Earnings Call Transcript - BZUN Q3 2023

Operator, Operator

Good morning, ladies and gentlemen, and thank you for standing by for Baozun's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in 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. Wendy Sun, Senior Director of Corporate Development and Investor Relations of Baozun. Please proceed, Wendy.

Wendy Sun, Senior Director of Corporate Development and Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us today. Our third quarter 2023 earnings release was distributed earlier before this call and is available on our IR website at ir.baozun.com as well as on GlobeNewswire services. We have also posted a PowerPoint presentation that accompanies our comments to the same IR website where they are available for download. On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer; Mr. Arthur Yu, Chief Financial Officer and President of Baozun E-Commerce; and Ms. Sandrine Zerbib, President of Baozun Brand Management. Mr. Qiu will review the business strategy and company highlights, followed by Mr. Yu, who will discuss the business development of Baozun E-Commerce and Baozun financial; then by Ms. Zerbib to share more about Baozun Brand Management. 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 U.S. Security Act of 1933 as amended, the U.S. Security Exchange Act of 1934 as amended, and the U.S. Private Security Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and current market and operating conditions and relates 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. Securities and Exchange Commission and its announcement notice on other documents published on the website of the Stock Exchange of Hong Kong Limited. All information provided in this call is as of the date hereof and is based on assumptions that the company believes to be reasonable as of this date. The company does not undertake any obligation to update any forward-looking statements except as required under applicable law. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in RMB. In addition, we may elect to use adjusted in place of Non-Generally Accepted Accounting Principles or non-GAAP in order to reduce overall confusion that may arise from our discussion about financials related to the Gap brand. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, go ahead please.

Vincent Qiu, Chairman and Chief Executive Officer

Thank you, Wendy. Hello, everyone, and thank you all for your time. I am happy to share with you today several key highlights from the third quarter that demonstrate solid progress in our transformation. Our total revenue grew by 5% year-over-year to 1.8 billion driven by incremental BBM contributions. BEC's revenue met our expectations, driven by growth in the apparel category with a 26% year-over-year increase in sportswear. In addition, we further improved our operating cash flow even after accounting for cash outflow from BBM. This marks the first third quarter since our IPO where the company has achieved positive operating cash flow. BBM is executing well on its transformation of Gap China and has shown solid progress towards premiumization. During the quarter, BBM's gross margin of 56% continues to outpace our initial forecast. We also opened 5 new stores, garnering impressive consumer feedback and the highest sales per square meter. On my visit to the flagship store in Guangzhou, I was highly impressed with the new Gap. Competing with a large array of quality apparel brands in one of China's top 10 shopping malls, our stores stood out with notably higher brand energy and overall vibe. Furthermore, following the acquisition of Gap China, our Technology Innovation Center quickly simplified its complex architecture by consolidating nearly 70 historical systems into one modern integrated omnichannel operating platform, namely Retail Operating Platform or ROP. The ROP has new architecture, featuring a centralized hub instead of traditional ERP, achieves more real-time management and utilizes one pool of inventory to increase sales efficiency and the inventory turnover. This establishes a solid foundation for Gap's continuous digital transformation. In the next phase, our goal is to create an intelligent end-to-end value chain management system, offering advanced CRM and data capabilities that will significantly enhance inventory planning and private domain autonomy. In addition, we have made solid progress in business intelligence capabilities. Earlier this year, we identified an increasing demand for instantaneous data insights which empowers the brand in making well-informed decisions. This is vital given the rapidly changing dynamics within the e-commerce industry. During this year's Double 11 event, we introduced a suite of real-time intelligence and visualization tools. I'm proud that in such a short span of just a few months, our BI capabilities have evolved to become a leading force in the industry. Lastly, we are very excited to announce a planned 51% equity acquisition of Location, a top-tier Douyin partner specializing in apparel and accessories. We are pleased about combining Location’s exceptional expertise in daily live streaming with our leadership in creative content, compelling portfolio of brand partners and profound e-commerce operating experiences. The synergy solidifies our leadership in the Douyin ecosystem and expands on our success in other major brand e-commerce platforms. This marks a significant milestone in our strategic transformation. Let me now pass the call over to Arthur for a review of our financials and update on our e-commerce businesses.

