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Baozun, Inc. (BZUN) Q3 2020 Earnings Call Transcript

BZUN Earnings Call - Final Transcript

Baozun, Inc.  (NASDAQ: BZUN) Q3 2020 earnings call dated Nov. 23, 2020

Corporate Participants:

Wendy Sun — Director of Investor Relations

Vincent Wenbin Qiu — Chairman of the Board of Directors and Chief Executive Officer

Robin Bin Lu — Chief Financial Officer

Arthur Yu — Vice President of Finance

Junhua Wu — Director and Chief Operating Officer


Alicia Yap — Citigroup — Analyst

Binnie Wong — HSBC — Analyst

John Choi — Daiwa — Analyst

Tian Hou — TH Capital — Analyst

Joyce Ju — Bank of America — Analyst

Ashley Xu — Credit Suisse — Analyst

Thomas Chong — Jefferies — Analyst

Charlie Chen — China Renaissance — Analyst

Unidentified Participant — — Analyst



Good morning, ladies and gentlemen, and thank you for standing by for Baozun’s Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. As a reminder, today’s conference call is being recorded.

I’ll now turn the meeting over to your host for today’s call, Ms. Wendy Sun, Investor Relations Director of Baozun. Please proceed, Wendy.

Wendy Sun — Director of Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us today. Our third quarter 2020 earnings release was distributed earlier today and is available on our IR website at, as well as on Global Newswire services.

On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer; Mr. Junhua Wu, Chief Growth Officer; and Mr. Robin Lu, Chief Financial Officer. Mr. Qiu will review the business operations and company highlights, followed by Mr. Lu, who will discuss financials and guidance. They will all be available to answer your questions during the Q&A session that follows.

Before we began, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon the management’s current expectations and current market and operating conditions and relate to events that involve known or unknown risk, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company’s control, which may cause the company’s actual results to differ materially from those in the forward-looking statement. Further information regarding these and other risk and uncertainties or factors is included in the company’s filings in the U.S. SEC and announcement on the website of The Stock Exchange of Hong Kong Limited. The company does not undertake any obligation to update any forward-looking statements except as required under applicable law.

Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB.

It is now my pleasure to introduce our Chairman and Chief Executive Officer Mr. Vincent Qiu. Vincent, please go ahead.

Vincent Wenbin Qiu — Chairman of the Board of Directors and Chief Executive Officer

Thank you, Wendy, and thank you all for joining us. I’m pleased to report another solid quarter with a lot of accomplishments. This is our very first earning call as a public company on both the NASDAQ and Hong Kong Stock Exchange. Our dual listing in the U.S. and Hong Kong marks another exciting milestone during our evolution as leading pioneer and innovative brand eCommerce solutions in China. In particular, it increases our ability to pursue expansion opportunities and alternative financing options to grow and demonstrates our long-term commitment to create value for our growing base of global shareholders.

In the past few years, we have focused on building our competitive moat around technology and innovation. Our impressive results for this year’s 11.11 Shopping Festival is a great example of our progress, where our total order value rose by 54.8% during the expanded 11-day period to a record high RMB16.5 billion.

While the headline statistic itself is impressive, I want to highlight that it was our solid technology infrastructure, data intelligence capabilities and robust and systematic team coordination that underpinned our success.

Overall, our core infrastructure exhibited efficiency and promoted effectiveness across the board from eCommerce merchandising all the way to other procurements.

Most recently, we were honored by being named one of the Fortunes Top 100 fastest growing companies for the second year in a row. We ranked number 27 globally and number two among Chinese companies.

We continued to strengthen brand engagement in the third quarter, which was helped by improving consumer sentiment as the retail industry recovered from COVID-19 restrictions. In particular, during the third quarter, we added a net of 10 new brand partners, including a few internal international luxury brands, a U.K. headquartered luxury O2O [Phonetic] marketplace with China collection store, as well as few domestic brands in a variety of categories.

As everyone knows, China has the world’s largest eCommerce market and the opportunities to grow are vast, given our unique position as a leading solution-driven platform.

We also noted there are certain categories that are reacting more sharply to this trend. Luxury sector is a good example. Not only have we been able to attract a meaningful number of luxury brand this year, but we are also seeing a trend in more luxury brand establishing their flagship stores through third-party marketplaces.

In our most recent [Indecipherable], we are in the process of expanding our service coverage with a Tier 1 European luxury brand to not only serve its official brand store, but to also establish and manage its marketplace flagship store. This will be the brands first ever move to a third-party marketplace and we believe this will be a major catalyst that will accelerate the digital transformation of luxury eCommerce in China. As that wave materializes, we will be well positioned and ready to capture the emerging opportunities in luxury sector.

