Many seasoned commodity investors, particularly those who experienced the 2008 gold market crash, have largely missed LAOPU GOLD's earlier rally.

On March 12, Duan Yongping commented on LAOPU GOLD on Xueqiu, stating: "Restaurants generally have high gross margins, but low net margins. I don't understand the gold business - gold shops are everywhere on the street, similar to restaurants." Many people share this perspective. At the beginning of the year, shorting LAOPU GOLD and buying the dip in baijiu were more popular choices.

If missing out on Pop Mart could be attributed to a "generation gap," then missing out on LAOPU GOLD, which is more like a "luxury goods" play, appears to be more of a methodological problem.

Looking back at mainstream short positions from six months ago, there were mainly two aspects:

1) Investors who recognized that gold is LAOPU GOLD's beta made incorrect judgments about gold prices;

2) Investors who failed to recognize that gold is LAOPU GOLD's beta couldn't understand the reasons for LAOPU's market breakthrough. First, they fundamentally questioned whether gold could become jewelry, believing that the premium charged for gold sold as ornaments beyond gold prices was unsustainable. Second, in China, portfolio managers with longer experience remain highly cautious about business models where store count ceilings are obvious (LAOPU's luxury strategy requires very high store location thresholds), as they believe sustained same-store sales growth (SSSG) barely exists in Chinese business models.

The market provides the most honest answer. From the capital market's 100x PE level and media commentary often comparing its store efficiency to Hermès, market imagination for LAOPU may have already transcended the general commercial logic of the gold shop/gold jewelry industry.

This brings confusion: gold prices are completely transparent, and they're all gold jewelry - what gives LAOPU the ability to command premium pricing?

01 Selling "Ancient Craft Gold," Earning Brand Premium

Gold has always been the most "utilitarian" commodity in China's jewelry market. People buy gold for value preservation, collection, and dowries - functional attributes far outweigh emotional attributes.

As a precious metal, gold's raw material costs are notably transparent due to unified procurement. With transparent costs and similar craftsmanship and styles across companies, the gold jewelry industry has mostly adopted a "weight plus processing fee model" for the past twenty years.

In consumers' eyes, gold brands are more like craftsmen - regardless of which "Zhou" it is, the result is the same - they're all just "Master Zhou." So what has value is the gold itself, not "Master Zhou."

During China's gold consumption boom over the past 20 years, gold experienced three periods of rapid development alongside economic growth. Early players like Chow Tai Fook maintained direct-operated stores slowly to preserve brand image. However, Chow Tai Fook's self-operated store expansion couldn't keep pace with "aunties buying gold like vegetables." During the 2013 gold rush, Chow Tai Fook's market share was seized by Lao Feng Xiang, which had opened franchise operations early. Anxious Chow Tai Fook companies began shedding direct-operation burdens and opening franchise partnerships. According to statistics, from 2018-2023, major gold retail stores in the industry grew from 2,800 to nearly 8,000, with franchise stores accounting for 76.5%.

Chow Tai Fook, having opened stores throughout county-level cities, secured the top position in China's gold jewelry market while cementing its "Master Zhou" designation.

Chow Tai Fook companies aren't unaware that gold is a tough business.

The industry's earliest "fixed price" model wasn't introduced by LAOPU GOLD, but by Chow Tai Fook. Chow Tai Fook long attempted to strip gold's investment attributes through "18K gold" and design styling, giving gold jewelry consumer goods attributes to exchange for higher brand premium space and profit margins. However, despite multiple brand strategies and "There's Only One Chow Tai Fook" strategic reforms, Chow Tai Fook only managed to raise gross margins to 20%. Price cuts are easy, price increases are difficult. Meanwhile, LAOPU GOLD, using luxury goods' direct-operation channel strategy, achieved ultra-high gross margins of 40% for gold jewelry.

The issue lies in thirty years of industry competition and rapid development preventing Chow Tai Fook companies from slowing down. There's no hierarchy between Chow Tai Fook and LAOPU GOLD - one operates a "high turnover, low margin" channel business, while the other operates a "luxury goods" business.

We find that LAOPU GOLD's ability to command brand premiums is based on consistent execution from strategy and tactics to implementation - a rare enterprise with closed-loop commercial logic and coherent framework.

1. Restrained and Steadfast Business Philosophy

LAOPU GOLD originated from a temple gift shop called Golden Treasure. Golden Treasure wasn't a scam shop selling obsidian for 1,000 yuan - it mainly sold Buddhist seven treasures and four precious items, with products showing the designer's care and using carefully selected materials.

This elegant brand tone has continued to the present. Entering LAOPU stores, you'll notice the main color isn't typical gold - it appears more substantial and historical, like what you'd see in the Forbidden City or museums. LAOPU's products, stores, and service planning have a cultural system with clearly recognizable design. Chairman Xu himself mentioned that "LAOPU GOLD's DNA is rooted in traditional Chinese culture."

