Baozun Inc (BZUN) 2018 Q3 法說會逐字稿

Thank you, operator. Hello, everyone, and thank you for joining us today. Baozun's earnings release was distributed earlier today and is available on our IR website at ir.baozun.com as well as on GlobeNewswire services.

Our call today from Baozun are Mr. Vincent Qiu, Chairman and Chief Executive Officer; Mr. Junhua Wu, Chief Growth Officer; and Mr. Beck Chen, Chief Financial Officer.

Mr. Qiu will review business operations and company highlights, followed by Mr. Chen, who will discuss financials and guidance. They will be available to answer your questions during the Q&A session that follows.

Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expect, anticipate, future, intends, plans, believes, estimates, target, going forward, outlook and similar statements. Such statements are based upon management's current expectations and current market and operating conditions and relate 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, performance or achievement to differ materially from those in the forward-looking statements.

Further information regarding these and other risks, uncertainties or others -- or factors is included in the company's filings with the U.S. Securities and Exchange Commission.

The company does not anticipate any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law.

It is now my pleasure to introduce our Chairman and Executive -- Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead.

Thank you, Ellen, and thanks, everyone, for joining our earnings call today.

We delivered another solid quarter with total GMV increasing by 55% year-over-year. Growth continues to be driven by the existing online stores and improved the efficiency as we invest further in developing new and innovative products, back-end order and the warehousing systems and other omnichannel solutions. We expanded the number of the brand partners we work with to 132 at the end of Q3, an increase from 146 during the same period last year.

The newly added brands are mainly in apparel, cosmetics, accessories and FMCG categories. In particular, we again are fierce competition to sign contracts with one of the world's largest multinational toy manufacturing company and a leading luxury winter clothing company. Our pipeline remains as strong as ever, with a number of leading global brands expected to come onboard in the near future, including ones in apparel, luxury and FMCG categories.

I'm proud of the experience and the capabilities we have accumulated from participating in the Singles Day shopping festival over the past decade. This year, total order value settled through payment gateways in all our e-comm channels reached a new record high of RMB 6.55 billion, an increase of 31% compared to last year.

Technology plays an increasingly important role in our strategy, especially when it comes to ensuring the seamless integration of our IT infrastructure, online store management, digital marketing, customer service, warehousing, other procurement and back-end administration. This expanded array of solutions we have at the ready allows us to set over 18 million orders on Singles Day, an increase of 49% compared with last year. This again demonstrates the strength of our strategy, our executional capabilities and the strategic foresight to ensure we are adequately prepared and all systems are working as intended.

To strengthen our position as the leading brand e-commerce business partner and technology solutions service provider, we are expanding the scope of our service through targeted investments in innovation, productization and hiring of engineers. Teams from our technology and innovation centers located in Beijing, Shanghai and Chengdu now consists of over 800 IT engineers. These teams were instrumental in our operations for Singles Day where we significantly improved the efficiency of our order and the warehousing management systems.

We continue to refine and update our in-house development software and products for SMEs, OS as well as other technologies, which we expect will further increase overall efficiency and drive future growth as we gradually become commercialized in the near future. We strongly believe that investing in R&D will lay a solid foundation for our long-term sustainable growth.

Leveraging our deep experience and innovative self-developed tools, we expanded the omnichannel matrix of solutions we're able to offer brand so that we can rapidly establish an online presence and the benefit from the enormous growth opportunities in China's e-commerce market.

During the quarter, we won the award of smart operations at the 2018 Tmall New Retail Partners Conference in recognition of our cutting-edge solutions. As an industry pioneer, the same innovative tools can be applied to domestic brands. We successfully connected and integrated 2 leading domestic apparel brands, offline stores with their Tmall stores and the brand hubs.

We also took over daily operations for the online stores and helped to drive targeted online traffic to offline stores. The value of these services created in the new retail era by increasingly being recognized by domestic brands, and we are confident we will be able to further expand our market share with them in the future.

This quarter, we also launched several new WeChat mini programs also for several apparel brands and a leading home furnishing brand. We will continue to closely monitor changes in the market, anticipate the needs of our brand partners and develop solutions and services across different channels.

Our digital marketing solutions continue to gain popularity among existing and potential brand partners as our work becomes increasingly recognized across the industry. These capabilities play a important role in acquiring new customers for our brand partners. Last week, we were awarded the bronze award of data-driven marketing 2018 with China Effie Awards, the preeminent advertising award in the industry.

