01

The future is here, and industry changes are imminent

Technology not only changes lives, but also changes business patterns anytime, anywhere. Recently, AI technology breakthroughs have caused a stir in the global technology community, and have once again knocked on the door to “change” in many industries.

According to the Dongwu Securities research report, the application of generative AI will drive content production to reduce costs and increase efficiency, bring freer interactive experiences and business scenarios, and in turn promote the revaluation of various industries. The e-commerce industry is one of them.

In 2022, China's e-commerce industry's order volume GMV grew 13.8% year on year. The growth was relatively slow, and the industry has gradually entered a mature period. At the same time, over the years, following comprehensive changes in traffic, scenarios, channels, models and technology, the mainstream positions and preferences of consumers in online shopping have also been changing, and the industry pattern continues to change.

Changes in the industry pattern and the ups and downs of e-commerce show the fact that the vitality of e-commerce has not essentially declined; on the contrary, it has continued to evolve.

Under this general premise, the brand e-commerce model also continues to evolve. More than two years ago, Baozun, the first brand e-commerce stock, returned to Hong Kong stocks, leading the industry to the 2.0 stage of branded e-commerce. Since then, new e-commerce channels have risen, bringing about the 3.0 era.

Currently, technological breakthroughs are driving industrial transformation. A new wave of digitalization has arrived, and the entire e-commerce industry has reached a crossroads driven by algorithms and empowered by AI. Where will it go in the future?

This time, we still set our sights on Baozun.

02

Technology-driven “cost reduction and efficiency increase”

On March 22, Baozun E-commerce announced financial results for the year 2022 Q4 and the whole year. Similar to Internet giants around the world, Baozun handed over a “cost reduction and efficiency increase” transaction order. However, Baozun's characteristics are very prominent. The technology-driven efficiency improvements and financial control it proposed were fully reflected.

According to the announcement, Baozun's total net revenue for Q4 2022 was about 2.6 billion yuan, non-GAAP operating profit reached 180 million yuan, an increase of 157% over the previous year, and non-GAAP operating profit was about 7.2%.

Under the special circumstances of the fourth quarter of last year, Baozun recorded a total transaction volume of about 25.6 billion yuan. Among them, the non-distributor-service fee model GMV was RMB 17.26 billion, an increase of 2.4% over the previous year, achieving a slight increase against the trend. GMV generated by Baozun's non-Tmall trading platforms and channels in 202Q4 accounted for about 29.8% of the total GMV for the quarter, compared to 26.1% in the same period in 2021.

Looking at the whole year, annual service revenue increased 4.2% year-on-year to 5.76 billion yuan, further increasing the share of service revenue.Among them, revenue from value-added services such as digital marketing and technology services is growing the fastest.

Non-GAAP operating profit was recorded at $260 million, an increase of 14.3% over the previous year. The full-year operating cash flow improved significantly compared to 2021, reaching a record high.

Looking at annual operating data, GMV was RMB 84.3 billion, an increase of 18.6% over the previous year; non-distribution GMV was 81.3 billion yuan, an increase of 21.9% over the previous year. Among them, the service fee model GMV was 60.6 billion yuan, a sharp increase of 39.6% over the previous year; while GMV generated through non-Tmall trading platforms and channels throughout the year accounted for about 30.7% of the total GMV.

As I saw,Whether it was Q4 2022 or the whole year, Baozun achieved a double increase in operating profit and cash flow, and the characteristics of high-quality growth continued throughout the year.

The above data can not only reflect Baozun's fundamental resilience, but also feel that the company continues to benefit from structural optimization and the dividends released by the omni-channel strategy — through the increase in the penetration rate of the service business, in particular, the ability to comprehensively utilize the company's technical infrastructure capabilities to achieve omnichannel value-added services that empower brand customer technology, driving the company's endogenous growth.

