Gold rally dents sales at China’s jewellery retailers

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.China’s jewelry retailers are reeling from gold’s blistering rally and the discount of a tax rebate as excessive costs have deterred patrons and led to lots of of retailer closures in one of many world’s largest client markets for the metallic.Massive retail chains have lowered their footprint in mainland China this yr, whereas a variety of small sellers advised the Monetary Instances that rising costs and a rising tax burden had torpedoed gross sales.The worth of gold has jumped by half this yr to greater than $4,000 a troy ounce as traders pile into the asset as a hedge towards geopolitical uncertainty, rising ranges of world authorities debt and considerations over a falling greenback.In China, the place gold jewelry is historically bought as a marriage reward or as a retailer of worth, excessive costs for the commodity have run up towards weak client sentiment amid slowing financial development.Retailers are additionally adapting to new guidelines launched this month that improve taxes on gold jewelry purchases by reducing a long-standing rebate. The upper tax burden has pushed sellers to lift costs additional, they mentioned.“This trade is sort of troublesome for the time being, particularly after the tax improve,” mentioned Fifi Zheng, who helps run Aiyisheng, her household’s enterprise primarily based in Shenzhen’s gold buying and selling district Shuibei. “A lot of Chinese language shoppers aren’t shopping for, so it’s fairly arduous to simply accept [the tax], regardless that it solely provides a pair dozen renminbi per gramme.”Whereas gold purchases for weddings had been holding up, on a regular basis purchases had “fallen perhaps 40 to 50 per cent” because the new guidelines had been launched, she added.Chow Tai Fook, China’s greatest jewelry retailer by gross sales, has closed about 1,000 mainland shops this yr, a discount of 15 per cent. The corporate on Tuesday reported web revenue of HK$2.5bn (US$320mn) within the half-year to the top of September, unchanged from a yr earlier, on HK$39bn of income, its lowest in 5 years.Some content material couldn’t load. Examine your web connection or browser settings.Chow Tai Fook managing director Kent Wong mentioned in an earnings presentation that the corporate had closed underperforming shops as a part of a shift away from lower-tier to extra prosperous cities, which had been experiencing a “higher restoration in client demand”.Over the previous yr, rival operator Lukfook has closed greater than 200 mainland shops, decreasing its complete retailer rely because the begin of the yr by 7 per cent. The corporate on Thursday mentioned half-year income to the top of September elevated 26 per cent to HK$6.8bn in contrast with the identical interval final yr, whereas web revenue rose by 42.5 per cent to HK$619mn.Lukfook mentioned: “Regardless of the excessive gold costs, the retailing enterprise within the mainland market confirmed continued enchancment.” It added that it was nonetheless evaluating implications of the tax coverage change.Carlton Lai, an analyst at Daiwa Capital Markets, mentioned the shop closures adopted a interval of overexpansion throughout Covid-19 when spending was extra strong.“As consumption slowed, the productiveness of those shops declined considerably,” he mentioned, including that the problem was compounded by rising competitors from newer manufacturers and surging gold costs.The worth of gold has jumped by half this yr as traders pile into the asset to hedge towards geopolitical uncertainty © William Langley/FTIn Shuibei — the place 1000’s of retailers crammed into multistorey malls deal with transactions equal to 70 per cent of the Shanghai Gold Alternate’s annual deliveries of the metallic, based on state media — sellers had been dour. Many complained the brand new tax had come on the unsuitable time.“Our costs had been already excessive and now they’re greater after the tax,” mentioned Chen, a Shuibei vendor who declined to provide her full title. “If [customers] wish to get married, there’s no different selection: they simply purchase much less.”Daiwa’s Lai mentioned the tax change aimed to curb speculative purchases of gold jewelry and will push low-quality retailers out of the market.They might additionally cut back unregulated over-the-counter transactions in favour of buying and selling by the Shanghai Gold Alternate and shut tax refund loopholes, he mentioned. RecommendedWhile jewelry sellers are struggling, demand for gold funding merchandise has risen as retail merchants seek for methods to realize publicity to the metallic. The brand new tax guidelines don’t apply to funding merchandise.Holdings of home gold alternate traded funds elevated 164 per cent to 194 tonnes within the first three quarters of this yr, based on the China Gold Affiliation.“The panic induced for individuals within the trade by this tax coverage hasn’t but subsided,” mentioned Li Zhaofeng, a Shuibei retailer and wholesaler. “It is because gold has been tax free for the previous 20 years . . . the long run path stays unclear.”Extra reporting by Haohsiang Ko in Hong Kong