Finally, before turning the call over to Beck, I'd like to warmly welcome Robin Lu as our new CFO. Robin will take over later this month for Beck, who is leaving us to pursue other opportunities. I would also like to thank Beck for his years of service. We are grateful for his contributions and wish him the best of luck in his future endeavors.

Robin joins us with extensive leadership experience in financial management and capital markets. We look forward to working with him to further grow our business and to fortify our leading position in the industry.

With that, I will turn the call over to Beck to go over our financials. Thank you.

Thank you, Vincent. Before I go into my remarks, I would like to take this moment to thank Vincent, Junhua and the entire team at Baozun. I'm very grateful to have had the opportunity to work with you all here for the past 6 years and will cherish every moment of it. I will stay until end of this month and work closely with Robin to ensure a smooth transition. Robin will be a fantastic addition to the team where his tremendous experience will help lead this company into its next stage of growth.

Let's now go over the third quarter financial results. We delivered another solid quarter, with GMV increasing by 55% year-over-year and the nondistribution GMV, in particular, increasing by 62% year-over-year. We believe year-over-year comparison is the best way to review our performance. All percentage changes I'm going to give will be on that basis.

Firstly, the total net revenues increased by 25% to RMB 1.1 billion. Product sales revenue increased by 7% to RMB 505 million. The increase was primarily attributable to the increase in product sales revenue resulting from the increased popularity of our brand partners, products and the Baozun's effective marketing and promotional campaigns, which was partially offset by the transitioning of the leading electronic brand partners business from distribution model to the consignment model in September 2017. This is, however, the last quarter with this transition effect.

Services revenue increased by 45% to RMB 606 million during the quarter. The increase was primarily attributable to the rapid growth in sales from existing brand partners and the addition of new brand partners under the company's consignment model and the service fee model.

The total operating expenses were RMB 1.1 billion compared to RMB 862 million in the same quarter last year. In particular, cost of product decreased to RMB 401 million from RMB 408 million last year, primarily due to the transitioning of the leading electronic brand partners business from distribution model to the consignment model in September 2017 and improved margin from -- improve the margin of product sales to 20.5% from 13.8% for the same quarter of last year.

Fulfillment expenses rose to RMB 262 million from RMB 173 million last year, mainly due to an increase in GMV from the company's consignment model business, in combination with increased warehouse rental expenses.

Sales and the marketing expenses rose to RMB 301 million from RMB 222 million last year, primarily due to the addition of online store operation staff and an increase in promotional and marketing expenses associated with online stores operated by us. Technology and the content expenses rose to RMB 70 million from RMB 36 million last year. The increase was primarily due to increased investments in innovation and productization and the recruitment of additional technology focused staff. G&A expenses rose to RMB 41 million. The increase was primarily due to an increase in administrative, corporate strategy and business planning staff.

Income from operations increased to RMB 39 million while operating margin improved to 3.5% compared with 3.1% in the same quarter of last year. Non-GAAP income from operations was RMB 61 million, an increase from RMB 41 million in the same quarter of last year, while non-GAAP operating margin improved to 5.5% compared with 4.6% in the same quarter of last year.

Investments in technology, innovation and the productization was RMB 20.1 million, which we believe will enable us to expand our addressable market and strengthen our long-term competitiveness. Excluding these investments, non-GAAP income from operations increased by 93% year-over-year.

In Q3, net income attributable to ordinary shareholders of Baozun rose to RMB 30 million, an increase of 36% from the same quarter of last year. Basic and diluted net income attributable to ordinary shareholders of Baozun per ADS were RMB 0.52 and RMB 0.50, respectively, compared to RMB 0.40 and RMB 0.37, respectively, during the same period of last year. Non-GAAP net income attributable to ordinary shareholders of Baozun rose to RMB 51 million, an increase of 47% compared with the same quarter last year. Basic and diluted non-GAAP net income attributable to ordinary shareholders of Baozun per ADS were RMB 0.90 and RMB 0.86, respectively, compared with basic and diluted non-GAAP income attributable to ordinary shareholders of Baozun per ADS of RMB 0.64 and RMB 0.59, respectively, for the same period of last year. That completes the profit and loss statement for the quarter.

As of September 30, 2018, the company had RMB 445 million in cash, cash equivalents and short-term investments, a decrease from RMB 557 million as of December 31, 2017, primarily due to inventory procurements in preparation for Singles Day 2018.