At the level of promoting technological empowerment and advanced technology, in 2022, Baozun's intelligent service system, Service-Anywhere (S-ANY), launched a new module, the one-stop remote management hub, the intelligent content creation system Design-Anywhere (D-ANY), which empowers brands to create content efficiently. The updated launch of this system once again strongly shows that Baozun is a pioneer in the application of AIGC (AI Generated Content, meaning the use of artificial intelligence technology to generate content) technology in the industry.

One of the most recognizable and influential things in the industry is that Baozun launched a new technology commercial brand in 2022 — “Baoduo”.

According to public information, the product is a dedicated service brand retail, an omni-channel digital technology service brand based on a “business+data” dual platform and oriented by business results. Baoduo integrates Baozun's comprehensive technical capabilities for the world's top brands over the past ten years to provide integrated solutions covering the brand's end-to-end digital business.

The advent of Baoduo certainly made the industry marvel at Baozun's innovative technological breakthroughs and evolutions, and also re-experienced Baozun's determination to always occupy the “high ground” of technology and application in the industry and the digital age. Technology-first is enough to explain everything.

According to other data, by the end of 2022, Baozun Service provided digital business services to more than 400 brand customers around the world, covering full-link online store operations, customer service, digital marketing, technical services and warehousing logistics. Among them, about 42% of online store operating brand partners have chosen to establish omnichannel cooperation with Baozun.

At the end of 2021, a large amount of cash reserves and vigorous promotion of an omni-channel strategy enabled Baozun to successfully withstand risks in a harsh external environment. By 2022, high-quality profit growth capabilities were first shown. The penetration rate of the service business increased and the revenue from omnichannel value-added services grew beyond expectations. Management effectively promoted detailed management and introduced a series of cost reduction measures, putting cost optimization and working capital efficiency first, creating a stronger net operating cash flow inflow scale. With abundant company cash, it was possible to repay the debt early. A multi-pronged approach supports the company's stock price to get out of the slump. By the end of 2022, Baozun's cash, cash equivalents, restricted cash and short-term investments totaled 3.1 billion yuan, and the cash reserves were still solid enough.

Overall, regardless of performance or fundamentals, whether it is continuously promoting the optimization of the revenue structure, implementation of omni-channel strategies, or Baozun's advanced technology research and technology application, Baozun has made due preparations for the future and actively welcomes the huge opportunities of industrial digitalization in the domestic market.

03

Baozun took the lead in upgrading and led the industry to the next level

Following the release of the 2022 financial results, Baozun immediately announced a complete business line upgrade, that is, upgrading the three major business lines based on the original e-commerce business, namely “Baozun E-Commerce (BEC)”, “Baozun Brand Management (BBM)”, and “Baozun International (BZI)”. This move may become a landmark event in the further evolution of the industry, representing that it is “racing ahead” to explore the advancement of the industry into the future.

Judging from the planning, Baozun e-commerce (BEC) is the core of Baozun Group's business, Baozun Brand Management (BBM) is a key sector for Baozun Group's growth over the next three years, and Baozun International (BZI) will become the new engine for Baozun Group's long-term development.

Mr. Qiu Wenbin, founder of Baozun E-commerce and Chairman and CEO of Baozun Group, said, “Looking ahead, we see that the integration of online and offline retail is accelerating. Brands need to achieve more accurate and effective interaction with consumers through technology and digital empowerment.”

Therefore, the comprehensive upgrade of the three major business lines is actually a change made in advance by Baozun to adapt to this huge irreversible trend. At the same time, the goal of building a new digital business service platform is highly unified with Baozun's newly upgraded “global brand digital business partner” role positioning, so the three business line upgrades proposed by Baozun this time are not a simple business classification, but a comprehensive system restructuring. It is also an upgrade of Baozun's ideas and strategic ideas based on deep insight into the future operation and development of the industry and the times.

Mr. Qiu Wenbin said that he believes Baozun's brand management and Baozun International will bring incremental space and become Baozun's growth path and breakthrough in the next five years, so investors have been paying attention to Baozun's “second growth curve” and the logic such as where it came from became clear and self-evident after announcing the full upgrade of the three major business lines.

