In a period of alternating economic cycles, it has become an increasingly important issue for enterprises to quickly adapt to changes in the external environment and find new growth paths.

This past year, 2023, can be said to be the first year of transformation of Baozun e-commerce (09991, BZUN.US). This year, Baozun's three major sectors of e-commerce, brand management, and international business simultaneously began a comprehensive transformation journey. Combined with Baozun's recent financial report for the fourth quarter and full year of 2023, we were able to see the transformation results of this brand's leading e-commerce service provider after embarking on a new journey with its head held high...

Comprehensive transformation: steady increase in revenue and record high cash flow

Business transformation is usually accompanied by short-term pain. However, the latest financial report of Baozun e-commerce seems to reveal that it has gradually adapted to its new identity. Whether it is key financial data or main business indicators, they all indicate that Baozun's upward trend is being strengthened, and the phased results of the company's transformation have already been shown.

Financial reports show that in the fourth quarter of 2023, Baozun achieved revenue of 2.8 billion yuan, an increase of 9% over the previous year, of which the brand management business revenue was 460 million yuan, accounting for 16% of revenue. At the same time that revenue maintained a good growth trend, Baozun's profit indicators were also being optimized, and net loss during the period was significantly narrower than in the same period last year. Looking at the full year, Baozun's revenue reached 8.8 billion yuan, an increase of 5% over the previous year, and the net loss also narrowed sharply.

Fundamentals have achieved high-quality growth, thanks to the steady progress of Baozun's three major businesses and positive development results.

In the e-commerce business, which is a traditional advantage, Baozun's performance can be described as taking the lead in the word “stable.” On the one hand, Baozun's market share in core categories such as luxury goods and high-end apparel continued to grow, providing solid performance support for the smooth transition during the transition period; on the other hand, during the year, Baozun established new partnerships with more than 50 internationally renowned brands including Tiffany, TUMI and Dyson. In addition, Baozun has also expanded new business formats such as independent customer service business and B2B logistics services, and has launched its own brand incubation to bring incremental results.

In order to adapt to the rapidly changing market ecosystem, Baozun also accelerated its omnichannel exploration practices in 2023. For example, in mid-2023, Baozun set up a creative content business center to leverage business growth; just half a year later, Baozun also reached an acquisition agreement with Luo Kexun, a leading Douyin service provider in the industry. It is understood that the acquisition will be completed soon. At that time, Baozun's strategic layout in the Douyin ecosystem will be further upgraded.

If in 2023, Baozun had extensive accumulation and steady transformation in the traditional field of e-commerce, then its performance in the brand management business was an initial demonstration of its potential and “spoiled” the company's medium- to long-term growth direction.

For the Gap Chinese brand, Baozun focused on comprehensively upgrading its brand power in various dimensions such as team building, product and supply chain optimization, and store operations. Under Baozun's manoeuvre, the renewed Gap China has also received positive feedback from the market. According to information, the same-store sales of Gap's existing stores in China increased significantly in 2023, reaching a year-on-year increase of 19%; in addition, Gap China also opened 10 new stores during the year, and the operating efficiency of the new stores improved markedly. Compared with the old stores, their annualized floor efficiency increased by 50% year-on-year.

Also, it is worth mentioning that in 2023, Baozun also took the opportunity to establish a partnership with the American brand management company Authentic Brands Group (“ABG”), and the two sides also formed a joint venture to acquire 51% of the Hunter brand's intellectual property rights in Greater China and Southeast Asia.

For Baozun, managing the Hunter brand can not only further enrich its brand management matrix and provide it with practical experience in turning the brand management business into the company's second growth curve; at the same time, after acquiring Hunter's intellectual property rights, Baozun can also follow the trend to lay out the Southeast Asian market and explore long-term development opportunities for international business. The synergy between its brand management and Baozun International's two major business segments has already been shown.