Turning to the guidance for the fourth quarter of 2018. We expect total net revenue to be between RMB 2.2 billion and RMB 2.25 billion.

Our daily sales momentum during the fourth quarter of 2018 continues to remain strong and outpace the growth on Singles Day this year. As such, we expect our GMV for the fourth quarter of 2018 to grow 40% to 45% on a year-over-year basis, while our services revenue during the fourth quarter of 2018 will grow faster than the GMV growth. This updated expectation reflect the impact of softening retail sales growth along -- from a slowing macroeconomic environment. While the impact on Singles Day was greater than expected, this was a one-off event. We remain confident and encouraged as growth in most of the categories outside of Singles Day continues to be strong and higher than the industry average. And we believe our improved efficiency investments in innovative technology and the development of a variety of new omnichannel solutions will continue to attract new brand partners and the customers.

This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session.

(Operator Instructions) The first question is Binnie Wong at HSBC.

Sorry, can you hear me well? Hello?

Yes. Yes.

Yes. So my first question is -- I have 2 questions here. One is actually on the macro side and also on the trade war. How do we see that in terms of the overseas brand in terms of their strategies adjusting into China in terms of outlook for us? And then my second question is that if we look at the overall margins, it's actually slightly down a little bit this quarter. But I guess, longer term, we probably will see more upside in terms of the margin as we grow in terms of the scale and also our business model go into, hopefully, more like asset-like model with our software infrastructure business. So how should we think about the margin trend on that front? And then on the last question is more housekeeping, in terms of the same-store sales growth, how should we see that? So if you can help address some of these questions, it will be very helpful.

Okay. Thank you. So Binnie, I will answer the second question first, and I will leave your first question to Vincent. So for the second question about the margin, so basically, our margin, if you look at the margin gap, which is revenue, which is growing on a year-over-year basis. But we put more investment into technology just like we said. So if we exclude the innovation investments, our non-GAAP operating income could increase over 90% on a year-over-year basis. And I believe in the coming years, the investment will be gradually pay back either help us pay -- take more expenses to increase the leverages and the efficiencies of the OpEx items or we can just generate more revenues and especially, services or product revenues from outside. So this is generally -- I think this is generally the guidance -- general guidance. And the question about the same-store sales. For the third quarter, for the single quarter, our same-store sales growth is 45% for the same store.

Okay. Binnie, I think your first question is about Haitao and Daigou, right?

Yes, that's right. And also in terms of the -- yes, overall, with the macro situations, I think people will worry about consumptions. How do we see in terms of the -- how is the macro weakening conditions impact Baozun or maybe our brand strategy in China overseas brands expansion because majority of our brands are overseas, right? And then so how should we think about that? And also, as you said, Haitao business.

Okay. We have some business for the cross-border business, so that is different from mainly our overseas purchase service, this kind of thing. So we have seen strong growth in that sector, although the absolute amount is very huge number. Right now, we think the -- we can still see strong demand from Chinese customer or premium national brands. And I think the government policy, right now, is turning more strict to the Daigou and Haitao, and we think it's a good impact for our business. In this case, the Chinese consumers need good brands and also the brand wants to enter in the China market. And because the Daigou and Haitao now are limited, so we will be better if we close up on the apparel business in China. So this give us more tailwind to grow our business and working with more potential invest in international brands.

Okay. And may I just have a quick follow-up in terms of -- on the margin side. In terms of your investment priority because we, of course, after the Double 11, we see that there are the efficiencies in terms of like the number of orders that can be done through China logistics as they improve there. I think you said that the first time you've known the (inaudible) your leads there -- was in like 2.6 days, right? So how is our logistic business infrastructure? I believe we are closely working with Alibaba China on this part. So how should we look at that like down the road, in terms of our strategy, our low here, servicing our brands because we're also investing a lot in our logistic capabilities? So how does that role of Baozun fit into the cooperation with China? That's one question. And I guess second question is that I think opening remarks, Vincent mentioned that we'll be investing more in terms of R&D. So given that we have investment into R&D technologies and also into our logistic infrastructures and also properly into other some more new innovative ideas, strategies, areas that management mentioned, how should we prioritize? Like, in management's eyes, how will you prioritize all the investments?

