What's left for DR if it can't find 'Only Love'?
Zebra Consumer Shen Tuo
A lifetime gift for only one person. This is the slogan of DR brand, and the foundation for its foothold and expansion in the diamond ring market.
Once the core of DR's brand faces a trust crisis, it will trigger a devastating chain reaction.
In 2023, the collapsed performance of Diya Co., Ltd. has sounded a red alarm for DR.
Performance Collapse
In any shopping mall, the jewelry counters are the most exquisitely decorated and brilliantly lit areas. Strong spotlights shine on the crystal-clear diamonds, making them sparkle.
No girl would refuse to wear a shiny diamond ring and walk into the marriage hall hand in hand with her beloved—"A diamond is forever."
Whether it's delicate small diamonds or hefty "pigeon eggs," as long as one's financial situation allows, they can always find their favorite ring at major brand counters. However, DR is different—its diamond rings aren't something you can buy just because you have money.
DR's "arrogance" finally cost its parent company a heavy price in performance in 2023.
"We experienced the coldest winter in history." In the opening of Diya Co., Ltd.'s 2023 annual report, founders Zhang Guotao and Lu Yiwen set a "chilly" tone for the year's performance with a "Letter to Shareholders." They attributed this to "industry cyclical adjustments compounded by false negative information affecting the brand."
In 2023, China's jewelry industry was a tale of two extremes, with the total market size reaching approximately 820 billion yuan, a year-on-year increase of 14%. Among them, gold products grew by 23.6%, jade products by 2%, while the diamond market plummeted by 26.8%.
In 2023, Diya Co., Ltd. (301177.SZ) achieved operating revenue of 2.18 billion yuan and net profit attributable to shareholders of 68.96 million yuan, down 40.78% and 90.54% year-on-year, respectively. Its non-GAAP net profit even recorded its first loss, amounting to 121 million yuan. Throughout the year, the company sold 361,000 pieces of jewelry, 156,700 fewer than the previous year.
Offline stores are the absolute core of Diya Co., Ltd.'s revenue, all of which are self-operated. In 2023, the company underwent significant store adjustments, closing 184 stores and opening 24, resulting in a net reduction of 160 stores, with a year-end total of 528.
However, these adjustments did not improve operational efficiency. In 2023, key performance indicators such as single-store revenue, gross profit, and sales per square meter all saw significant declines.
Despite implementing a series of measures to salvage the performance downturn, the start of 2024 remains far from ideal.
In Q1, the company's revenue and net profit attributable to shareholders dropped sharply by 39.52% and 70.81%, respectively, while non-GAAP net profit recorded a loss of 5.917 million yuan, down 111.73% year-on-year.
The Master of Reverse Marketing
In the jewelry industry, Diya Co., Ltd. and its DR brand are latecomers. It wasn't until 2011 that the company transitioned from market research and consulting to the jewelry industry. In just 10 years, it grew into the world's top "proposal diamond ring brand."
This is a triumph of marketing. While all other brands were doing everything possible to boost sales, DR broke through with a "reverse strategy."
DR never considers itself a jewelry company but rather a brand culture firm with internet DNA. In its view, the world doesn't lack jewelry sellers—DR aims to build a legacy around "love," lifelong commitment, and positive values.
In today's world of abundant goods, even those who want to buy DR must strictly follow its rules. Hesitant buyers, impulsive shoppers, those weighing pros and cons, or even those with another name in their hearts—all are turned away by DR. This evolved into DR's widely circulated "Ten No-Sell Rules" online.
According to DR's policy, only men with no prior purchase history at DR can buy proposal rings. Moreover, male buyers must sign a "True Love Agreement" with their ID cards. After the transaction, the purchase record is logged into the system to ensure the same man cannot buy for another woman.
The "True Love Agreement" carries a unique code, and both parties must sign, pledging "a lifetime of love for only one person" and "a gift for only one person in a lifetime." What marriage certificates couldn't enforce, DR achieved.
From "love" to "true love" and "only love," it's no surprise that couples in love were willing to pay for this.
However, in recent years, media reports have continuously challenged DR's "only love" marketing. Despite frequent clarifications from the company, dismissing unfavorable news as false, DR's brand image has suffered significant damage in consumers' minds.
What’s Left?
They say "true love is priceless," and if you believe in it, you must accept DR's premium pricing.
In its 2021 IPO prospectus, DR disclosed price comparisons with competitors for similar products. A 0.5-carat simple solitaire ring ranged from 18,068-27,838 yuan among competitors, while DR's price was 25,449-32,889 yuan. The premium for 0.3-carat and 0.4-carat rings was similarly high.
Higher product prices contributed to Diya Co., Ltd.'s above-average profitability.
The company's gross margin has consistently stayed around 70%, with proposal rings exceeding 70%. Even in 2023, when orders and performance collapsed, average order value and gross margin remained stable.
Diya Co., Ltd. is headquartered in Shenzhen, home to Shuibei, China's largest gold and jewelry trading hub, with a complete industrial chain. Thus, DR outsources production, processing, and even most R&D, focusing solely on branding and marketing.
As of the end of 2023, the company had 3,197 employees, 2,890 of whom were in sales, while only 88 were technical staff. How many of these 88 were jewelry designers? The annual report doesn’t specify, but previous IPO filings provide clues. From 2018 to 2020, technical staff numbered 91, 86, and 83, respectively, with jewelry designers accounting for 3, 5, and 7.
Diya Co., Ltd. spares no expense in marketing. In 2021 and 2022, sales expenses totaled 1.218 billion yuan and 1.422 billion yuan, accounting for 26.35% and 38.63% of revenue, respectively—far above industry averages.
In 2023, despite plummeting revenue, the company did not cut marketing spending. Annual sales expenses reached 1.229 billion yuan, pushing the sales expense ratio to 56.36%.
On December 15, 2021, Diya Co., Ltd. went public on the ChiNext board, attracting fervent investor interest. Its stock surged 41.18% on the first day, closing at 165 yuan per share, with a market cap of 66 billion yuan.
Founders Zhang Guotao and Lu Yiwen made the 2022 Hurun Global Self-Made U40 Rich List with a 42-billion-yuan fortune, ranking second in China, behind only Zhang Yiming.
Today, Diya Co., Ltd.'s market cap is less than 10 billion yuan.
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