Arthur Yu, Chief Financial Officer and President of Baozun E-Commerce

Thank you, Vincent, and hello, everyone. Let me do a quick review of the financials for the third quarter of 2023, after which I will discuss our BEC business in more detail. Once again we are reporting in two segments: e-Commerce, which includes Baozun e-Commerce or BEC, Baozun International or BZI and Group Headquarters; and Baozun Brand Management or BBM which includes Gap Greater China. Please turn to Slide #3. Baozun Group's total revenues for the third quarter of 2023 expanded nearly 5% to 1.8 billion, driven by incremental BBM revenue of 298 million. Due to a weaker economic environment and a stronger seasonality, our e-commerce revenue declined to 1.5 billion. Further pursuing a high-quality business model, we scaled back on low-margin product sales and trimmed low value-added service revenues. Consequently, product sales of e-commerce decreased by 17% year-over-year, notably in appliance, electronics, and fast-moving consumer goods categories. This was partially offset by increased sales from sports, healthcare, and beauty categories. In addition, our focus on innovation enabled double-digit revenue growth in technology and end-to-end solutions within the Tencent mini-program ecosystem. Our total gross profit was largely flat at 1.3 billion. Product sales gross margin for e-commerce and BBM was 13% and 56%, respectively. Gross margin expansion of BBM continues to outperform our initial expectations with a double-digit year-over-year increase. Our adjusted loss from operations was of 90.4 million during the quarter, of which e-commerce adjusted operating loss was 40.3 million, mainly due to weaker macro conditions and a stronger seasonality. BBM continued to show good momentum in the reduction of its operating losses to 50.1 million this quarter. Next, new China-for-China product launch. New store openings and new marketing strategies were quite successful. These initiatives will provide a foundation for better profitability in the coming quarters. Sandrine will cover the details later. Now turn to Slide #4 about our cash and cash flow status. As of September 30, 2023, our cash, cash equivalents, restricted cash, and short-term investments totaled 2.9 billion. We continue to improve working capital efficiency through back-end process re-engineering on inventory, billing, and cash collection management. This is the first time since our IPO that Baozun has achieved positive operating cash flow in the third quarter of the year. Now, let's dive into our e-commerce business. Overall, we are making good progress in transforming our BEC business. Our transformation strategy focuses on four key areas as follows: Number one, adopting a customer-first approach to meet the needs of our brand partners; number two, enhancing the offering of omnichannel end-to-end services; number three, focusing on high-quality and high-margin businesses; and number four, boosting cost-effectiveness and process efficiency. At BEC, we put our brand partners' needs at the center of everything we do. During the quarter, in collaboration with Nielsen, we further upgraded our Net Promoter Score or NPS survey and spent two months conducting 40 sessions of in-depth conversations with our brand partners. We seek to locate service shortfalls and identify opportunities to enhance our services. For the third consecutive year we have achieved an excellent NPS rating with 86% of our brand partners giving us a positive rating. Our omnichannel strategy continues to be our top priority to drive sustainable growth for our brand partners. This enables brands to improve operational efficiency and drive incremental business opportunities on different platforms. As demonstrated on Slide #5, 45% of our brands engaged with us on at least 2 channels, showing consistent growth compared to the same period last year. In this quarter, 40% of our total GMV was contributed from non-Tmall channels, among which WeChat and Douyin delivered double-digit GMV growth. Since 2019, we continue to invest in Tencent's mini-program ecosystem with good results. Recently we started to pilot operations on Tencent's video account platform with brands in FMCG and cosmetics sectors. In the latest Tencent’s Smart Retail Channel program in October, we won 3 major awards: Global Operation Excellent Partner, Pioneer Award for Private Domain Training, and Pioneer Award for Video Account Operations. We are also very pleased with our progress in the Douyin ecosystem. Please turn to Slide #6. Since its official launch in late August, our Creative Content to Commerce or CCC has partnered with more than 30 brands for those in live streaming and generating a total GMV over 100 million in the third quarter. We have been strengthening our competitive edge within the Douyin ecosystem in luxury, sports, and outdoor stores, and fashion apparels. As announced by Vincent, we are very excited about the planned acquisition of Location to create an industry-leading Douyin service partner as demonstrated on Slide #7. With this partnership, we can now utilize Baozun CCC's market leadership in creative content and at highest level campaigns, along with Location’s proven operational experience in daily live streaming to offer more innovative services in the Douyin ecosystem, to both our client partners and our own brands managed by BBM. Going forward, we will have 2 primary live streaming locations in Shanghai and Hangzhou, covering a total area of over 12,500 square meters. Lastly, we value our employees as our most important asset. Throughout this year, we initiated several talent development programs via Baozun universities. We also onboarded over 300 new graduates, injecting fresh perspectives and ideas into the organization. We are proud to be consistently recognized as the best employer for 7 consecutive years. Looking ahead to the fourth quarter, our top priority is still to help our client partners to be successful in a tough market environment this year. During this year's Double 11, we are delighted that once again we helped many brands to become the top performers in their segments with over half of our brand partners achieving year-over-year growth.