Okay. So yes, Binnie, let me try to answer your question. Basically, this is like the investment in logistics and investments in the R&D to upload. So basically, let's say, generally, we all need to put some preinvestment into logistic -- in any kind of our capabilities. But for logistics, it's more like you can be -- usually, we put investments in Q1, Q2, even Q3, but we may be fully paid back in Q4 because the GMV is very strong, so we can leverage everything, every dollar in the warehouse. So basically, it's like investing during the year and you have payback, also during the year in Q4. But for R&D, it's a more long term -- longer-term investment process. So we need to invest -- actually, we started to invest from last year. So right now, this year, we keep to invest, and we already see a lot of indicators and some investments and products to be launched and also to be tested, trialed by our own people and even some outsider -- outside the customers. But R&D expenses, usually, you need to wait, be more patient to waited to be payback or it's more creative things. It's not like logistics. So R&D is more creative things.

Okay. Okay. Okay. And what about the investment priorities in terms of -- if you think about down the road in terms of businesses? Maybe actually, examples of like the R&D investment into 2019, the key areas that Vincent mentioned in the opening remarks that if we invest more in the -- where are the areas in terms of R&D spending?

Okay. So yes, you may already know from the financial segment that for the first 3 quarters of this year, the R&D expenses increased like at around 100% on a year-over-year basis. But we expected the growth of R&D expenses in 2019 will be greatly decreased compared to, right now, it's triple-digit growth rate. But in Q -- in year 2019, we think the growth rate will be much more decelerated compared to this year. So because we already have established the foundation of the teams, so we don't need a lot of more people. We need more people, but not a lot of more people, so -- which can help us to gradually to make the business more mature and also to -- we just wait for the product to be launched to the public as it will be impossible to generate meaningful revenues in the coming future.

Next question is from Joyce Ju at Merrill Lynch.

My first question is to Vincent regarding the overall competitive landscape. We have seen now more and more new e-commerce channels, including like PDD, the platform; or like WeChat, which is a social commerce channels emerged. And we want to know like what's the -- and also we have seen some, like, close competitor to Baozun who is also e-solution -- e-commerce solution providers actually and they fade out. Recently out of business. So want to understand in terms of the overall landscape, how did you look at in terms of competition or like future development strategies? Any impact or like or insights into this area? And my second question was a follow-up to Binnie's question in terms of the softer macro condition. How should we understand Baozun's GMV growth or revenue growth for 2019?

Okay. Thanks for the question. Yes, right now, we think, today, probably it's representing a lot of international brands conducting their e-commerce business in China. That is a major revenue stream of Baozun. Right now, we're doing quite a good job, so we take position -- we think the same way as the brands are thinking. And that's why we are taking omnichannel position to operate your business on different platforms, including the major one like Tmall and also some other platforms and your grand official web stores. And also some emerging platforms like Pinduoduo and also WeChat, these kind of social-related commerce platform. So that is what we are doing for them, and we will keep doing so in the future. This give us a chance to be a one-stop shop omnichannel business solution to the partner brands. We feel this is very valuable to their growth in China. And also, in the future, the other important thing we will do for the brands will be the enabling -- technology enabling to their business. So in this case, we cannot only make the current business development of the existing brands more smoothly, and then we can also help them to reduce their costs, bringing more efficiency improvements to them at the same time. So in this case that is technology enabling. We are developing more and more technology tools not only to help the existing brand to be more efficient and also giving more -- a broad -- a broader customer base that can work with Baozun and to enjoy all the experience and solutions we gained from the past decade and help them to be more and more successful.

Okay. So about the second question about the GMV outlook for the coming years. Just like we said in the prepared remarks, we believe the capabilities of Baozun could attract more and more brand. So for us, not only we grow the same stores, but also we grow the number of brand. And also during the quarter, we grow the number of brand much more than the prior quarters, in the prior years. So we believe that as long as we can have more brands, even if those brands are already on those marketplaces like Tmall, JV or even PDD, but to Baozun, they are also -- they are still new brand to us. So we believe our penetrating potential is very much bigger than the current -- the time being. So that's why we believe our growth rate of the GMV and also the revenues should be much more than the industry average.

Next question is from Monica Chen at Crédit Suisse.