As eCommerce continues to grow and evolve quickly, we are committed to capturing this opportunity through continuous progress in digitalization. Over the past few years, we have constructed a very comprehensive digital operating platform or DOP, that integrates our IT infrastructure, AI applications and data intelligence capabilities. Going forward, we will leverage our DOP to develop more innovative tools and applications that serve as an engine for brand partners’ sales growth.

This will not only improve our procurement and merchandising efficiency, but will also stimulate demand generation and optimize legal cash management.

In addition to developing innovative technology solution, business innovation is also critical for executing our high-growth — high-quality growth strategy. You may recall from recent earnings calls that we have launched two strategic initiatives to drive further innovation. First, we launched a Business Operating Center or BOC, to drive operational efficiency, share resources through allocation and promotion of standard solutions. Second, we announced the opening of our Growth Brand Operating Center or GBO, to capture increasing opportunities among local and emerging brands.

This quarter, we were able to advance a variety of efficiency and quality enhancements within our BOC. Based on the early trial programs for over our 30 brand partners under our BOC, we believe that we will achieve a meaningful increase in efficiency.

For our GBO, we intend to use innovation we spend on our service growth with emerging brands as we support their entire journey from stepping up their go-to-market strategy using high level integration through our intelligence and insight solutions.

Our co-branding and co-marketing initiatives will help brand partners to optimize their brand positioning and even SKU planning, as well as manufacturing that relates to their supply chain.

Another understated but very important benefit will be in reaching their platforms with a wider range of omni channel marketplaces. We have strong prospect in the pipeline and we will be able to share more progress about them early next year.

Following our successful secondary listing on Hong Kong Stock Exchange, we’ve started a new journey. We believe it is an opportune time to accelerate our growth further by using strategic channels to capture high potential pipeline opportunities.

Lastly, as we may have also noted — as you may have also noticed earlier today, we announced a few leadership enhancing changes to push forward these initiatives. We are happy to announce that Robin Lu, whom all of you know as our CFO, is moving forward to take on a new role to lead the Company’s devotion to strategic business development and investment initiatives, both financially and operationally.

We plan to leverage on these initiatives to promote exposure to emerging brands, new eCommerce trends and other business development opportunities, also through emerging opportunities in China eCommerce arena.

Taking his place as CFO is Arthur Yu, our current VP of Finance, who came on board with substantial experience in global finance, acquired at large multi-national organizations such as Jaguar Land Rover and BT Group. We couldn’t be happier to have him with us and we are confident that our deepened bench will sharpen our focus and help drive long-term growth.

I will now pass the call to Robin, to go over our financials for the quarter. Thank you.

Robin Bin Lu — Chief Financial Officer

Thanks, Vincent. This will be my last earnings call as CFO of Baozun, and I want to thank all of our investors and friends for your support over the past two years.

Brand eCommerce and digitalization is becoming a more significant part of everyday life post-COVID-19, and we are pleased to say that our initiatives in high-quality growth strategy are bearing fruits and that our balance sheet is as strong it’s ever been.

We believe we are uniquely positioned to compete and win as challenging eCommerce evolves, and we are accelerating our process for best utilizing our industry insights and know-how to identify and secure new eCommerce trends.

I’m sure that it will be exciting journey for us going forward, and I’m honored to be handing over the CFO position to Arthur, so that I can focus more on these initiatives and capture the fast changing opportunities.

Before we go into details on our financials, let me update you on the Class Action complaint filed last December, as we noted in our 2019 Annual Report. Earlier this November, the lead counsel had filed a notice of voluntary dismissal against all defendants. And consequently, the court sent a notice of voluntary dismissal, thereby adopting it as an order of the court and officially dismissed the consolidated action.

One last thing; given our listing on The Hong Kong Stock Exchange, we will follow the common practice for companies listed in Hong Kong and now provide guidance on net revenues or net revenue growth going forward.

Let’s now go over the third quarter 2020 financial results in detail. As always, we believe a year-over-year comparison is the best way to review our performance. All percentage change I’m going to give will be on that basis. Once again, please note that all figures that I mention will be in RMB, unless otherwise stated.

As we mentioned on our previous call, we are in progress with optimizing our category mix, which may negatively impact year-over-year comparison. Despite this, our total GMV this quarter increased by 19.4% to RMB10.8 billion. Our distribution GMV rose by 17.4% to RMB868.3 million and our non-distribution GMV increased 19.6% to RMB10 billion.

During the quarter, we continued to see modest growth momentum in the sportswear, luxury and FMCG categories. In addition, the men’s and the women’s clothing category returned to double-digit growth.