Sandrine Zerbib, President of Baozun Brand Management

Thank you, Vincent and Arthur, and thank you all for joining us today. It is my great pleasure to speak with you. BBM is executing well on its transformation of Gap China, shifting from a discount-driven approach to one that focuses on building consumer love for our brand and products, that is the premiumization of Gap. In the third quarter, we accomplished a wide array of successes in this direction. This includes successful new product launches, new store openings, and increased brand marketing and visibility. Together, they lead us to wide improvement in financial metrics, including higher same-store sales growth, faster inventory turnover, stronger gross margin and better than forecasted operating loss for the third quarter as demonstrated on Slide 8. Let me now provide you with additional color on our new product launches. Building upon the foundation established in the first half of the year, this fourth quarter we introduced our new locally designed China for China product, aiming to deliver the right product for the right people at the right time. This product line upgrade is a continuous process and critical to the apparel industry. Our new product line features three new segments: Modern Preppy, Urban Workwear and Premium Blue, in addition to the traditional Gap logo segment. We launched these products with a comprehensive go-to-market strategy. Since the last week of September, we have elevated the Gap brand through a combination of celebrity endorsements, new store openings, new products, Douyin Super Brand Day spotlight, and the I am Gap social buzz. As of October 31st, the I am Gap campaign has generated over 309 million impressions, while Crave Gap, Just Gap or Shong Gap, Chu Gap in Chinese, accumulated 222 million impressions across Weibo, Douyin, and Xiaohongshu. We also garnered over 100 million impressions during our Douyin Super Brand Day in late September. During this period, we were able to grow GMV by 7x year-over-year to 66 million, setting a new record for self-broadcasting in a single day. We also topped Douyin flagship and men's fashion hot list during the event. This marks a significant shift from the past, where our products, marketing, and channels were not managed in a fully-integrated way. Consequently, with our integrated I am Gap message, products, and channels, our new products are increasingly sold at full price and more customers are purchasing new products instead of the discounted carryover products. During the third quarter, our inventory turnover days improved to 177 days, down from 220 days a year ago. In addition to the new product, we successfully opened five new stores during the quarter, including a flagship destination store in Guangzhou, as well as new stores in Jiangsu, Shenzhen, and Beijing as shown on Slide #9. These stores emphasize a product layout that is younger and more interactive. We also showcase trendy co-branded designs as well as an upgraded segmentation for men, women, and kids. As Vincent mentioned, I am proud to share that our Guangzhou flagship store situated in one of the top 10 shopping malls in China, distinguished itself with significantly higher foot traffic and an elevated brand energy. To date, the total stores have exceeded our internal expectations and we are on schedule to open a total of 10 new stores in the second half of 2023. Benefiting from our success, BBM's gross margin for the quarter reached 56% post royalty fee, marking a significant improvement of more than 10 percentage points from a year ago. Other key metrics including traffic conversion rates, average ticket value, and sales per square meter, all demonstrate positive market feedback. Another indicator of premiumization is the positive shift of our consumer demographic. Please turn to Slide #10, as we have prepared a demographic analysis pre and post our I am Gap brand campaign. We have observed a significant increase in the contribution of new members, who tend to be younger, have higher consumption power, and prefer to purchase new products. Notably, the important 18 to 29 year old segment has grown by 700 basis points to 42%. As of October, we have acquired more than 28 million members, contributing to 77% of our sales, of which roughly 2.5 million are active members. Clearly, we are excited about the upgraded front-end of our business. Let me now talk about the progress on our back end. During the quarter, we have made rapid improvements to the local supply chain with localized capacity accounting for almost 100% local sourcing. This agile supply chain has enabled us to reduce our design to shelf lead time from the previous three to six months to just a matter of weeks. In addition, we also quickly upgraded the IT systems with the help of Baozun technology. With the completion of Phase I of ROP, our retail operation platform, we are preparing for phase II where we aim to deploy Baozun's big data capabilities to develop an intelligent end-to-end value chain management to drive omnichannel inventory and CRM efficiency. This enhancement will empower us to make more agile decisions on merchandising, marketing, and inventory management. This will be a key emphasis in Gap's journey towards online merchandising offline growth and a major milestone for BBM at large. As you can see, in the first half of 2023, we substantially upgraded the GAP supply chain, significantly increased store efficiency and strategically recruited talent for all key positions. In the third quarter, we successfully launched our new locally designed China-for-China products, opened new stores, and elevated Gap's marketing, we will continue to expand our product portfolio and open additional stores in Q4. We are confident about where Gap is heading. Lastly, our recent acquisition of Hunter is proceeding as planned with the establishment of the joint venture of the Authentic Brands Group. Given the positive momentum of the brand, we are optimistic about its development plan. We look forward to sharing more with you on our next call together. That concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

