【China】Chow Tai Seng Plunges 9% in a Single Day Amid Gold Price Crash: How Jewelry Enterprises Balance Raw Material Volatility and End-Pricing?

1. Inventory Impairment Risk: Jewelry enterprises typically hold large quantities of gold raw materials or finished products. A single-day plunge in gold prices exceeding 9% (the largest drop in 40 years) has led to substantial paper losses for companies with high inventory levels. For instance, brands like Chow Tai Seng and Chow Tai Fook saw the per-gram price of gold jewelry drop by over 140 yuan in a single day. If sold at pre-crash prices, a single store could face losses of up to 150,000 yuan.
2. Stagnation in End-Consumption: Gold price volatility intensifies consumer wait-and-see sentiment. Foot traffic at Hangzhou’s Baima Jewelry Market did not increase during the peak Spring Festival season, as consumers, fearing a “continued decline,” delayed purchases, with only rigid demand like weddings supporting transactions. Some brands introduced “per-gram discounts” (e.g., 50-150 yuan off per gram) to stimulate consumption, but customer recovery has been limited.
3. Supply Chain Disruption: Upstream manufacturers suspended quotations and shipments due to price volatility, with raw material suppliers in Shenzhen’s Shuibei market collectively locking in inventory to hedge risks. Merchants rely on processing fees for profit (3-5 yuan per gram), but extreme volatility erodes margins. A merchant in Jiangxi province incurred losses exceeding 150,000 yuan over two days and was forced to suspend operations.

1. Dynamic Pricing and Cost-Pass-Through Mechanisms
– Floating Markup Model: End-product gold prices are marked up by 15%-20% on top of raw material costs. Some brands buffer cost pressures by adjusting craftsmanship fees or brand premiums. For example, Chow Sang Sang maintains high prices through design premiums (e.g., a pearl four-leaf clover necklace equivalent to 2560 yuan/gram), while the Shuibei market attracts price-sensitive customers with low craftsmanship fees.
– Short-Term Promotional Hedging: Launch “per-gram discounts” or “old-for-new exchange” activities when gold prices fall to stimulate turnover of slow-moving inventory (e.g., Chow Tai Seng’s strategy of the first gram at 598 yuan).
2. Inventory and Risk Management Systems
– Light Inventory Operation: Reduce stockpiling of owned raw materials and adopt a “made-to-order” processing model. Chow Tai Seng franchisees proactively reduced restocking volumes during the 2025 gold price peak to lower exposure risk.
– Hedging Instruments: Utilize gold futures and options to lock in costs. For instance, upstream manufacturers hedge price volatility through exchange contracts to avoid inventory impairment caused by crashes.
3. Product Portfolio Diversification
– Increase Proportion of Non-Plain Gold Categories: Products like diamond-set jewelry and K-gold are less affected by gold price fluctuations and offer higher gross margins. Chow Tai Seng is accelerating the layout of cultural and creative IP products (e.g., collaborations with the Palace Museum) to reduce reliance on gold sales.
– Segmentation of Investment-Oriented Products: Differentiate between consumer gold jewelry and investment gold bars. Caibai Co., Ltd. attracts investment clientele by promoting low-premium gold bars, alleviating pressure from weak jewelry consumption.
4. Channel Synergy and Franchisee Support
– Franchisee Risk-Sharing Mechanism: Brand owners provide price protection policies, such as agreed validity periods for purchase prices and support for exchanging unsold items. Chow Tai Seng uses a digital system to synchronize gold prices in real-time, helping franchisees optimize restocking rhythms.
– Channel Complementarity Strategy: Directly operated stores focus on high-premium products (e.g., ancient method gold), while franchise stores emphasize volume-driven items. Chow Tai Fook added 47 self-operated stores against the trend in 2025, strengthening terminal price control capabilities.

1. Technology-Driven Efficiency Improvement: Introduce AI prediction models to analyze gold price fluctuation cycles (e.g., Fed policies, geopolitical events) to guide procurement decisions. Some enterprises adjust strategies by referencing market patterns like “sharp rises followed by slow declines indicate market shakeouts, while sharp drops followed by slow increases indicate distribution.”
2. Strengthen Brand Premium Capability: Enhance added value through craftsmanship innovation (e.g., 5G gold) and scenario-based marketing (e.g., wedding customization) to reduce price sensitivity. Van Cleef & Arpels raised product prices by 5%-11% in 2024, leveraging raw material price increases to maintain its high-end positioning.
3. Expand into Second-Hand Recycling and Leasing: Establish a closed-loop ecosystem to digest inventory. Some merchants offer old-gold exchange services, buying back old jewelry at a 15% discount for reshaping and resale, or launch short-term jewelry leasing businesses to share holding costs.