I will give a quick summary of the category that account for over 10% of our total GMV. The apparel category, which includes of sportswear, luxury and the men’s and women’s clothing, grew by approximately 35% year-over-year. Electronics declined by double-digits, which was mainly due to our optimization of smartphone sector. FMCG, for the first time, contributed over 10% of our total GMV, becoming one of top-three categories for us. Accordingly, total net revenues increased by 21.7% to RMB1.83 billion.

Breaking this down, product sales revenue increased by 21.3% to RMB803.4 million and the service revenue increased by 22% to RMB1 billion during the quarter.

Total costs and operating expenses were RMB1.7 billion compared with RMB1.4 billion in the same quarter last year. In particular, cost of products increased to RMB673.7 million from RMB529 million last year. It was mainly due to higher costs associated with the increase in product sales revenue.

Product sales gross margin declined slightly by 30 bps to 16.1% from the previous quarter, which was mainly due to the change in category mix and continued discounting initiative. Our blended gross margin was 53.2%, a decrease of 1.6% from last year, mainly due to lower product sales gross margin, partially offset by stronger revenue contribution from service revenue.

Fulfillment expenses increased to RMB419.8 million from RMB333.4 million in the same quarter of last year, mainly due to a rise in GMV contribution from our distribution and consignment model, and an increase in warehouse rental expenses associated with the expanded warehouse capacity to address additional growth opportunities.

Our fulfillment expenses as a percentage of GMV increased to 3.9% from 3.7% a year ago, which was mainly due to a higher proportion of the consignment model in our non-distribution GMV. This was partially offset by our improved efficiency enhancement.

Sales and marketing expenses increased to RMB501.1 million from RMB443.1 million in the same quarter last year. This was mainly due to the GMV growth, as well as growth in digital marketing service.

As a percentage of GMV, our sales and marketing expense ratio improved to 4.6% from 4.9% a year ago, which was mainly due to the effectiveness and the efficiency improvement of our marketing services and our continued cost control initiatives.

Technology and content expenses increased by 7.9% year-over-year to RMB101.6 million. And our investments in future innovation and productization totaled RMB23.4 million compared with RMB21 million in the same period of last year. Technology and content expenses as a percentage of GMV improved to 0.9% from 1% last year, as we experienced greater operating leverage.

G&A expenses totaled RMB51.1 million, a slight decrease from RMB51.7 million in the same quarter last year, which reflected our disciplined cost control initiatives and leverage gained while we scaled our business.

All in all, income from operations increased by 50.9% year-over-year to RMB84.6 million; and on a non-GAAP basis, income from operation was RMB111.7 million, up 47.1% from the same quarter last year. Operating margin was 4.6%, while non-GAAP operating margin reached 6.1%, which were both new third quarter record high for us.

Offsetting interest income, interest expense totaled RMB8 million, compared with RMB9 million a quarter ago. As we just completed our Hong Kong secondary listing, we plan to further optimize our capital structure and expect to have further savings in our net interest expense going forward.

Net income attributable to ordinary shareholders of Baozun totaled RMB64.6 million, an increase of 64.2%. Basic and diluted net income attributable to ordinary shareholders of Baozun per ADS were RMB1.09 and RMB1.07 respectively for the quarter.

Non-GAAP net income attributable to ordinary shareholders of Baozun totaled RMB91.5 million, an increase of 55.1%. Basic and diluted non-GAAP net income attributable to shareholder — ordinary shareholders of Baozun per ADS were RMB1.55 and RMB1.52 respectively for the quarter.

As of September 30th, 2020, we had RMB4.5 billion in cash and cash equivalents and short-term investments, compared with RMB2.3 billion as of June 30th, 2020. The significant increase in cash, cash equivalents and short-term investments was mainly attributable to the offering proceeds received in connection with our secondary listing on the Hong Kong Stock Exchange.

Gross proceeds from the global offering, including partial exercise of the over-allotment option before underwriting fee and other offering expenses were approximately HKD3.6 billion.

Lastly, I want to offer some clarity on how to gauge expectations for the fourth quarter. The growth rate of this year’s 11.11 Shopping Festival should not be taken as a proxy for full quarter growth rate, especially due to our periodic peak promotional initiatives and the extended timeframe in this pandemic year.

Overall, we believe the solid results during 11.11, speaks to the health of the economic recovery in China and expect the fourth quarter will see sequential improvement in growth momentum. We remain committed to deliver a sustainable growth with steady improvements in profitability over the long-term, as well as creating long-term value for our shareholders.

Now, before we turn the call to the operator for Q&A, I want to welcome and introduce Arthur to you. Arthur, please go ahead.

