M & A in the jewelry industry is accelerating

The fluctuations in international gold prices have also caused certain pressure on companies engaged in the processing and sales of gold jewellery. The jewellery industry has caused a wave of mergers and acquisitions. Luk Fook Jewellery announced the acquisition of the Supreme, which was once known as a story in the industry. Recently, Lao Fengxiang Co., Ltd. (hereinafter referred to as “Old Fengxiang”) announced that in order to increase the competitiveness of gold jewellery core industries, Shanghai Lao Fengxiang will acquire Shanghai Chenghuang Jewelry Co., Ltd. The company (hereinafter referred to as “Chengdu Jewelry”) owns 100% equity. It is estimated that the purchase price will exceed 200 million yuan. Analysts said that with the increase in the uncertainty of the gold price, the slowdown in the demand for gold jewelry, the sharp increase in the risk of small and medium-sized brands, the jewelry industry's mergers and acquisitions will also accelerate, the industry's degree of concentration will be higher and higher.

Purchase price or more than 200 million yuan

In the important market of China's jewellery industry, Lao Fengxiang, Lao Temple Gold, Yayi Gold Store, and Chenghuang Jewelry are hailed as the “Four Diamonds” of the Shanghai jewelry industry. However, in the future, this situation will change because the city’s jewelry will Acquired by Lao Fengxiang, Shanghai jewelry market will present a three-way situation.

Lao Fengxiang announced the resolution of the third (provisional) meeting of the Board of Directors recently announced that in order to improve the competitiveness of “Lao Feng Xiang” gold jewellery core industry, it agreed that the subsidiary Sun Company Shanghai Lao Fengxiang Silver Floor Co., Ltd. acquired 100% equity of Shanghai Chenghao Jewelry Co., Ltd. According to the price of 116 million yuan of 56% of the shares of Shanghai United Assets and Equity Exchange, the price of Lao Fengxiang’s acquisition of Chenghuang jewelry was more than 200 million yuan.

For CityMark jewelry, if the acquisition is completed, it is also a good thing for the company's future development. Relevant information shows that Chenghuang Jewelry is a large-scale state-controlled jewellery company featuring gold platinum, jewelery and jade management. The company has dozens of jewelry chain stores covering Shanghai's urban areas and five provinces of Jiangsu, Zhejiang, Jiangxi, and Shandong. However, the performance of CityU jewelry is not stable. As of the end of July this year, Chenghuang Jewelry achieved an operating income of 313 million yuan, operating profit of 4,757,700 yuan and net profit of 3,248,600 yuan. However, due to sluggish business performance, the total assets of Chenghuang Jewelry dropped from RMB 317 million at the end of 2012 to RMB 244 million at the end of July this year. The net assets decreased from RMB 95.2958 million in 2012 to RMB 72.4523 million.

M&A will benefit the adjustment of category structure

Although in recent years the "Chinese Aunt" has shown its ability to consume gold jewelry for all to see, it is an indisputable fact that spending power is overdrawn. Some jewelry companies with gold jewellery as their main business also face certain pressure. Some analysts said that as the uncertainty of gold prices increases, the demand for gold ornaments has slowed down, and the risk of small and medium-sized brands has increased sharply. Leading companies’ aggressive expansion in contrarian conditions is also a crisis.

For this acquisition, the analysis of Goldman Sachs Gao Hua Securities believes that Shanghai Chengyu Jewelry Co., Ltd. is located in the Yuyuan Business Circle of City God Temple, covering a total of dozens of jewelry stores in Shanghai (9 stores) and five provinces (including 25 Jiangsu, Zhejiang, and Zhejiang direct stores). shop). Its corporate brand can be traced back to the 1930s. It is the fourth largest local brand in Shanghai after Lao Fengxiang, Lao Miao and Yayi. The Cuizhu Yubao category is more distinctive. If this transaction is successful, it will help Lao Fengxiang to achieve resource integration and expand market share; it will help optimize the company's layout in the core business district of Shanghai Yuyuan and even the entire Shanghai region; it will help improve the market image of Lao Fengxiang brand, and Further strengthen the company's advantages in Cuizhu Yubao category.

Analysts also said that the acquisition of Lao Fengxiang could achieve a transformation of category structure (from gold to non-gold) and business model (from joining to semi-direct operation), which is of great benefit to improving the competitiveness of enterprises.

Industry concentration will increase

In addition to the rich category structure, some people in the industry believe that the channel is the most important moat in the jewelry industry and the channel is king. Through acquisitions and mergers, it can quickly increase the number of stores and sales scale, and increase the regional penetration rate. Lao Fengxiang also has the idea of ​​strengthening the channel layout.

In fact, as early as last year, the jewellery industry already had a big move in mergers and acquisitions. Luk Fook Group announced that it will spend HK$301 million to acquire 50% of the issued share capital of China Gold Silver, a subsidiary of Hong Kong Resources Holdings. At the same time, Hong Kong Resources will also issue a convertible bond with a principal amount of HK$57.08 million to Luk Fook Group. The two sides agreed that in the future, they will jointly invest 150 million Hong Kong dollars in China's gold and silver for operating funds and business expansion. In fact, China Gold and Silver is a major subsidiary operating company of Hong Kong Resources and owns the jewelry chain brand Gold Supreme. A resource publicist from Hong Kong told the outside world that in the future, the company will jointly run the Gold Supreme brand with Luk Fook.

For this acquisition, Xue Shengwen, a research fellow at CIC Consulting, analyzed that the original intention of Luk Fook’s acquisition of Gold Supreme was to expand its sales channels in the mainland market, and Jin Zhizun had a considerable number of stores in the Mainland, and its brand image was basically mature and would be synergistic with Luk Fook Jewellery. effect. Huang Weichao, the chief executive officer and chief executive of the Luk Fook Group, also admitted in an interview with the media that Gold Supreme has more than 400 stores in the mainland, and has a vast network. Luk Fook and Gold Supreme have always been complementary to each other in the Mainland and they are mutually beneficial.

The Prospect Industry Research Institute’s "2013-2017 China Jewelry Market Product Market In-Depth Survey and Investment Prospects Analysis Report" shows that currently a 90-square-meter jewelry store is being opened in second-tier cities in Mainland China, and the cost from storefront planning to business start-up needs to be met. With 2.5 million yuan, if the overall planning can reduce the cost, it is conservatively estimated based on a price of 2 million yuan per room. If the Luk Fook Group opens 416 stores by itself, the cost will be 832 million yuan. Compared with spending only RMB 300 million, it will save at least RMB 500 million in opening fees.

Lao Fengxiang’s acquisition of Chenghuang jewelry also partly contributed to the expansion of channels and reduced costs. Prior to this, Lao Fengxiang once stated to the outside world that in 2014, the company still had to put its store expansion into the top priority position, use and configure various resources and markets on a wider scale, and promote the balanced distribution of Lao Feng Xiang's stores nationwide. Lao Fengxiang plans to add at least 120 new stores this year. As of the end of 2013, the number of Lao Feng Xiang stores has reached 916. Although the number of directly-operated stores in Chengyu Jewelry is small, it also saves certain time and costs for Lao Fengxiang's channel expansion.

Analysts in the industry also pointed out that markets with slower economic growth, lower gold prices, and weaker demand are increasingly testing the operating capabilities of jewellery companies. Both small and medium jewellery companies and franchisees are brand premiums, business turnover, refined management, or hedging capabilities. Far less than the leading enterprises, leading companies with obvious advantages in scale and brand rely on mergers and acquisitions, etc., and their market share is expected to accelerate. The mergers and acquisitions of the jewelry industry will also accelerate, and the concentration of the industry will increase.