The business is progressing steadily in the expected direction, and at the same time, the “success” of Baozun's operations is also being continuously optimized. During the year, through the implementation of lean process transformation and efficient working capital management, Baozun successfully optimized the cost structure. Both operating cash flow and free cash flow reached record highs throughout 2023, which also shows that the company's self-“ hematopoietic” capacity is constantly being strengthened.

Deepen strategic transformation based on technology

Since 2023, AI has been rapidly penetrating all walks of life and driving a new transformation in productivity and creativity.

As a company with the “genes” of technology and innovation, Baozun keenly captured the wave of innovation in this era and joined it as soon as possible. Over the past year, Baozun has actively explored the practical application of big language models and generative AI technology in retail and e-commerce, and tried to apply these technologies to various scenarios.

For example, in Baozun's internal operation support system ROSS, BaozungPT, an AI text generation application developed by the technical team, was already integrated into Microsoft Azure's GPT4, Ali Tongyi Qianwen, and Baidu Wenxin's words last year, and has been widely used in e-commerce operations, marketing, design, and various other office scenarios. BaozungPT also supports training Baozun's own business knowledge through embedding conversion methods, combining the ability of large models to generate more accurate content. In addition, Baozun also integrates GPT with RPA, BI and other tools to embed business processes and business systems. Currently, it is widely used in scenarios such as social media marketing trend analysis and VOC customer service operation analysis.

According to information, more than 3,000 Baozun employees have now used BaozunGPT in their daily work, and this tool has not only greatly simplified the work process and improved work efficiency, but also brought a steady stream of innovative suggestions to the company.

Another example is BaozunArt, another AI application image generation workbench developed by Baozun in ROSS, which is now connected to image generation services including Midjourney, Stable Diffusion, and Alibaba Tongyi Wanxiang. With this tool, designers can quickly generate various design ideas, background maps, element maps, illustrations, etc. in the form of Wensheng maps and cartoons. Works generated by AI are imported into the DAM material library and connected with the ROSS Design Center module process to improve system efficiency.

Baozun's technical strength has also been recognized by international authorities. Recently, Baozun was selected as the only candidate in the Asian region by Gartner in its 2024 distributed order management system market guide. The companies selected along with Baozun include leading companies in the global retail service industry such as Oracle, SAP, and IBM.

It should be pointed out that in the business world built by Baozun, technology is not just an instrumental entity; on the contrary, it can be said that it is the underlying foundation that supports the long-term development of the company's three major businesses. Take the e-commerce business as an example. Baozun has already accumulated operating data for more than 450 brands. Now, based on more than ten years of accumulated technology, Baozun is able to create popular products more intelligently, enhance the rapid response capacity of the supply chain, and further reduce costs and increase efficiency.

In 2024, Baozun will use the power of technology to continue to advance its strategic transformation process in depth. In the highly anticipated brand management sector, Baozun will use the power of technology to restructure systems and processes so that changes in the front-end market can be reflected more quickly in the entire operation and supply chain, thereby improving the efficiency of the Gap brand's omni-channel operation and ultimately achieving the goal of sales growth. According to information, this year, Baozun's brand management business will use Gap China as the main target, and strive to achieve double-digit revenue growth throughout the year.

In terms of the Hunter brand, in addition to continuing to help Hunter expand online and offline channels in the domestic market, Baozun will also push it to enter the Southeast Asian market. Earlier this month, Baozun and ABG jointly announced that Baozun Asia has been authorized to launch the Hunter brand in Southeast Asia. Next, the brand will advance into the two major markets of Singapore and Malaysia. According to reports, starting with Singapore and Malaysia, Baozun will promote Hunter's iconic products through multiple channels such as e-commerce, retail, and wholesale, and plans to open a flagship store in the second half of this year.

In the medium to long term, around Gap China and Hunter brands, Baozun is expected to continue to achieve new transformation results in the two highly imaginative directions of brand management and internationalization. As the development of these two brands gradually improves, Baozun is bound to replicate relevant successful experiences and paths to more brands and markets in the later stages. At that time, the company's brand management and international business are also expected to “take over” from e-commerce business to become a new pillar of the company's growth, and Baozun's new growth cycle may soon begin.