Arthur Yu — Vice President of Finance

Okay. Hello, everyone. Thank you, Robin. It’s a pleasure to join the call and taking over Robin as the new CFO. I joined Baozun because of its impressive growth story in the fast-growing Chinese eCommerce industries. But after working for Baozun as the Finance, VP, since September, I now have more faith in Baozun, because it has a great set of assets, including three things.

Number one, it has a impressive customer base, over 260 globally famous brand; number two, it has a well-developed technology and innovation capability; and number three, more than 6,000 engaged and energetic people.

So as Company’s new CFO, I look forward to work with the Board and Executive Management team to take Baozun’s success to the next level, and I hope to meet all of you in person soon on the call to gather your view on Baozun’s future. Thank you, Robin. I hand it back to you.

Robin Bin Lu — Chief Financial Officer

Okay. Thank you, Arthur. Operator, we’re now ready to begin the Q&A session, please.

Questions and Answers:


Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] First question comes from the line of Alicia Yap of Citigroup. Please go ahead.

Alicia Yap — Citigroup — Analyst

Hi. Thank you. Good evening, management. Thanks for taking my questions. Congratulation to Robin for your new role and also welcome and congratulation to Arthur as the new CFO.

My questions is related to how we should think about in terms of what we have learned, so as we just finished another record year for Singles Day sales, while the result was strong and likely have exceeded management expectation, just wondering, were there any areas that you hope that your team order results could be even better? Any brand that is underperforming? How do you deal with helping the brands that experience lackluster performance?

And then as we head into 2021, will Baozun retain your initiative like what you did for 2020 in terms of balancing the top line growth versus the margin improvement? So if you can give us some colors on that, will be great. Thank you.

Robin Bin Lu — Chief Financial Officer

Sure. Hi, Alicia. It’s Robin. I think I can take part of your question and then Junhua will give you more details about 11.11 and trend of the business.

Basically, I think — while you recall the previous call, we do noticed or discussed with you about this year is a very special year because of the pandemic and — for both brand and consumers. They are more focused on the promotional event, just as in the 6/18. So I think we see — we do see the similar pattern in 11.11, especially this year’s 11.11 is extended timeframe, which had about like 11 days.

So we do see we have a big promotion and they just want to ramp up the inventory and especially there is something like rising up above the pandemic and the COVID-19 globally and people always have some concerns about the future for the next year. So, that really have some negative impact and also the pattern is more focused on the promotional event.

And going forward in the next year, we think we started — even though it was ideal date compared with the previous year, we started our new business development, acquired more and more brands come in. We do have a very strong pipeline in the current business, and additionally because there are more like traffic diversifying the other marketplaces and other areas like mini program, and Douyin and Kuaishou, we have more focus on this new business.

And I’m very happy to say, we see the second sequential quarter they make profit in the mini program and we have a very high growth in the mini program business, really demonstrate our capability to expand our business from current arena to the new areas. Thank you. Junhua?

Junhua Wu — Director and Chief Operating Officer

Okay. Thank you, Robin. So, Alicia, let me share with you some color about the 11.11. So we do have a lot of learnings from the past 11.11. Consider that this 11.11 had a very special game play, including two big waves of everything. Two waves of one last pre-order and booking period. So everything doubled, including sales opportunities and also potential operation risks.

So — and this is new to everybody, so we need to help the brand to reallocate for the merchandising for two weeks. The first wave, how do we just make sure that the brand has the right and — the right assortment with the right price to attract the first wave of consumers.

In terms of the consumer engagement, we need to prepare how do we drive the second wave for the repeat purchase rate for the consumers. And including all those kind of the traffic management and the consumer experience management, we do learned a lot of thing from that, also including our fulfillment and warehousing.

Consider — between the two big moving phases, we have engaged a new wave of return between the two-booking period. So, the great part is our system and our fulfillment team did a great job. So definitely, a few brands are underperforming during the 11.11, of course because of — the post COVID-19 did affect some of the brands, including their merchandising and assortment preparation and also some of them are lacking their marketing spending for the two waves. Very hard to reallocate their off-line resources to online at the end of the year.

So, there’s a lot of things we are reviewing with our brand partners after the 11.11, and we believe that we can do a lot of new initiatives by helping them in the next year doing greater job. Thank you.

Alicia Yap — Citigroup — Analyst

Thank you.


Thank you for the questions. [Operator Instructions] Thank you very much. Next questions will come from the line of Binnie Wong of HSBC. Please go ahead.

Binnie Wong — HSBC — Analyst

Hello. Good evening, management. Congrats on a very, very strong quarter on both top line, bottom line. My question here is on the competition side and also one on the take rate.

