Vipshops without a taste of capital

After Vipshops released its interim report, the stock price plummeted by 17.55%. Looking at the report card, the performance is indeed a bit disappointing. However, it is in line with previous guidance. Net revenue was RMB 26.875 billion, compared to RMB 27.879 billion in the same period last year, a year-on-year decrease of 3.60%. Net profit attributable to shareholders was RMB 1.931 billion, compared to RMB 2.097 billion in the same period last year, a year-on-year decrease of 7.93%. The total number of orders was 197.8 million, compared to 213.8 million in the same period last year, a year-on-year decrease of 8.1%. The number of active customers was 44.3 million, compared to 45.6 million in the same period last year, a year-on-year decrease of 2.85%. What may make the market uncomfortable is that, despite the poor performance in the second quarter, Vipshops was quite honest and provided even worse guidance for the third quarter: it is expected that the revenue in 3Q24 will be between RMB 20.5 billion and 21.6 billion, corresponding to a year-on-year decrease of 10% to 5%. Due to the overall low consumer sentiment in the country, the retail sales data related to clothing turned negative in the second quarter, and the performance remained poor in the third quarter, which is not surprising given the poor expectations. At the same time, caught in the melee among major e-commerce giants such as Alibaba, JD.com, Pinduoduo, TikTok, Kuaishou, etc., fighting in almost all categories, hundred-billion subsidies are considered basic operations. It is imaginable the difficult situation Vipshops is facing. But upon second thought, Vipshops is still alive. Various vertical e-commerce platforms either delist or go bankrupt, such as Yiqu.com, Letao.com, Xiu.com, Jumei.com, Dangdang, etc. If it seems that only Vipshops is left, and it is still alive. If we don't look at the growth rate, Vipshops is actually doing quite well. Vipshops has achieved profitability for 47 consecutive quarters, spanning multiple cycles, and last year's net profit of RMB 8.1 billion even hit a historical high. What a miraculous player. I. The Perfect Fit Between Brand Clearance and SVIP The clothing industry is most afraid of inventory. Due to the rapid turnover of fashion trends and constant changes in seasons, if clothes are not sold out of season, they basically cannot be sold, resulting in losses. Vipshops' model helps major brands deal with unsold clearance goods. Vipshops collaborates with brand owners to sell brand clearance goods at lower prices. By promoting through brand discounts, limited-time sales, and providing genuine guarantees, as well as assisting in packaging and marketing for the brand owners to help them clear inventory. In terms of scenarios, it can be distinguished from brand owners and other e-commerce peers to avoid direct competition. This way, Vipshops can have both genuine brand and low prices, but only non-seasonal mainstream new products, with outstanding cost performance, providing consumers with a new choice. Brand owners are more than willing to cooperate when someone helps solve the headache of inventory issues. In the first half of this year, Vipshops' buying team introduced more than 600 well-known brands to the platform, covering mass market, trendy, affordable luxury, and European and American designer brands to meet the ever-changing consumer demands. For example, in the second quarter of this year, the platform reached cooperation with brands such as DIESEL, Isabel Marant, Marni, Pinko, etc Vipshops now operates on a zero inventory model, with inventory still in the suppliers' warehouses. After a user places an order, the brand supplier ships directly to the customer. Vipshops lowers the price of branded clothing without additional costs, apart from its own platform operating expenses. This business has achieved a three-way win-win result. From a multi-year perspective, Vipshops still maintains market recognition. Although its market value has shrunk, its revenue and profit performance over the years can be considered stable. The annual data for last year showed revenue of 112.85 billion and a net profit of 8.12 billion. There has been some fluctuation in growth in recent years, but overall, the trend follows changes in the macro environment, and its operational capabilities remain considerable. With a gross profit margin of less than 23% and a net profit margin of only 7.27%, but with an ROE level of 23.3%, even on the basis of declining assets and liabilities. The annualized ROE level for the first half of this year also exceeded 20%, indicating relatively high overall efficiency. In the current e-commerce battle, in the eyes of giants, Vipshops may only be seen as a less important vertical e-commerce platform. This also means that Vipshops can have its own niche market and has found its core user group. Vipshops' service is aimed at this group of people. Whether they are at the cutting edge of trends is no longer important, but the quality of life that is comfortable and decent still matters. While spending less money, there is no need to worry about counterfeit brands, and there is the best logistics service and after-sales service. Vipshops has completely captured this vertical group of people, becoming its SVIP (super member). However, on the other hand, the ceiling is also quite apparent, as Vipshops is unlikely to become a major comprehensive e-commerce platform. Vipshops has launched free SF Express postage return and exchange services for SVIP members, with 1-hour rapid refunds. Although the return rate is high, the investment in this area is worthwhile because of the strong consumption power of SVIP members. The majority of the user profile is middle-quality product moms. By serving these people well, Vipshops can survive and establish its own brand moat. In the second quarter, Vipshops' active SVIP users reached 7.4 million, an 