So I have 2 questions here. So number one is regarding our 4Q GMV guidance. We do notice that we have lowered our GMV guidance to 40% to 45%, where previously we were talking about something over 60%. And also we delivered 31% in Double 11 sales. So how -- so I want to understand what's the key reason for this revision down of our GMV. Is it because of some particular brands? Or is it like a broader slowdown, of course, in some of the certain categories? So that's question number one. And then my second question will be, so management talked about the potential launch of sales to new and innovative products and potential commercialization plan. And given we have been investing in this new product for quite a while, so when do we expect the launch of the new products, maybe some -- around next year? And what kind of monetization are we talking about? Are we going to charge like a base fee? Or is it more like a percentage of that GMV? And when -- how fast do we expect the ramp up of the new revenue line and the contribution to the total revenue?

Okay. Thanks for the question. I'll answer the first question, Monica. So in terms of the 4Q GMV expectation, so we already are comping all the facts, especially the Double 11 results. And also, we looked through all the daily sales, and we think the daily sales remained strong and outpaced the growth on Singles Day. For the Singles Day, it's just like some -- we're not events. We're not big promoting events. It comes like 40% to 50% of the quarter's GMV. But still, it's not the quarter. It's just one of the days, one of the 90 days. So yes, it is for the -- just for the Double 11 day, it has impacted partially, mainly by -- like a leading -- the global smartphone brands, which is negatively impacted by some unhealthy price competition from the different marketplaces. But basically, we think it's just like it's in the out from (inaudible). So we think it may impact the GMV, but it may not impact a lot for the other line items. So after considering all those other days, the daily sales, we gave this -- right now, we gave the guidance, 40% to 45% growth on prudent basis.

Okay. About the second one, talking about the new products and solutions development and its commercialization plan. Yes, right now, we are in the progress in developing different kind of softwares. First, our class will be -- the first category will be the internal use of core system because it's very important for us to know the daily orders and fulfill them. So that one is perfect. And then we have some of the tools, productive tools for internal use. So in this case, we can greatly reduce the cost and have a better manageability for the current business, given management and also the clients' better visibility of their daily business. So that is -- there's huge potential for us to deliver in this kind of software. For the other stock-based or other SME-related solutions, I think we're quite in the right track. And recently, we have -- already have a number of different testing users already on the platform, on the SaaS platform, and we think this result is quite encouraging. Right now, we are quite focused on the users, active users and also the functionality improvements, and we are expecting to make the revenue and profits in the near future. Right now, we think -- including the internal solutions and also the solutions for all outside users are on track.

Can I have a quick follow-up on the guidance for -- GMV guidance? Can you maybe provide some color on -- if we look at by distributions GMV and nondistribution GMV? What's kind of the growth outlook for the fourth quarter?

Okay. So here, we believe nondistribution GMV will grow faster in the overall GMV contribution.

The next question is from Alicia Yap at Citigroup.

Beck, thank you and best wishes for your new endeavor. Robin, welcome to your new role. Two questions here. Firstly said, I wanted to get a better sense, if management can share, what is driving the better GMV outside of the Singles Days? So given if we back out the GMV on Singles Day and your guidance for 4Q, it is actually suggesting non-Singles Day GMV is actually growing at 50% to 60%. So what are the categories that drive the strong traction from user outside of Single Days? And then second question is related to the recommended features change on Taobao app. So just wondering whether the change of the user traffic dynamics on Taobao will have any impact to how the brands on Baozun platform conduct or operate their business. And as a service partner, does Baozun experience any difference on sales, user demand or the ROI?

Thank you, Alicia, and thank you for your question. So I'll answer the first question, and I'll leave the second question to Junhua. So for the first question about the GMV for the non-Singles Day GMV, so that we said in the prepared remarks, we have seen for the most of the categories out of Singles Day continues to be stronger than the Singles Day. So basically, I would say, excluding the smartphone categories, all the other category is growing very healthy. This is general outlook.