So one on the competition; do you see that as we see more of this eCommerce like service provider emerging in various verticals, so long ago we have the Lily & Beauty, [Foreign Speech] and then also we saw like Onechance [Foreign Speech], what are the competitive advantages, if you can remind us as to how we can sort of like strengthen ourself against some of this like verticals to become the partner of choice, right, for more of these brands?

And then, how do you see that — in terms of — if you look back at our take rate, just looking at the nine months quarter, well, let’s say quarter to — nine months to-date, the take rate actually increased by 50 bps in terms of the total service revenue. So can you remind us as to down the road what are some of the things that we have been improving to drive this increase in the take rate? And then, how do we think about like balancing in terms of monetization on the take rate versus in terms of growing our GMV? Do you think that there are other value-added services we can to improve in terms of this take rate or is it that we’re still aiming for growing the GMV, procuring more brands on board? Thank you so much.

Vincent Wenbin Qiu — Chairman of the Board of Directors and Chief Executive Officer

Thank you, Binnie. This is Vincent. I’ll take your first question and leave the second one to Robin, later on.

About the combination, yes, we see — we would rather use word, active. I mean, the whole industry right now is getting more and more active, not only the players are getting more and more coverage for different categories and also the services — there’s different kinds of services now emerging in the market to help the brands to do a valid business. So that is our opinion. We think active is a more accurate word for this competition horizon.

For Baozun, I think the rampage is quite clear. Number one, I think Baozun is in the leading position with a very good brand name, in serving especially the global brands in the market. Secondly, we think Baozun conveniently invest into the technology side and then we have a very completed service and solution offerings to brand, based on good technologies and data technologies. So, that is very important long-term strategy from us. Thirdly, because we are covering the omni-channel, so Baozun may help the brands not only on the major marketplaces, but also emerging in the channels to help them to achieve sales goals and also engage customers. And lastly, I think because we are doing this multi-channel and also a multi-category business, so we are knowing the consumers much better than the others, so that give us a good chance in delivering consumer insights and also CRM-related database marketing in the future.

So, that is about competition, about the advantage. Now, about the take rate, Robin?

Robin Bin Lu — Chief Financial Officer

Sure, it’s Robin. Basically, I think, numerically, our take rate was heavily decided by the product, the category mix, as we mentioned before. We — that’s why we did a lot of optimization in our categories, and I think that was a factor.

The second factor is, we continuously add value-added services to our existing brand and new brands. For example, we provide more services in the marketing, IT services, integrate them together and then we provide supply chain services in addition to the operations.

And the third factor, I think we are testing this now and we made some progress like so-called deep co-operation, which means we did lot of co-market and co-branding from various data point with our brand partners, and then we share some of the cost. But based on our data, the accumulated data, and based on our very high level know-how about operations and the technology base and the marketing, we are very confident to be working with some brands to do the deep co-operation and change the landscape of the structure in the take rate.

So these three factors really contribute to the take rate improvement. I think, especially for the second one and the third one, they will contribute more in the later years. Thank you.


Thank you for the questions. Next question comes from the line of John Choi of Daiwa. Please go ahead.

John Choi — Daiwa — Analyst

Thank you, management, for taking my question, and congratulations, Robin, on your new role, and welcome Arthur and congratulations to your new role as the CFO.

I have two questions. First of all, a quick follow-up to Binnie’s question on the take rate. I think if you — looking at your this quarter’s per se, I think the service revenue growth has been more or less in line. We did experience, I guess you mentioned slight improvement on the take rate. But how should we think about this going forward? I think Robin you just mentioned that take rate, we’re going to see good momentum, but considering that we have been investing quite a lot over the past couple of years in terms of fulfillment, also logistics and also we’ve also been — have done some brand optimization to improve our take rate and our business. So, I’m just wondering, like should we be expecting a further acceleration of take rate and service revenue that should outpace the overall revenue growth? That’s my first question.

And second question is something related to your new role, Robin. I was wondering if management could kind of share with us, in the longer-term there have been lot of new business players in this field that are providing more Software-as-a-Service and kind of alternative to Baozun for some of these smaller brands or smaller merchants. So, could management kind of let us know or share what are the key priorities or areas that you will have to further strengthen going forward? Thank you.

Robin Bin Lu — Chief Financial Officer

Sure. I think for the first question, I think there is some seasonality issues in Q3. So you may see our take rate and the service revenue grow quarter-by-quarter, but it’s not a large improvement for some certain quarters due to the seasonality. I think it’s not about our services, but the macroeconomic issues and some certain quarters. And we do believe we will have consistent improvement in the take rate and service revenue.

