The Chinese gold industry is struggling to build strong brand images that appeal to younger consumers, as the industry's new target market now sees jewelry primarily as a fashion statement, not an investment.
China is the world's largest gold accessories consumer, accounting for 30 percent of the global market, according to a World Gold Council report. It is also the only market in the world where most consumers prefer jewelry made with 99.9 percent gold content, because its value can be preserved.
But, the industry's target customers are becoming younger and younger, and the new generation has alternative tastes, which is driving the market in a different direction.
"Young consumers today don't think, 'If I buy a 1,000 yuan ($145) piece of jewelry today, will it be worth the same amount if I sell it tomorrow,'" said Zheng Huanjian, vice-president of jewelry maker Ganlu Group. "They absolutely don't think about what they are going to do with it in the future."
Ganlu was among the first companies to switch its focus from pure gold to 18 karat (or 75 percent pure) gold. As a result, its sales performance has sustained double-digit growth in recent years.
"Traditionally people buy gold simply because it is valuable," said Chen Zhijun, director of business development at the WGC. "Since the gold price dropped in 2013, the market has suffered from excessive production capacity and a fierce price war."
"The industry experienced a painful period of upgrading and destocking in 2017. Pure gold accessories with no relation to current fashion trends were eliminated by the market. Instead, more fashionable products made with 18 karat gold entered the spotlight," Chen said.
Instead of marketing the precious metal itself, the current emphasis is selling based on tastes, design and craftsmanship, he added.
While the industry agrees that 18 karat gold is a solution for meeting young consumers' demand, local brands still lack strong branding to impress and attract young consumers.
"There is almost no difference between each brand. Similar, grand gold shops may appeal to traditional buyers but not the younger generation," said Chen. "Millennials need products that offer strong character."
"If there is no sign, most likely you won't be able to tell which gold shop you are walking into. The products are too similar," said Dai Shichang, CEO of Yuehao Jewellery Co Ltd. "Awareness of branding is still weak, and there is a long way to go for Chinese companies establishing their brand image."
Dai explained that the gold industry is a labor and capital-intensive business with narrow profit margins.
"The gross profit rate is roughly 2.4 percent, not to mention the net profit that is left," he said. "With such little profit, it is hard for gold companies to hire distinctive designers."
To increase its profits and enhance its designs, Yuehao has been working actively with domestic internet giant Tencent and the Palace Museum, to create strong intellectual property.
Even for Chow Tai Fook, one of the most distinguished gold brands in the Chinese market, design is a weak point for the company.
Wei Jianfeng, general manager of Chow Tai Fook's gold jewelry product management department, said the company will continue to increase its efforts in design.
"We currently have a team of 600 designers and will invite international designers to join us," Wei said. "We will also work with famous brands such as Disneyland and Hello Kitty."