Operator, Operator

Our first question comes from Alicia Yap with Citigroup.

Alicia Yap, Analyst

I have 2 questions. First is management able to share with us what has been the notable changes that you have observed during this year's Singles Day promotion period? For example, the consumer consumption patterns, how brands' promotional efforts, and even some of the large e-commerce strategies. Anything that you know that's a big change this year? And also, were the marketing campaigns that you helped the brands to execute effective in driving the intended sales or getting the GMV or the results that the brands wanted? Any positive or negative surprises that you see that you're able to share with us? For example, any brands that particularly stood out in their GMV or even the new user growth or anything that you can see, positive or negative that you can share. And then very quickly on the second question, is there any preliminary view that management can share regarding how next year 2024, the growth rate that we can achieve?

Vincent Qiu, Chairman and Chief Executive Officer

It's a long question. Let me try to share some of the observations for this year's Double 11. So first, I think the overall traffic in the traditional platform like Tmall and JV is lower than the previous years. But on the other hand, there are more traffic shifting to the social media and content-based platforms such as Douyin. That's number one. Number two is we have seen increased competition among the different e-commerce platforms that are offering better price transparency with a better overall customer experience like how to return the goods, and how quickly the product can be delivered, so that's a key observation. And then from a brand perspective, this leads to a record high cancellation and return rate for all platforms which is causing issues and a financial impact to the brand. What Baozun has been helping the brands with are three things. The first one is, during and before the Double 11 campaign, we helped the brand to create an overall strategy for all channels. So that helps the brand to know what they do for the different channels at the different periods of the promotion. Secondly, given our capability to offer an end-to-end service including operation, customer service, and logistics and warehouse, we can link all these services together using our system capability to provide a better overall customer experience and also helping the brand to create better efficiency. For example, during the Double 11, the cancellation rate has been high and the return rate has been high. But with our system capability, we are able to very quickly release the canceled items back to the shelf, allowing the brand to sell the products without losing the opportunity during the Double 11. Lastly, we assist the brands with good data insights, helping them to make real-time changes and shifts during the different phases of the campaign, leading to better results. Overall, I think we have made and for some brands exceeded our own goals internally. But from a financial perspective, due to the high return or cancellation rates, we will have to wait and see how much impact that will have on us. Regarding your second question about next year, given the foundation we have laid out on e-commerce for this year, we believe we will have positive growth, both top line and bottom line for the next year. We are in the process of finalizing our annual operating plan for next year and I will be able to share more in our next call.

Operator, Operator

Our next question comes from Thomas Chong with Jefferies.

Thomas Chong, Analyst

My first question is about Gap. Can management discuss the strategies and investments we should anticipate over the next few years, specifically regarding revenue growth and the timeline to reach breakeven? Additionally, regarding the domestic e-commerce business, can management elaborate on the future mix of Tmall and non-Tmall channels? Thank you.