And also, we are experiencing some optimization, continues to be — as we mentioned in the past quarters, and we think we are ready to have more contribution for the next year. I think that’s the first question.

The second question about my personal task, yes, I — in the eCommerce landscape, when you look at that, there are lot of changes most recently, especially after COVID-19. I think the first change is more and more emerging brands coming up in Tmall and the other platforms.

And the second one, the traffic coming from lots of other marketplaces, and you may recall about like two years ago, we started our mini program and we made a significant improvement and progress up to today. And I think we can replicate this success in the other marketplaces, especially in the livestreaming-driven marketplaces.

And also for the emerging brands, we will do some trial, and we focus more on the our — to incubate the smaller brands or emerging brands, working with our existing brand partners rather than to do the investment in the non-related emerging brands. So, it’s kind of our strategy to do based on our strong data support in the past.

So, I think we have a very clear picture how we can expand our business to other platforms and how we can incubate or in working with emerging brands and also how we can expand our categories in some — certain categories like FMCG. That’s my — part of my role to drive up the new business for the company. Thank you.


Thank you for the questions. Next question comes from the line of Tian Hou of TH Capital. Please go ahead.

Tian Hou — TH Capital — Analyst

Thanks, management and congratulation on a good quarter, and also congratulations on the new roles to both of you.

Two questions. One is related to the co-operation with Alibaba. So you used to co-operate, maybe Mei with Alibaba and also Net-a-Porter. And now Alibaba came up with Farfetch or investing in Farfetch. How that’s going to impact your future cooperation with Alibaba, and maybe Mei? So that’s the number one question.

The second question is related to the channels. So you start from operating shops on the Tmall platform, and you’ve gradually expanded out to the other sites. So, I wonder today what’s the ratio of the shops that you operate on Tmall platform, and what’s the ratio for non-Tmall platform?

And so for different channel, what’s the cost and operational expense structure looks like or which one makes more money for you? Thank you. That’s the two questions.

Junhua Wu — Director and Chief Operating Officer

Okay. So, this is Junhua Wu, let me answer your first question. So, regarding the, you YOOX Net-a-Porter pertaining Farfetch, so let me address this question from two dimensions. Number one, you need to understand the difference between and YNAP and Farfetch. is a first-party platform running luxury products, focused on product lifecycle status to be the long tail.

So basically, on the, all the products are off-season products and they provide a firsthand purchase by Alibaba, and they focus only — focus on the last circle of the product status, like off-season and clearance etc. And YOOX Net-a-porter and Farfetch are kind of similar to each other. So, all of them are listing new arrivals in seasoned products and most of them are selling across either within the Richemont Group also across another luxury categories.

So, we don’t think there are head-to-head competitions within the luxury pavilion or Tmall luxury, Farfetch are getting open in Tmall flagship store. Because consider the consumer engagement and the traffic source, there is a huge sales opportunity for both of the platform to share with their products across different kind of portfolio, within ready-to-wear and bags and accessories and jewelries, there’s lot of opportunities. That’s the first dimension.

The second dimension is, I cannot mention the details, but Baozun is running all of those three platform, as we just mentioned, including, YNAP and Farfetch on JD for now. So as long as Farfetch is opening their flagship store on Tmall, so it doesn’t affect the current Baozun service scope and Baozun business. And on the other hand, we believe that we are very, very confident in helping all of those luxury platform to do a better job on Tmall with their consumer engagement. Thank you.

Robin Bin Lu — Chief Financial Officer

Hi, it’s Robin. Let me take the second question. I think right now the Tmall business is more like a 70% to 75% of our business that we are driving up more from the other marketplaces right now. And I think for the other marketplaces, because of the nature of the — difference of the nature in business, both revenue model and cost structure are different. For example, we can utilize more SaaS-based system we already developed internally to support our mini program as well as our — the in-store. And also, we have more marketing-oriented business coming up from the other platforms. So that really gave us more color for the new platforms.

However, I want to say, for the current cost structure, you will see in our P&L, for example, we already accumulate lot of basic structure to be ready for the business in the other platform, so we don’t need to just redo our infrastructure gain in the other platforms, so we can create more efficiency and effectiveness when me grow this business. Thank you.


Thank you for the question. And our next questions will come from the line of Joyce Ju of Bank of America. Please go ahead.

Joyce Ju — Bank of America — Analyst

Good evening, Vincent, Junhua, Robin and Arthur. Congrats on the very solid quarter and the Hong Kong Listing, and thanks for taking my questions.

