Good morning, ladies and gentlemen. And thank you for standing by for Baozun’s First Quarter 2021 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 will now turn the meeting over to your host for today’s call, Ms. Nicole Zhao [ph], Investor Relations Manager for Baozun. Please proceed, Nicole.

Thank you, operator. Hello, everyone, and thank you for joining us today. Our first quarter 2021 earnings release was distributed earlier today, and this is available on our IR website at ir.baozun.com as well as on global newswire services. On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer; Mr. Arthur Yu, Chief Financial Officer; and Ms. Tracy Li, our Vice President of Strategic Business Development. Mr. Qiu will review the business operations and company highlights, followed by Mr. Yu, who will discuss financials and guidance. They will all be available to answer your questions during the Q&A session that follows. Before we begin, 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 management’s current expectations and the current market and operating conditions and relate to events that involve known or unknown risks, 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 statements. Further information regarding these and other risks, uncertainties or factors is included in the company’s filings with the U.S. SEC and in the company’s announcements, notice or other documents published 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 the 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.

Well, thank you, Nicole, and thank you all for joining us. We are pleased to announce another solid quarter of high-quality growth. Our total net revenues increased 33% year-over-year to CNY 2 billion, and our non-GAAP income from operations more than doubled to CNY 76 million. We added a net total of 15 brands, including luxury apparel, cosmetics, food and health brands as well as brands from the Full Jet acquisition. We believe these numbers reflect the quality and trust of the relationships we have developed with brand partners. And now please turn to Slide 3. Overall, we are on track to deliver our medium-term strategic plan. Let me provide some highlights about how we are progressing with our 3 key initiatives. Now please turn to Slide 4. For customer first to drive growth, our luxury sector is an example in which we’ve made continuous progress this quarter. In addition to signing on new brands, we also provided more value-added services. This includes interactive digital marketing, IT customization and the premium warehouse and logistics services. They all have greatly improved the user experience and generated a higher profit contribution. Luxury has become a significant profit contributor, accounting for 15% of our GMV in apparel and accessory category and growing over 50% year-over-year. In addition, we enhanced our leading position in luxury and strengthened our consulting and brand insight capabilities through the acquisition of Full Jet and the strategic alliance with the Fosun Fashion Group. In late April and early May, the core Full Jet team made a visit to Europe and generated a number of promising business leads. Overall, we remain optimistic that the luxury sector will be one of our key growth drivers in the year ahead. On our omnichannel strategies, we are helping brand partners to obtain incremental…

Okay. Thank you, Vincent. Hello, everyone. I will start on Slide #8. We saw strong growth in total GMV, which increased by 44% to CNY 13.2 billion. Our distribution GMV rose by 37% to CNY 1.1 billion, and our nondistribution GMV increased 44.4% to CNY 12.2 billion. Breaking it down by category, we continue to see strong growth momentum in the apparel and accessories, electronics and FMCG categories. The strong performance of the luxury sector helped apparel grow nearly 30% year-on-year with new luxury brands on board on Tmall. However, we faced some temporary headwinds in March due to the concern raised by Better Cotton Initiative. This negatively impacted the growth of the apparel and accessories category, especially sportswear brands. Electronics grew nearly 40% year-over-year, while FMCG contributed triple-digit year-on-year growth from a low base last year. FMCG now accounts for about 15% of overall GMV. On the other hand, we still see slow year-on-year growth from the appliance category, but the trend is improving significantly compared with Q4 2020. We believe the healthy and balanced growth of our GMV demonstrates the resilience of our business model backed by our diversified brand portfolio across a wide range of categories. Now please turn to Slide 9. Total net revenue increased by 33% to CNY 2 billion. Product sales revenues increased by 39% to CNY 972 million, and service revenues increased by 28% to CNY 1 billion. While the growth in service revenues was not as fast as product sales revenues, remember that our service revenues in Q1 2020 were not badly impacted by COVID-19. When we look at the overall revenue growth across a longer period from 2019 to 2021, the CAGR for product sales revenue and service revenue were both around 25%, which demonstrates a healthy growth trend. Our product…

[Operator Instructions] We have the first question coming from the line of Alicia Yap from Citigroup.