Vincent Qiu, Chairman and Chief Executive Officer

Maybe Sandrine, you can go for the first one and we will cover the second one.

Sandrine Zerbib, President of Baozun Brand Management

Okay, sure. Thank you, Jeffrey, for your question. So in terms of strategy, we are going to pursue what is at the heart of BBM. At the heart of BBM is really China-for-China and technology empowerment. So we are already on a good track on these two, but we are continuing. In the specific case of Gap, we will also pursue the premiumization trends that we have engaged in, thanks to our control of supply chain, and to our absolute control of discount. So this will continue with more to come in terms of products, more to come in terms of opening new stores. As you noticed, we started to open five new stores in the third quarter. We have another five planned in the next quarter, and this trend will continue over time and in '24 and beyond. We are confident that we can actually speak to our initial plan, which was to significantly reduce the loss this year, halve it next year, and reach breakeven in '25.

Vincent Qiu, Chairman and Chief Executive Officer

Thank you, Sandrine. On the second question regarding domestic and international brands, basically our observation is that in recent years, domestic brands have captured more market share in the middle to low price range segment in each category. At the same time, international brands still dominate the high price range segment with better overall brand attractiveness, customer experience, and more product innovation and introductions. For Baozun, we see opportunities in both international and domestic brand partners. For international brands, they would like Baozun to play a role as a strategic partner, offering them an end-to-end one-stop solution, including helping them design a strategy for the overall China e-commerce and then helping them to execute. This is something Baozun is very uniquely positioned to provide. For domestic brands, given their proximity to China, some of the operations they normally do in-house. However, they come to Baozun asking for help on value-added services such as digital marketing, warehouse management, and technology. With the China e-commerce ecosystem becoming increasingly specialized in each of the services, we believe we have opportunities in both international and domestic brands.

Operator, Operator

Our next question comes from Sophie Huang with CMBI. Please go ahead.

Sophie Huang, Analyst

Thanks for taking my question. I have two questions here. Number one is regarding the Hangzhou location aggregation. What is the rationale of location and position? And how do we look at the business synergy in the Baozun's E-Commerce segment and the financial impact from this deal? The second question is regarding our last June E-Commerce update. We have made progress in the ecosystem for brands. Can you help us understand the ROI difference between the Douyin channel and the Tmall channel and how to improve it? I remember you mentioned that three brands performed well in Douyin ecosystem. What about other categories?

Vincent Qiu, Chairman and Chief Executive Officer

We believe the overall trend for the e-commerce in China will shift more towards social and content-based e-commerce. That's the trend we see. Based on that, we think the capability to produce high-quality live streaming and content is a must-have in the upcoming years. So based on that rationale, we searched the market for the best match between Douyin's capability and also the service provider we were looking for. We found Location, which is an innovative and very solid business, with a very deep experience and know-how to run live streaming on both the Tmall and store platforms. After our initial work with Location, we see that it is a well-run business with a healthy profit margin and a talented core team. So we believe the combination between Baozun and Location will enable us to utilize the good system and infrastructure of Baozun, along with the strong relationship and omnichannel connections we have with brands, and Location’s high-quality live streaming operational capabilities and their competitive facilities. We think that by combining these two, we'll be able to become one of the best creative content and live streaming service providers in China. We believe this capability will help us provide value-added services for our high-end brands. Regarding the second question about ROI, we think the ROI for both the Douyin channel and Tmall channel is currently under pressure. This is because for both platforms, we need to know how to define a successful strategy to improve ROI. If we consider this from the brands' perspective, how to differentiate the merchandising strategy, attract traffic, and execute digital marketing on these two different platforms will determine how good ROI is. That’s why we think offering good capabilities and working closely with brands will help us improve ROI for both platforms through effective operations.

Operator, Operator

Our next question comes from Colin Chan with Citi Securities.

Unidentified Analyst, Analyst

I have 2 questions about BBM. The first question is about Gap. It has been around 3 quarters after the acquisition of Gap China and looking back at the past quarters, which operational results are beyond your expectations and which are below your expectations? The second question is also about Gap. How do you evaluate the improvement of Gap results and what are the key metrics to follow other than the gross profit margin? And when we are talking about maintaining the price of Gap, in China especially this year, people are talking about the consumption downgrade, so what's your observation when you are making these kinds of improvements for Gap?