I have two questions. My first question actually is a follow-up on the Singles Day performance. This quarter, for the first time like company disclosed like for the key category growth for the third quarter. Just trying to understand for our remarkable like 5 — 55% year-over-year growth of the Singles Day GMV result. Could you provide like similar breakdown in terms of the category, like growth? Like, is apparels still the faster growing category or like if electronics within the Singles Day, experienced a year-over-year declining trend? Just wanted to get more colors in terms of how these different categories together contribute to our Singles Day sales growth.

My second question was related to our margins and investment. Because we see the company like restructure the organization to put more efforts in terms of like launching new initiatives. And this year, we also raised a lot of capital. So just wanted to understand like what’s the area we are going to invest specifically and will these investments actually affect our margins, probably for the fourth quarter or maybe just for the next year? What’s the outlook for the margins will be look like? Thanks.

Robin Bin Lu — Chief Financial Officer

Sure. It’s Robin. I think the line is not clear, but I’ll try to answer your — catch up and answer your question. I think that the downturn in the electronics, that’s mainly from — as I mentioned in the prepared remarks, that’s because of the adjustment and optimization of our smartphone. You remember, we have a smartphone brand which has some GMV contribution for the last year and we just end up the cooperation by the last third quarter. And also, we did some optimization in the other smaller brand in the smartphone.

In general, we are not going to grow up this kind of low-quality growth, we call the low-quality growth business in this category. That’s why you see the double-digit decrease in this factor, which really negatively impact our overall GMV for this quarter.

And about the margin impact, because we did financing recently, we think in the past, we continuously invest in the technology, but also we are strengthening our supply chain. And in the meantime, we utilize some money to do our new business like mini program.

In the last questions, I explained what we will do, but I want to reiterate, we are not going to do a drastic investment in our new business. And we have the very strong support for our technology already. And also we have a strong support for our data accumulation.

And we know what we can do to expand our business and capture opportunities without — or with those cost. And I don’t think that that will affect too much about our margin. And you can see we have our continuous or consistent investment in the different areas. You can see, just as a status quo in the future, I mean we are not going to have a big investment to affect our margin. Thank you.


Thank you for the questions. Next question comes from the line of Ashley Xu of Credit Suisse. Please go ahead.

Ashley Xu — Credit Suisse — Analyst

Thanks, management, for taking my questions. Two questions from me. First one is that, given we have printed a nice third quarter and fourth quarter momentum has been quite strong. Are we — is our previous outlook that next year should be able to post around 30% revenue growth remain unchanged?

And my second question is about our fulfillment side. Given we are on-boarding more luxury brands, do we have any investment plan on this ground, and how should we see the trend of fulfillment expense ratio? Thank you.

Robin Bin Lu — Chief Financial Officer

Sure. Ashely, it’s Robin. When we provide the 2020 guidance, we did have some pre-condition about the — post COVID-19. Based on current situation, we don’t think we have much change about our guidance, but we are very cautious about what happens for the next year in the COVID-19, globally.

And you know, just most recently, one — the season go into the winter, there are some changes and reduce feel about the brand. Most of brands are very conservative right now for the next year, so we are cautiously watching our debt now and there is no big change in the macro. We are going to keep this outlook.

And about the fulfillment, I want to say fulfillment is one of the very important area we want to invest. I think should be the continued or consistent investment. We expand our format in the warehouse. We are happy with our warehouse for the luxury, and I think that’s one of the driver to grow out our business. And in the next year, we think we do have some investment in the warehouse, but we are in the budgeting process right now. We haven’t decided yet the exact number. As we have the number, we will share with investors. Thank you.


Thank you for the questions. Next question comes from the line of Thomas Chong of Jefferies. Please go ahead.

Thomas Chong — Jefferies — Analyst

Hi. Thanks, management, for taking my questions —


I’m sorry, Mr. Chong, I think your line is not very clear. Are you using a hands-free?

Thomas Chong — Jefferies — Analyst

Hi. Thanks, management, for taking my questions. Can you comment about the strategies of domestic and international brands? That’s number one. Should we expect international brands entering into the china markets more aggressively next year? Thank you.

Robin Bin Lu — Chief Financial Officer

Yes. Hi, operator, it’s not clear. We cannot — we barely hear. So, can we just skip this one and have him adjust his speaker?


Certainly. Mr. Chong, allow us to take your questions later. You can dial back again. Next questions, we’ll go to Charlie Chen of China Renaissance. Please go ahead.