I have a question regarding the upcoming June 18 promotion. So with 1 month approaching that event, can management share with us, compared to last year, what are the biggest difference in terms of the consumer sentiment and also the merchants’ readiness in terms of the preparations for these June 18 campaigns? Have the merchants already started to prepare? And are they more willing to spend their marketing budget for promotion? Or actually, have you seen any scale-back on the promotion that they will be more prudent this year?

So maybe, Tracy, can you take the first question?

Yes. I think the whole company right now, we have -- going to the fiber model in order to prepare for the -- if 18 is only 1 month left, I think we can take the question from 2 point of view. Firstly from the brand part, actually I think we prepared this much more longer time compared with last year. And from the merchant-wise and also the promotion cadence part, our brands are more mature than before. And you can see Tmall actually and also other platform has released their cadence this year, and all of our preparation is corresponding for this. And another point I want to highlight is from the -- actually, from the platform itself after regulation, you can see actually the Alibaba will have been more closer and friendly to our brands and merchants, and this has been demonstrated by providing new tools to merchants with lower costs, especially by waiving some of the deposit fees and then lower the entry barriers for new brands, which means, I think, for this year’s 6/18 for the smaller and the middle-sized brands, their P&L are going to be a little more improved. And for our larger brands we’ve been collaborative right now, we are finding multiple ways besides the Tmall platform and other platform like emerging channels to realize the growth, yes.

The next question comes from the line of Ashley Xu from Credit Suisse.

I got 2 questions. First is that you have mentioned about the Selling Machine. Could you please elaborate more on this? And what’s the latest progress and what we should expect in next stage? And my second question is about the impact from the cotton issue. How should we see the impact for both 2Q and full year in terms of how large the impact would be and how long that would continue?

Okay. Ashley, I will take the first one about the Selling Machine thing, and then I’ll ask Arthur to answer your second question about BCI. As what we mentioned, Selling Machine, I think the results generated now is quite encouraging, but it’s still in a quite early stage. So I think the major task today for the team is that we just want to deliver a deeper and a more solid result before we can roll out these toolkits to other brands. But anyway, we are quite optimistic for the potential of this tool, and we think this will be instrumental for a lot of brands to generate their incremental sales in the future. Yes, we can -- I think we can see this in the near future, not very long. Now the second one about BCI, Arthur?

Yes, let me share some thoughts on the BCI. For the BCI, I think it’s mainly impacting the apparel categories and for us is mainly the sportswear and fashion brands. It’s a sensitive issue and very difficult, very hard to predict what’s going to happen next. Therefore, the brands are keeping a low profile, and Baozun is helping brands to manage the customer and manage the communication properly and helping brands to decide when to make the investment into the advertising to generate the type of returns. We start to see the impact since the end of March and throughout April, which we have seen some impact to our top line or of the growth. But starting from May, we have seen a sign of recovery, so we are waiting to see what the 6/18 outcome -- the outcome looks like to decide the true impact for the full year. Our base scenario for planning the business forward is we think the impact will be in Q2 as a one-off hit, but our second half of outlook will kept unchanged. So that’s our overview for the BCI.

We have the next question coming from the line of Joyce Ju from Bank of America.

Management, congrats for the results this quarter. Just want to have a, first, follow-up question on the June 18 event, which is that I just want to check for this year, yes, given we actually see a greater exposure in the non-Tmall channel, so for this year for June 18 promotion, we have [indiscernible] .

Sorry.

Joyce, I’m sorry, you are breaking up a little bit, not very clear. Can you maybe.

Oh, sure. Is it better now?

Yes, you can give it a go, yes.

Oh, yes. Sure. I mean given we actually see an increasing exposure in non-Tmall channel, could you share with us a little bit more in terms of this year what changed? Or like what’s incremental in our services provided to the customers to prepare for the June 18 given we now have like more -- other platform promotions need to be prepare -- need to prepare? And the second question is actually within this quarter, significant increase of our non-Tmall percentage GMV. Just trying to understand which platform contributes most to this like incremental growth and how we should expect this ratio to change over the like short term and also the mid to long term.

So maybe, Tracy, talk about the non-Tmall side, and then I will talk about the non-Tmall -- what’s in there, yes.

