Just a few years in the past, I Do was flourishing. The China-based inexpensive diamond model had turn into a family identify largely attributable to its profitable advertising efforts since its launch in 2006. Final December, Hong Kong idol Jordan Chan and his spouse Cherrie Ying grew to become I Do ambassadors in celebration of their twelfth marriage anniversary.

In current months, I Do has regularly collaborated with celebrities and KOLs similar to health guru Liu Genghong, and even partnered with the cellular recreation Honor of Kings to unveil limited-edition rings. 

I Do has partnered with celebrities similar to Jordan Chan and Cherrie Ying (left) and franchises like Honor of Kings (proper). Photograph: I Do’s Weibo

It got here as a serious shock to many when the diamond firm all of a sudden filed for chapter in early January 2023. Based on Chinese language company database Tianyancha, I Do’s mother or father firm Hengxinxili has filed for chapter reorganization. On January 13, Hengxinxili issued a assertion to announce that a number of Chinese language courts had positioned excessive consumption restrictions on the corporate and its CEO Li Houlin for failing to make funds to different firms as stipulated by contracts.

Data from China’s judicial enforcement public database additionally exhibits that the corporate has paid $1 million (6.6 million RMB) upon receiving obligatory execution court docket orders since October 2022. Hengxinxili’s public monetary document exhibits that it had $250 million (1.67 billion RMB) price of debt within the first half of 2022 and at present maintains a 39.4 p.c debt ratio.  

We check out the surprising downfall of I Do and look at a number of the insights that may be gleaned from this occasion.

Treasured stones with humble beginnings

Based in 2006, the model contrasts strongly with extra established jewellery homes in China. It particularly tailors its kinds to younger Chinese language shoppers and its shops characteristic fashionable inside decor. With nearly all of its merchandise priced at 1000’s of RMB, I Do can also be inside the buying energy of most millennial and Gen Z shoppers. In reality, I Do has accomplished 9 rounds of financing in its 15-year existence, together with funding from famend events similar to CITIC Securities and Shenzhen-based jewellery model Chow Tai Seng.

As famous above, a big a part of I Do’s success might be attributed to its capability to capitalize on China’s fan economic system. It regularly locations its merchandise in romantic motion pictures and has even sponsored eponymous songs sung by family idols similar to Eason Chen and Karen Mok. 

Nevertheless, it quickly grew to become evident that Hengxinxili couldn’t maintain its excessive advertising prices, which reached $97.4 million (655 million RMB) in 2021 and accounted for 30.6 p.c of its complete annual expense. Within the first half of 2022, Hengxinxili’s income fell to $93.4 million (628 million RMB), a 42 p.c year-on-year lower, whereas its revenue dropped by 88.6 p.c in comparison with the identical time final 12 months. In October, claims of I Do informally shedding numerous its workers and delaying wage funds for months began to emerge.

Diamond rings now not shine within the eyes of Chinese language shoppers

The obvious cause for I Do’s downfall is the lowered demand for diamond rings throughout the pandemic. Till China relaxed its pandemic management measures in December 2022, giant gatherings similar to wedding ceremony ceremonies have been explicitly discouraged. In the meantime, the COVID-induced financial hunch deterred many shoppers from buying non-essential objects. 

In November 2022, China’s client confidence index was a mere 85.5, down 28.5 p.c year-on-year and even decrease than the 86.8 factors throughout the Shanghai lockdown in Might. The newest determine from the Individuals’s Financial institution of China exhibits that nationwide financial savings in 2022 reached $3.9 trillion (26.26 trillion RMB), a $1 trillion (6.6 trillion RMB) enhance over 2021, reflecting a extra conservative client sentiment.

On the similar time, I Do suffers from its nearly unique deal with diamond rings. China’s plummeting marriage price, which dropped by 7.5 p.c year-on-year to five.45 million within the first three quarters of 2022, is shrinking the dimensions of I Do’s potential clientele. As well as, increasingly Chinese language Gen-Z shoppers are reaching their “carat freedom” by choosing lab-grown diamonds. A lab-grown diamond sells for about one-third the worth of a pure one in China and likewise appeals extra to those that are sustainability-conscious. In 2021, gross sales of lab-grown diamonds on Tmall grew by 72 p.c year-on-year whereas gross sales of pure diamonds didn’t witness noticeable progress. 

Trying forward at China Gen Z’s altering values and desires

Sarcastically, conventional gold jewellery, which I Do seeks to differentiate itself from, is successful again shoppers. For example, a guochao gold model launched in 2018 by Yuyuan Inc. known as Laomiao Jewellery combines fashionable design with conventional gold craftsmanship. It recorded a income of over $680 million (4.6 billion RMB) within the first three quarters of 2022.

Laomiao jewellery posted over $680 million in income within the first three quarters of 2022. Photograph: Laomiao Jewellery

The upcoming Chinese language New Yr has additionally prompted many shoppers to buy gold jewellery. A go-to gold market in Beijing bought out its Yr-of-the-Rabbit-themed items every week in the past. Against this, the worth of inexpensive luxurious manufacturers’ diamond rings tends to drop considerably in resale. In a information article final week, a Chinese language jewellery resale analyst states that the majority wedding ceremony rings will lose 50-60 p.c of their worth due to the restricted high quality of their diamonds. 

Within the latter half of 2022, gold jewellery items really picked up steam as Chinese language shoppers flocked to them for store-of-value functions. Based on the World Gold Council, China’s demand for gold in Q3 2022 reached 163 tons, a 58 p.c enhance over Q2 and likewise greater than the pre-pandemic Q3 2019 stage.

Though I Do would possibly nonetheless exist after the chapter reorganization of its mother or father firm, it mustn’t depend on Chinese language shoppers’ revenge spending for reduction. For China’s diamond ring manufacturers, together with I Do’s chief competitor Darry Ring, the important thing to their future relevance lies in whether or not they can develop their product classes and convey their worth to younger Chinese language shoppers past marriage and weddings.