11% year-on-year increase, contributing 47% of online consumption. The average annual GMV contribution per member in this segment exceeds 10,000 yuan, showing very strong purchasing power. As long as the relevant data for SVIP performs well, it means that Vipshops is not actually declining. Driven by SVIP, despite a decrease in order volume in the second quarter, Vipshops' average order value reached 256 yuan, an 8% year-on-year increase. Vipshops has a total of 44.3 million active users, with SVIP accounting for only 16.7%, but contributing almost half of the purchasing power The management stated at the performance meeting that with their own service capabilities and customer trust, there is potential to expand the SVIP customer base in the coming quarters, and with higher SVIP contributions, there will be a slight increase in return on investment. Second, fall where you stumble Vipshops had 45.6 million active users in the second quarter of last year, compared to the current 44.3 million, losing over one million active users. Vipshops Chairman Shen Ya admitted: "The market competition in the second quarter is still quite fierce, we did not massively subsidize users or expand users, resulting in the loss of some wavering users." Vipshops' net profit margin is only a few points, which is not enough to start any price wars. Subsidies are out of the question, and compared to the efforts and financial resources of the giants, there will be no splashes. However, Vipshops not only did not massively subsidize to expand users, but also reduced this expenditure. Apart from a 10% increase in technical expenses, all other expenses are decreasing. Including total operating expenses, which decreased by 4.2% year-on-year from RMB 4.5 billion in the same period last year to RMB 4.3 billion. Performance expenses decreased by 0.8% year-on-year from RMB 2.18 billion to RMB 2.16 billion. Marketing expenses decreased by 17.0% year-on-year from RMB 0.8925 billion to RMB 0.7407 billion, with the percentage of total revenue dropping from 3.2% in the same period last year to 2.8%. General and administrative expenses decreased by 6.5% year-on-year from RMB 0.9631 billion to RMB 0.9007 billion. Marketing expenses decreased the most, showing no intention of engaging in a battle with the giants, completely lying down. Vipshops stated that it will continue to focus on high-quality branded products, deliver value to customers, and will not subsidize to pursue business scale. The former Vipshops was not like this, and once wanted to do great things. In 2013, it chose to build its own logistics, established Pinjun Logistics, with an initial investment of RMB 2.4 billion. Finally, in 2019, it ceased operations and chose to cooperate with SF Express. In addition to clothing flash sales, it also wanted to cross multiple categories such as beauty, maternity, home, and automotive flash sales, but its competitiveness was average. In the end, it streamlined its business and focused on clothing flash sales. Up to now, it does not want to compete with others, just do its own thing and make its own money. Vipshops currently has RMB 21 billion in cash and RMB 1.9 billion in short-term investments, with liabilities mainly in accounts payable. Operating cash flow every year is much greater than net profit. The concept of "not advancing is retreating" has caused great anxiety in society, and Vipshops has interpreted that being content with the status quo may not be a bad thing. Vipshops is a fairy-tale company admired by many online, providing all employees with free three meals, supper, exclusive employee shuttle buses, etc. The company's headquarters has facilities such as an outdoor river-view swimming pool, rock climbing wall, table tennis hall, massage room, and a caring mother's cottage, all open to employees for free. The most outrageous is one of the 672 apartments renovated by the company for RMB 120 million in the city center, all rented to employees at 10% of market price For only 300 RMB per month, you can stay in a fully furnished one-bedroom apartment located in the core area of downtown Guangzhou. The apartment is equipped with facilities such as a library, gym, convenience store, and parcel lockers. It also offers 24-hour property management and butler services. It is located 200 meters away from Haizhu Wanda Plaza and approximately 6 kilometers from the Vipshops headquarters. The commute takes about 10 to 15 minutes by shuttle bus. After accumulating wealth, the company has also started to reward shareholders. In the second quarter, the company has repurchased over 200 million USD and reiterated that it will allocate no less than 75% of the 2024 non-GAAP net profit to dividends and share repurchases by 2025, with the expected return size reaching 6.6 billion RMB. At the same time, the management has approved a new two-year repurchase plan, allowing the company to repurchase up to 1 billion USD of shares within 24 months after completing the existing share repurchase plan, equivalent to 14% of the company's total market value of 7.1 billion USD as of the closing on August 19. With strong shareholder return expectations, the parts that plummeted after the financial report have all been filled back. Conclusion: Major e-commerce platforms are competing for the largest market share, and although Vipshops has also been affected, overall it is doing well. Vipshops has captured a portion of users and territory, creating a steady and continuous profit for shareholders. If it can grow, it will grow; if it cannot, there is no need to force it. The market no longer has such expectations for it. Many times, it's not that you are not working hard, but that you cannot control the world and are instead controlled by it. It's better to live well, live with high quality. Vipshops has created value for society, suppliers, customers, and employees, and has also brought returns to shareholders, which is already commendable