Let's take a deeper look at these two major growth paths and breakthroughs.

Baozun's brand management proposes the long-term goal of building a lifestyle oriented high-end brand matrix, that is, using the innovation and insight of Baozun e-commerce to continuously discover high-potential brands with healthy development prospects, form a closed loop from the supply chain to the value chain, integrate online and offline multi-channel operations, and provide 360° brand management services to further unleash the brand's commercial potential in China.

Whether it's a growing domestic brand or a mature overseas brand, there is an opportunity for Baozun to provide such comprehensive brand management services. Baozun also has sufficient ability and rich experience to select some promising up-and-coming brands, and focus on helping them accurately stand at a new starting point, or for traditional brands to gain unprecedented confidence and vitality for growth after repositioning and refinement. The acquisition of Gap's Greater China business in 2022 is an important starting point for Baozun's brand management business.

Other examples can be seen in a collaboration project with an international sports brand in 2022, Baozun helped the brand to upgrade creative and digital content, enhance the consumer's interactive experience through virtual reality, creative live streaming, etc., and help convert members. In addition, the company also signed a brand management project with a leading global sports equipment retailer to jointly build its digital operation platform. Through various methods, Baozun's strong operational strength, technical ability, and future business expansion potential were further verified.

Baozun's brand management also plans to take various forms such as mergers and acquisitions, investments, and joint ventures, so it seems that the author has seen that Baozun has already further expanded brand service management to the “brand asset value” management concept. This is bound to be a path of “turning every stone into gold.”

Looking back at Baozun's online business, it is different from Baozun e-commerce and Baozun brand management. Its innovation elaborates the concept of “global localization” and uses this as Baozun's main strategy for developing the international market for e-commerce and brand business. With Baozun's successful business model and technical data advantages of e-commerce business in China, while pursuing global opportunities, it relies on local expertise and resources to form local strategic alliances. According to reports, Baozun International has now begun “global localization” exploration in Southeast Asia and Europe.

Continuously advancing the global business process, building teams around the world, so that the most promising brands and the most advanced e-commerce models can be seen by the world. This is what Baozun International needs to do. For itself, it is Baozun's technology “going overseas”, organization and culture “going overseas”, and methodological “going overseas”, continuously replicating the successful style, experience models, and tools of Baozun e-commerce and Baozun brand management. It has taken root in different markets around the world, and has blossomed. It also shows that Baozun's “Age of Discovery” is coming soon.

04

How to think and respond to the future of digital commerce

How will Baozun explore the creation of a new digital business service model? We can only “catch a glimpse of a leopard within our control.”

If you use a similar popular phrase, it seems that more attention can be drawn. It's Baozun, a big platform. What can it do for brand customers in the future?

As for the future, Baozun aims to start from brand business, take root in the evolution of business models in the digital world, and work hard in various fields of the supply chain to provide customized solutions for brands around the world, create an unrivaled shopping experience for consumers, and build a value bridge between brands and consumers.

Referring to the S2B2C model proposed by former Ali Chief of Staff Professor Zeng Ming, the S supply chain link can be equivalent to the technical tools currently established by Baozun (such as CRM, OMS, IOSP, WMS, LMIS, etc.), technology base (AIGC), or technology platform (such as omnichannel digital operation platforms such as BOCDOP Baoduo), smart warehousing, smart logistics, etc., B is a brand user seeking growth opportunities for digital business on a global scale, while C includes global consumers online and offline.

From supply chain S to brand user B to consumer C, Baozun provides brand customers with richer and higher value services and technical solutions throughout the entire chain through the three upgraded business lines — Baozun E-Commerce, Baozun Brand Management and Baozun International, comprehensively manages all aspects of the brand's digital business life cycle, and co-creates growth with them in the digital commerce field.

“Baozun”, which carries the future and empowers everything after comprehensive upgrading, may have a better chance of successfully welcoming the digital business world that is undergoing drastic changes.