Sandrine Zerbib, President of Baozun Brand Management

So first, after three quarters, not exactly three quarters because we actually took over on the 1st of February, we can say that most operational results exceeded our expectations, particularly considering all the indicators that point to better attraction of the brand, primarily gross margin that we discussed earlier, which has increased much more significantly than we even expected. But also the inventory turnover that has shown very strong improvement. At the same time, by saying this, I'm showing you some metrics that we consider very important. The inventory turnover, same-store sales growth, and conversion rates are critical because at the end of the day they indicate whether the brand is attractive to consumers. If a consumer comes to a shop and buys a brand only because it's discounted, that's not a good sign. From the beginning, we've paid extreme attention to these metrics because that's how to get back on track to become a positive brand that attracts consumers. On all these matters, we are excited and generally satisfied, with results that have been beyond expectations. Where it's a little slower is in the online portion of the business, which obviously takes longer to achieve with consumers. Gap used to be much of a Tmall online business, and we have seen the effects of that. So that's to answer the first part of your question. Now for the second part of your question, obviously we do pay attention to our top line, but we prefer to look at it primarily in same-store sales and same-channel sales to see our progress. Gross margin is fundamental. Without an adequate gross margin, you cannot achieve anything. If I focus on financial metrics, inventory management and inventory days of turnover are also very important as they are prerequisites for a healthy gross margin. On this note, we are pleased with what has happened so far, and these are the metrics we will continue to monitor moving forward. To address the third part of your question, although we have premiumized Gap, we have not transformed it into a luxury brand. What we have done is ensure that a larger percentage of products are sold at full price rather than being heavily discounted from the very start. I believe that even in the current circumstances of a slower economy, we can see that this is a winning strategy. In fact, I would say that consumers today are not just chasing bargains, they are looking for value for money. This goes beyond just price; it’s also about quality and what consumers expect from a product. If we offer products at a reasonable price that reflect their value, then we can meet the expectations from the consumers and this works.

Operator, Operator

Our next question comes from Jack Hu with Alpha Securities. Please go ahead.

Unidentified Analyst, Analyst

Hi. Good evening management. Thanks for taking my question. I have a small question regarding M&A strategy. We have seen some progress in the Gap business after our acquisition. Could management share some thoughts on the M&A strategy going forward? Thank you.

Vincent Qiu, Chairman and Chief Executive Officer

Okay. Thank you, Jack. This is Vincent. I will answer this question and then, Sandrine, maybe you want to add some comments after that. Regarding the M&A strategy, I think there are two parts to consider. One important consideration is about BBM. I think for the BBM M&A, for potential brands, number one is that we think a rental Gap and Hunter is very important for us. The first thing we need to do is start to make Gap turnaround a successful one. To have Gap and Hunter with all the potential they have, and to turn this into a very positive opportunity for us, that is number one. The second point is that we will still be very active in exploring potential brands, but we will be very selective in our choices. The brand and the opportunity must align well with our criteria. We will adopt a very selective approach for acquiring new brands. For BEC, we are acquiring necessary capabilities from other companies or vendors, just like we have done with Location. In this direction, we will also be quite selective, as most of the capabilities of Baozun are currently very strong. We are robust in different aspects, so only very selective opportunities will be considered for acquisition in the future. Overall, I think the one principle for us that is very important is synergy. No matter whether it is a brand or a company with special capability, we are going to acquire, it has to demonstrate a very strong synergy with the existing business, whether it's a brand business or an e-commerce business. So that is the overall strategy for M&A. Sandrine, do you want to add anything?

Sandrine Zerbib, President of Baozun Brand Management

No, I think I may just say that, yes, of course, we want to, number one, prove the turnaround of the brand, specifically Gap. Number 2, we really want to be very selective and also to be true to our key criteria, which is China-for-China and technology empowerment. So we want to really select brands where these two drivers will make a huge difference.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over.

Wendy Sun, Senior Director of Corporate Development and Investor Relations

Thank you, operator. On behalf of the Baozun management team, we'd like to thank you for your participation in today's call. If you require any further information, feel free to reach out to us. Thank you for joining us today. This concludes the call.

Operator, Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.