Sure. I think regarding the, how to say, the omnichannel landscape right now, I also would like to take this from 2 point of view. For the longer term actually, you see from the brand point of view we have a healthy and a sustainable growth. The brands need to continue building their real estate and their future proofing. They are prepared in this by constantly adopting to China’s [indiscernible] online commerce environmental. So from this point of view, you can see even in the coming, I mean, 6/18, they’ve been trying to split and also to -- split the [indiscernible] and also to try different angles on the promotion part, use different tools and the different platforms. You can see some of our categories, especially in fashion, beauty and also luxury, they’ve been utilize some of the live stream ways as a pop-up even as of May 20 campaign right before the 6/18 to test the water, I mean, the business model and also the consumer landscape in that platform. And also, I think the second point from the platform itself, there is strong DAU in those especially content-oriented platform. That shows they have a great, I think, potential to realize a closed-loop e-commerce business there, so which means we look good on this. That’s why from Baozun’s -- our own efforts, we’ve been trying to act quick and make progress in the emerging channels to build our workforce and also investments here to make sure when the environment come up, we can do better in there, yes.

Okay. Now I will make some comments about the mix of the omnichannel increase. So basically, for the increase of the non-Tmall of the channel, of the percentage, we saw the increase from all channels outside of Tmall and most significantly from the mini program, but not falling far behind is our brand store dot-com. So this is further proof that in the market, if you are looking for an omnichannel solution where Baozun, after we enhance -- so as we enhance our technology capability, we can offer this service in a very fast pace to our customer. And also, I want to repeat that even though we made progress in the non-Tmall kind of channel, Tmall itself is actually growing healthily. We delivered over 20% year-over-year growth from the Tmall channel, which is ahead of Alibaba’s Tmall channel year-on-year growth. So it’s actually a demonstration of Baozun’s capability to help the brands to be successful in the Tmall channel as well. Going forward, we will keep making the investments into our strategy to go for the omnichannel and helping -- to helping our partners to deliver more incremental growth for their business.

Just a quick follow-up. Could you just remind us like what’s the economics for other channels? Are they similar to Tmall? Or are they actually very different? And also, with higher percentage of GMV coming from other channels, should we expect our blended take rate more than having a different track?

Okay. So we’re in the early days in terms of omnichannel. We are still in the stage of making the investment. Therefore, the take rate for other channels is not as good as Tmall. And also, we talked about in the past the different channels has a different cost model. So for example, if you look at the mini program, it actually has a marked simpler operation which requires significantly less cost compared with the Tmall operations. Hence, our take rate charging model will be different compared with the Tmall channel. But having said that, what we have made very clear, what we don’t want to do is to go for the growth in expense of profit. We are looking for sustainable long-term growth. So our new channels we develop, we will aim for making that channel profitable in the medium and longer term.

We have the next question coming from Thomas Chong from Jefferies.

I have 2 questions. So the first question is, can we talk more about our M&A strategies? And my second question is, can management elaborate more on cost base optimization and trend on operating expenses?

Okay. So I heard 2 questions. One is on M&A strategy. And secondly is on the cost base, kind of how we optimize the cost base, right? So I will go for the M&A strategy first. So basically, we laid out our medium-term plan last time. So we want to become a CNY 150 billion GMV company in 3 to 5 years’ time. So in order to do that, we’re actually looking at our growth driver. We think if we only go for the organic growth, we’ll not be able to deliver our medium-term objectives. Therefore, we will -- we are actively using M&A as a way to grow our top line. So that’s the first direction we are aiming for through our M&A. And secondly, as the requirements of our customer expanding, and -- we need to enhance or improve our own capability so in that way, we will be able to service our customer better. So therefore, on one hand, we’re looking at use our internal capability to do it. And at the same time, we look at external to acquire the capability to help us to do it faster. So for example, if you think of our strategic alliance with iClick, it’s actually helping us to catch up on the SaaS capability very quickly in the mini program, so -- which helps us to -- actually to provide a better service for the customer. So that’s the second one. And then the third one. So we have seen some new channels -- we have seen some channels where the growth has a huge potential. So for example, Douyin. So in this quarter, we actually made some equity investments into some live streaming companies, which help us to enhance our live streaming capability. So with that all in…

We have the next question, this is coming from Feitong Zhang from CICC.

