Online channels include official websites, applets, tmall and JD flagship stores. The company widely reaches consumers through social networks such as microblog and wechat, and diverts online traffic to offline stores to achieve sales. The number of fans in social network channels of the company at the end of 2020 increased by 5.72% to 10.176 million compared with the end of 2019 , the number of fans in video media channels increased by 111.1% to 2.491 million, and rose to 3.51 million in the first half of 2021.
Risk tips
The economic growth is less than expected, resulting in the decline of purchasing power; The diamond ring permeability is not improved as expected; The epidemic situation is repeated, and the offline retail is not as expected; Sinking market competition intensifies and channel expansion is less than expected.