In 2009, leveraging Beijing's premium "Study Room No. 1," Chairman Xu officially began LAOPU GOLD's branding journey. As Black Ant Capital's He Yu said: "Establishing high-end brands requires systematically building products, content, channels, and services targeting high-net-worth individuals. This culture-centric system building is extremely difficult, with few domestic precedents. Refining such a system requires restraint and determination."

For LAOPU, they only choose the best channels, avoiding mid-to-low-end malls. Despite Shanghai's large market, LAOPU maintained only one store in Yuyuan for years. They insisted on not opening without suitable locations, waiting over ten years. From 2009-2017, LAOPU GOLD opened only eight stores. Eight stores in eight years is extremely rare for store-driven business models. This can be interpreted as determination.

LAOPU's top-down operational framework for luxury brand management is coherent and steadfast. Beyond high product craftsmanship recognition, LAOPU adopted pure direct-operation expansion, ensuring strong headquarters control. They've now organically formed LAOPU's recycling system, with LAOPU products maintaining better value retention than traditional gold recycling prices, comparable to luxury goods' vintage markets.

2. The "Ancient Craft Gold" Story Belongs to LAOPU

Ancient craft techniques aren't LAOPU's original creation - simply put, it's a processing method inheriting traditional Chinese imperial gold-making craftsmanship, including complex processes like filigree, chasing, gold plating, and cloisonné. Since some processing steps require skilled artisan handwork, ancient craft techniques typically take longer than traditional gold jewelry mass-produced through outsourcing, but offer greater uniqueness. Non-standardization means low homogenization, enabling different stories.

LAOPU's website states: "LAOPU GOLD was established in 2009, being the first brand in China to promote the ancient craft gold concept and China's premier ancient craft handmade gold products brand." LAOPU's confidence stems from: first, adopting ancient craft gold techniques across all series since inception; second, LAOPU's consistent pursuit of excellence in aesthetic height and details.

02 "Not Being" a Luxury Brand Can Still Be Profitable

"Is LAOPU GOLD a luxury brand" is a consistent market concern. Setting aside explanations for LAOPU's achieved success, there are disagreements about whether LAOPU should be categorized as trendy, fashionable, or branded.

Borrowing Chairman Xu Gaoming's words from an earnings call: "LAOPU GOLD's competitive landscape under this positioning: 1/ We don't benchmark against domestic gold jewelry brands, nor do we care whether domestic gold jewelry brands benchmark against LAOPU, because we're not in the same track - this isn't just about customer segments or channel tracks, but mainly about values - our values aren't on the same track; 2/ When corresponding to international luxury or jewelry brands, we initially benchmarked against international jewelry brands, but adjusted last year to benchmark against international luxury brands, because we're not simply an ornament-selling brand - we're an all-category brand. Our model is incomprehensible to foreign brand executives. First, honoring tradition - we must have deep understanding and grasp of classic Chinese culture, never creating incongruous, neither Chinese nor Western cultural concepts. For traditional Chinese intangible heritage crafts, we maintain their purity, never creating fake handmade ancient craft products - maintaining 'purity of traditional culture, traditional crafts, and classic culture, classic crafts.' Second, anti-traditional - LAOPU GOLD follows basic brand and commercial logic and common sense, but everything else is anti-traditional (disruptive). All my strategies are different, establishing that I'm in the same track with different business models, different products, and completely different brand image presentation. To some extent, in establishing competitive positioning, we must build on non-competitive states."

From the chairman's official statements, we can sense he hasn't clearly positioned or benchmarked his brand. From dimensions like supply scarcity, price discrimination, second-hand premiums, and service experience, counterexamples can prove LAOPU isn't a traditional luxury brand.

"I've visited many luxury stores where staff size you up upon entry: Are you genuinely here to buy? What's your purchasing power? Even if you're wealthy, you feel uncomfortable. But when visiting LAOPU, you're relatively leisurely, experiencing genuine service and equal treatment. Their staff don't rely on sales incentives at all. Service differences reflect brand culture."

People before accounts, relationships over prices - this differentiates LAOPU from Western luxury service. LAOPU isn't telling luxury brand stories - it's using Eastern culture to redefine luxury's connotation, helping every visitor find cultural belonging through equality and warmth.

Currently, LAOPU presents a concept or possibility as a brand operator with strong potential, filling market gaps for Chinese domestic luxury or high-end brands.

Even brands similarly defined as luxury have vastly different steady-state valuations. Rather than debating whether LAOPU can become a luxury brand, it's more important to clarify LAOPU's breakthrough attribution and factor sustainability.

03 Conclusion

Overall, while LAOPU GOLD has some seemingly inconsistent aspects, such as relationships between gold prices and sales volume, and contradictions between value perception conflicts and member pyramids, LAOPU has a coherent differentiated approach integrating "luxury goods" with ancient craft gold techniques. The overall operational difficulty hasn't undergone dramatic qualitative changes going forward. LAOPU also needs time to prove its unique model isn't paradoxical.