Chow Tai Seng shifts franchise revenue towards brand fees as nine-month revenue falls 67.84%

The revenue mix of Chow Tai Seng’s franchise business is changing. The Chinese jeweller’s third-quarter report for 2026, released on 27 October, showed franchise revenue of RMB 1.076 billion for the first nine months, down 67.84% year on year. This shift reflects both consumer demand and franchisees’ willingness to restock, as well as the company’s deliberate changes to its supply arrangements. For those considering China’s franchise market, understanding these results requires more than looking at the headline decline: it is important to distinguish between product wholesale revenue and brand licensing fees.

Falling franchise revenue: supply arrangements are a key factor

According to a Sina Finance report published on 31 October, Chow Tai Seng’s revenue for the first nine months totalled RMB 5.584 billion, down 17.54% year on year. Net profit attributable to shareholders of the parent company fell 26.15% to RMB 651 million. Franchise revenue accounted for 19.27% of total revenue, compared with 49.39% a year earlier.

In its financial report, the company attributed the sharp fall in franchise revenue primarily to deliberate changes in supply arrangements. Brand licensing fees made up a larger share of revenue, while the contribution from product wholesaling fell substantially. Wholesale revenue from gold products declined 84.32% year on year to RMB 362 million in the first nine months, while wholesale revenue from gem-set jewellery fell 87.97% to RMB 40.4601 million.

The decline in franchise revenue therefore does not necessarily mean that retail sales at franchised shops fell by the same percentage. Recognising revenue from wholesale supplies to franchisees is a different revenue model from collecting brand licensing fees when franchisees restock through designated suppliers.

More restocking through designated suppliers lifts the share of brand fees

A research report published by Everbright Securities on 28 October provided further context. With gold prices remaining high, franchisees have increasingly preferred to restock through designated suppliers to avoid the exposure to gold-price fluctuations and working-capital pressures associated with direct purchasing. Under this arrangement, Chow Tai Seng collects only a brand licensing fee.

The report showed that brand licensing fees rose from 15.2% to 48.2% of franchise revenue in the first half of the year. These figures describe the first-half revenue mix and should not be treated as the proportions for the full nine-month period. They do, however, illustrate the direction of the changes in supply arrangements.

Operating pressures have not disappeared. In its third-quarter report, Chow Tai Seng said high gold prices continued to dampen consumer demand for jewellery. Faced with weak shop-level demand and limited appetite for restocking, franchisees generally adopted inventory-reduction strategies. Changes in sourcing routes and reductions in stock were happening at the same time, and both are important when interpreting franchise revenue figures.

Franchised shop count falls by a net 657 as expansion prioritises productivity

At the end of September, Chow Tai Seng had 3,809 retail outlets, a net reduction of 670 since the start of the year. These comprised 3,424 franchised shops, down by a net 657, and 385 company-operated shops, down by a net 13.

During an institutional investor meeting on 28 October, the company said closures were concentrated among underperforming street-front shops in fourth- and fifth-tier cities, county towns and similar markets. New openings, meanwhile, were focused on high-quality, newly opened shopping centres, alongside a stronger presence in higher-tier markets. The company remained cautious about increasing shop numbers, prioritising shop productivity and quality instead.

This suggests that Chow Tai Seng’s current retail network restructuring is not simply aimed at restoring growth in outlet numbers. It also involves choices about location, operating performance and market tier. The net reduction in shops should not be described as the total number of closures: the two measures are different.

Company-operated retail and e-commerce grow, but each channel needs separate assessment

In contrast to the contraction in franchise revenue, Chow Tai Seng’s company-operated offline revenue rose 31.46% year on year to RMB 1.764 billion in the first nine months. E-commerce revenue increased 33.42% to RMB 2.595 billion. The two channels accounted for 31.59% and 46.46% of total revenue respectively, or approximately 78% combined. The company said e-commerce would support its offline business as it pursued closer integration of online and offline operations.

However, growth in company-operated retail and e-commerce revenue does not, by itself, demonstrate improved profitability at franchised shops. Changes in the company’s revenue sources, outlet numbers and franchisees’ financial returns need to be assessed separately. The available disclosures are also insufficient to calculate average profits or investment payback periods for franchised shops.

Practical takeaway: when assessing this type of franchise opportunity, first establish who supplies the stock, how brand licensing fees are calculated and charged, and who bears inventory and gold-price risks. Then model the shop’s cash flow for its specific catchment area, rather than using changes in the franchisor’s revenue as a substitute for assessing individual outlet performance.