Charlie Chen — China Renaissance — Analyst

Yes, management. Thank you for taking my question. I have two questions here. First one is about the strategy of the luxury brands and domestic local brands. I would imagine those two brands are actually operating quite differently in the marketplace. So based on your previous experience, I can see your company has done very well for the international big consumer brands. So, how would you deal differently to do business with international luxury brands and also how do you deal differently to handle this domestic smaller brands? And how would that impact your overall business structure, like margins, take rates? So, you can comment on that. That’s the first question.

And the second question is, since you have taken this new initiative to acquire new international luxury brands and also domestic brands, I guess, this year the quality growth strategy has been carried out very well. So next year, would that new initiative change your focus on the growth in terms of topline growth versus quality growth or margins? How do you think about that in next year? Thank you.

Vincent Wenbin Qiu — Chairman of the Board of Directors and Chief Executive Officer

Okay. thank you for the questions. Let me take the questions and maybe Robin can say more, yes, for these two. Firstly, of all the luxury brands and local brands, yes, I think actually they are not new to us. Firstly, luxury brands, we are working with them for several years already, although mostly we are having them on the official brand site. But today, according to the marketplace stores, I think because we have performance experience on the marketplaces like Tmall, so there is not a big gap for us to run this kind of luxury brands on the marketplaces. So in general, we are quite familiar with international luxury brands. And for the local brands, we generally already working with them for many years.

And talking about the strategy, I think for the luxury brands, we’re more focused on the fulfillment side, deliver — trying to deliver a very premier customer experience, and also with some of the technologies and CRM system, to help the brands acquire new users and also for fueling the demand from the existing customers as well.

So, the local brands, I think more values will be from the technology side and also digital marketing side. So, we have been in this kind of initiatives for years. So, we are ready to have local brands for these capabilities.

Talking about the margin, the structure revenues from this two, yes, I think maybe Robin can say more about this, the dynamics of the luxury and the local brands.

Robin Bin Lu — Chief Financial Officer

Sure. Hi, it’s Robin. I think just back to your question about high-quality growth, I think at a corporate level, our strategy, that’s really go into every categories, every sectors. It’s not differentiated between the international and domestic.

Regarding domestic, just as Vincent mentioned, they want more in the technology, they want more in the automation, which we invest a lot in this area and we do have our very strong competency, especially compared with our competitors in — while they compete in the market. And that’s what’s the domestic brand like.

And also, we are trying to figure out the — something like a brand new approach to be working with the brands either in the international, automatic. For example, just now I mentioned with so-called as deep cooperation base and try to optimize the landscape to be working with these brands.

I think that’s really spread across the international and domestic. There is much difference between the domestic and international.

And also, what I want to say, if you ask me about the take rate, as a number, we don’t see much difference between domestic and international, as long as you provide service, what they do need. Thank you.

Junhua Wu — Director and Chief Operating Officer

And also talking about the strategy, I think the quality growth — high-quality growth strategy will remain the same. It will not be changed the next year.


Thank you. Once again, I will take the next questions from Thomas Chong of Jefferies. Please go ahead.

Unidentified Participant — — Analyst

Hi, management. Thank you for taking my questions. I’m sorry about the connection problem earlier and I will be asking on behalf of Thomas. Can you share some update on our mini program strategies and the competition between the centralized and decentralized topic in 2021? Thank you.

Vincent Wenbin Qiu — Chairman of the Board of Directors and Chief Executive Officer

Sorry. Can you say that again? Mini program, what? I didn’t hear that very clearly.

Unidentified Participant — — Analyst

Can you share some update on the mini program strategy?

Vincent Wenbin Qiu — Chairman of the Board of Directors and Chief Executive Officer

Okay. Thank you. Baozun right now is quite brand-oriented as in the past, so we actually serve the brands for different channels and also different services, not only about eCommerce transactions but also digital marketing needs, I mean the demand generation needs. So mini program is one of the practice, we are serving the brand for omnichannel methodologies.

So mini program versus the other platform is very interesting because where you can cover not only the transaction part, but also the digital marketing part and integrate these two efforts into one.

So, we think the — but we think the path in the mini program, eCommerce will be shorter than the other platforms. So our strategy is that we are serving the brand, not only for the transaction but also serving only very SaaS plus customization base. Means that, we will deliver a lot of common macro services to the brands and also we can customize for customers the solution for them to fit the Tencent ecosystem. So that is a SaaS plus operation strategy. Thank you.


Thank you for the questions. In the interest of time, that concludes the Q&A session. I would now like to hand the call back to Ms. Wendy Sun, for closing remarks.

Wendy Sun — Director of Investor Relations

Thank you, operator. In closing, on behalf of the Baozun management team, we would like to thank you all for your participation in today’s call. If you require any further information, feel free to reach to us. Thank you for joining us today. This concludes the call.


[Operator Closing Remarks]


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