Vipshop: Don't participate in the "rat race", focus on being small yet beautiful.

The following is the summary of Vipshop's 4Q22 conference call. For financial analysis, please refer to "Can Vipshop's Spring Arrive?”.

I. Business Performance

1. Nationwide GMV for clothing-related products has exceeded our previous expectation of YoY decline. The customer trend has been gradually recovering year by year, and the number of visitors has significantly increased. The number of SVIP customers has increased by 13%, accounting for 42% of our online consumption.

2. In terms of brand and product portfolio, core brands that cooperated throughout 2022 have achieved positive growth on the Vipshop platform. GMV for clothing has performed better than non-clothing GMV. Custom-made goods we cooperated with Vipshop have outperformed standard goods. We have deployed more resources to partners, launched innovative channels to build good sales momentum, and increased customer participation in a cost-effective way. This is also an important way we increase our user base. We currently have 6.7 million SVIP users who frequently visit our website.

3. Technology has become more important in all aspects of our business. Our comprehensive upgraded merchant platform enables brand partners to conduct brand operations through measurable data and analysis.

4. Looking forward to the opportunities after the pandemic, we will continue to leverage our huge inventory and professional buying team. However, since the beginning of this year, we have seen a rebound in spending on clothing and non-clothing items. We have the opportunity to attract new customers.

II. Q&A

Q1: How do you view the latest competitive landscape? Will Vipshop increase investment in discounts and promotion as other e-commerce platforms increase marketing spending?

A: Indeed, the competitive landscape in e-commerce is intensifying, and everyone is offering subsidies. Our uniqueness lies in that: 1. Unlike other e-commerce platforms, we sell relatively few standardized goods and more wearable items, which makes it difficult for us to get involved in price wars;

1. We don't have many SKUs, and brands will make special offerings and customizations for us;

2. We pursue healthy growth and do not offer blind subsidies. We aim to keep the platform active in the long term, rather than relying solely on subsidies to attract customers;

3. In terms of live-streaming e-commerce, we have been in long-term competition with live-streaming e-commerce platforms, and the situation has not changed significantly at present.

Q2: What is Vipshop's strategy for acquiring new customers this year? How will it affect the profit margin this year?

A: We will actively expand our customer base in 2023, but we will still strictly evaluate user acquisition according to LTV (lifetime value) to ensure the quality of our user acquisition, thereby reducing the cost of acquisition and market expenses and improving the quality of user growth.

In terms of profit margin, we believe that last year's market expenses were reasonable, and this year's market expenses will continue to follow this model. We expect market expenses to be relatively stable without significant fluctuations.

Q3: After the pandemic, is there a clear trend of recovery in the market? Are there any significant changes in customer brand and category preferences? A: After the epidemic, the recovery of consumption is relatively fast, and the diversity of demand for buying clothes has increased significantly. Our user conversion rate is increasing. Due to the epidemic's impact on brand owners last year, there is a large amount of inventory that needs to be sold this year. Therefore, our product supply, cooperation with partners, and the overall trend of the market are relatively good.

Q4: Is the high growth rate of 4Q platform GMV compared to revenue due to the good performance of the 3P business, and is it related to the previous 3P expansion plan?

A: Vipshop's 4Q22 revenue decreased by 6.7% and GMV decreased by 4.6% year-on-year. We believe that the main reason is the increase in the return rate caused by the epidemic.

Q5: How much optimization space is there for expenses in terms of net profit margin in 2023? Can the net profit margin continue to increase? What is the long-term trend of net profit margin? Is there an opportunity for structural improvement in gross margin?

A: For the gross margin, our goal is to keep it stable throughout the year. As for the net profit margin, we believe that there may be room for improvement, mainly in the optimization of user acquisition costs.

Q6: What is the business situation, GMV and consumer sentiment in the last few months? What is the outlook for the whole year of 2023?

A: The recovery after the epidemic is more obvious, and we estimate that the overall performance in Q2 will also be relatively good. We are confident about the growth in Q2 this year, as last year's Q2 performance was very poor due to the epidemic and lockdowns. Due to the recovery of consumption after the epidemic, we are optimistic about the overall trend in Q2, Q3, and 2023.

Q7: Under the background of post-epidemic recovery, has there been any change in the buying power and customer unit price of old users? Are there any new opportunities?

A: We believe that the customer unit price will not increase significantly. Mainly because after the epidemic, as activities increase, people will buy more clothes, but the frequency of shopping will increase.

Q8: Is there an annual plan for the growth of active purchasing users?

A: We expect to achieve user growth in Q1, and it is also relatively easy to achieve in Q2 because of the significant decrease in Q2 user last year, which provides a lower base. We are optimistic about the overall trend for the year, and we still pursue healthy user growth.

Q9: In the past few years, Vipshop's revenue has not achieved high growth. Under the situation where it is not very realistic to increase gross margin further, what is Vipshop's strategy for revenue growth?

A: Since we do not intend to bargain with brand owners, there is not much room for gross margin growth. We expect the gross margin rate to remain stable in 23 years. We will continue to reduce costs and increase efficiency. Net profit margin still has some opportunities to increase, but the most crucial factor is business growth. We will take the following measures:

1. Continue to maintain healthy operations overall, better acquire new customers, and promote old customers to buy more.

2. The product line will expand, but revolutionary changes are unlikely.

3. Make the product prices better to improve the conversion rate.

4. Our personalized development space is very large;

5. We will increase the number of user visits to the website, for example by improving the website design so that people can come to our website to learn about fashion.

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