I have 2 questions. First one is regarding to new brands. I want to know our new brands. This quarter, we have many new brands. I want to know the number of new brands coming from our investments or cooperation with iClick or Full Jet or Fosun, those corporation, to have better understanding to our brand portfolio. And also, what is our same-store sales growth for this quarter? This is my first question. And my second question is, what is management view on Tmall platform post regulation? Will it be more friendly to merchants or more to local brands, et cetera?

Okay. I will take the first one, and Tracy can -- and Tracy and Vincent can talk about the second one. Firstly, the 15 brands is actually a mix of both the organic growth and also the acquisition from Full Jet. So basically, Full Jet contributed 6 brands within the 15 brands we actually have acquired. And secondly, for the same-store growth, if we look at the same store, it’s actually 27% year-over-year same-store growth. But if we look at the same brand growth year-on-year, it’s actually go up to 31% to 32%, which means our omnichannel strategy is actually helping the brands to grow the channels as well on top of the same-store growth year-over-year. Tracy?

Sure. Yes. Regarding the Tmall post the regulation, I think it’s doing a lot of published drafts right now. And also, we have a lot of closed-door event with Tmall. You can see actually Alibaba has been more closer and more friendly to the merchants. They have been demonstrated by providing new tools to merchants with lower cost and by waiving some of the deposit fees and lower the entry barriers to new brands. I think they will have direct improvement on brands’ P&L, especially for the small and the middle-sized companies and local brands. And also, I think one thing we would like to point out is about the Shanghai hub. So in the -- I think last month in April, in the Tmall closed-door event, TOP TALK, and the Tmall leader has expressed their first priority this year will be to improve the consumer experience further and create a better marketplace environment for merchants and also the service provider like TP. So the relocation to -- will help Tmall to better serve international companies selling goods on the site. And also, the relocation will, in fact -- Tmall’s a lot of categories starting from beauty and outdoor sports and also their consumer operation units will move to Shanghai in the first wave and the other units will -- some of the other units will follow. And since Baozun headquarters is also located in Shanghai, so I think this movement will also further strengthen our collaboration with brand and also Alibaba Group together. Thank you.

We have the next question, which is coming from Charlie Chen from China Renaissance.

This is Charlie. So I have one question about the take rate. So you just mentioned that the take rate for emerging channels are not comparable to Tmall channels. So can you share with us more details about whether those low take rates from the new channels are because of the product category that you are selling in the new channels are naturally having lower take rate or you are giving some sort of subsidies or helping those brands to grow initially so that you are voluntarily taking a lower take rate? And also, the follow-up question is how do you think the take rate trend in the new channels going forward.

Okay, Charlie. Thanks for the question. I think from a take rate in the new channel perspective, it’s actually a mix of both factors you just mentioned about. One is on the different categories. So for example, we have seen the FMCG category, which is -- has a stronger potential in the platform like JD, like the mini program, which has historically comparable lower take rate. But most importantly is, like I mentioned earlier, it’s actually the cost structure difference. When we do a business, we don’t do a business because of the cost rate. We do a business by looking into the revenue we generate and also the costs we incur through that business in order to -- like to see how much profit will contribute to the bottom line. So by looking at the different model in the new channels, we’re actually not purely focused on the GMV, we’re actually focused on the revenue. So for example, if it has a bigger GMV with a lower kind of take rate but generates a significant revenue, which impacted the cost with a healthy margin, then we it’s a business we should be doing going forward. So we are not focused on take rate, but we are focused on the bottom line profitability. So that’s number one. Number two is we did make some investments in the early phase. So for example, as Vincent mentioned earlier, technology investments to -- into our system, which is on a plug-and-play basis, will actually present a lot of channels. When a brand has a new request, we’ll actually very quickly take it on board. So that investment -- and that’s the investment area we will keep investing in the next few quarters. But after that, after we have built a scale and after our technology investment has -- gave us the efficiency, we will be able to see the benefit from the scale of the business, which will increase the profit margin and also the take rate of the new channels. So that’s the plan going forward.

[Operator Instructions] As we have no further questions at this moment, I would like to hand the conference back to our host. Nicole, please take over.

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