So this is Junhua from Baozun. So let me address your second question. First, I want to let you know that I'm not the good person to address all those details from the Taobao entity changing, but I can share with some colors from our -- at the service partner with Tmall, and then let you know that what kind of the changes we're getting from the change of the Taobao entity. So there are 2 dimensions from Tmall, they are changing their entity, one is they're consolidating their data pack, which provides more accurate traffic gathering to our particular stores. And they are consolidating all those Alibaba investment footprint across all those Alibaba investment like the Ali Music, Alitrip, et cetera. So all those consumers happen to never collect or match it or like the -- a particular brand content while deconsolidating into the data pack. And data pack, it's providing a lot of different dimensions based on the fragmentation of data into [AIPL]. For example, like [we're interested to] purchase and load, which allow us to even -- driving more accurate traffic to our stores by providing the right content to the right product. So as far as we know that this content [affecting] and the business model changing is very helping us drive higher conversion rates. The second part is from the Tmall entity change is related to the -- within Chinese, we call that (foreign language) means the foundation, which allows us -- that technology allows us to create some kind of the consumer-facing scenes or schemes to provide different content for product listing for different kind of attributes of the consumers by trendsetter, quality chaser, pragmatic consumers and price-sensitive consumers. You can provide different content to those different group of consumers, which also allow us to be more accurate running our operation kind of [muscle] and planning. So as far as we know, from our perspective, we can say that Tmall's product entity changing is giving them a positive support for our operations. Thank you.

Next question is from Chen Bi at CICC.

I have 2 questions here. The first question is regarding our cosmetics brands. I think management mentioned the increased cost. The cosmetic will become the fourth-largest categories next year. So could management share with us the progress so far in seeking new brands in cosmetics category and some new brands in pipeline and what do management think Baozun's unique advantages over other existing competitors or service providers in this category? That's my first question. And my second question actually is a follow-up on Monica's question regarding our guidance in 4Q. So if I'm doing the math right, our 4Q revenue guidance actually implies over 40% year-on-year growth and our GMV guidance is also around 40% to 45% in 4Q. But if I look at the previous patterns, our GMV growth usually outpace revenue. So could management share with us the rationale behind this guidance? Does this imply a much faster growth of our distribution GMV in 4Q? And if so, what's the driver behind this acceleration or if there's any other reasons we should be aware of?

Chen, this is Junhua. Let me just address your first question and leave the second question to Beck. So regarding to our current business results for the -- to now, so the business development for the consumer cosmetics, beauty category was very encouraging and very impacting. So we not just only signed the largest leading kind of the cosmetics group with all their independent brands or platforms by providing and replacing their global division to be more localization and embedding a lot of local expertise for helping them to build more consumer engagement. We also started contract with the second large global cosmetics beauty group with the full operations of their independent brand for business. And starting from that point, where Baozun have a very aggressive plan to spend in omnichannel perspective. And we also signed the largest and best skin brand -- skin care brand of the world, helping them tuck in all of their Tmall operations. And so far, after we've taken over all their kind of brands, our Y-o-Y growth compared to last year, it definitely just goes beyond 100%. So, so far, our current business development is quite encouraging, and we have a very strong and solid pipeline waiting for us to close the deal. And you are asking about what kind of the advantage we are taking, I'll say that it's all about technology. If you mentioned about the cosmetics and beauty category, all those brands in those categories, they care about consumers a lot. Consumer caring is everything they want to have, especially those in the prestige and luxury kind of beauty category soap. Our technology can really help them to do that. For example, we have our innovation center, we are putting some kind of the -- also consumer products helping to using data crawling, getting all those comments from the Internet and letting them know that. How do consumers online really think about your brand, about your particular SKU or products? It's very helpful and very different from their offline experience. And also, our CRM systems, our omni-channel systems are helping them to expand their vision to be just from offline, there used to be a counter store or like a shopping mall stalls to be more omni-thinking and consolidating their online and offline penetration and whatnot. So this is one addressing important discussion.

Okay. So for the second question about the more color of the 4Q GMV and the revenues, so just like we also said in the prepared remarks, historically, we are in a very big transitioning process. So transitioning more distribution GMV to nondistribution GMV, so -- especially we transferred the biggest distributional partner in September 2017. So right now, we think that transitioning cost is already closed, which means that, generally, our GMV growth will be much more in line with the revenue growth in the coming quarter and also in the coming years, so which is the major reason.

Next question is from Nicky Ge at China Renaissance.

My first question is about our guidance. As management has explained, the Double 11 GMV growth is largely impacted by the price competition for certain category. I'm just wondering whether this will carry on to the next year and how should we think about the GMV growth for 2019. And then my second question is about the takeaway outlook for nondistribution model for the fourth quarter this year.

Yes. For the -- it's me, Vincent. I'll take the first one. Talking about the -- this year's Double 11 event, yes. We have some unexpected events happened during that day, which includes a lot for category -- 3C category. Yes, I think this one is just a onetime thing. And in the coming other -- next year maybe -- or probably next year. So each year, the rules of Double 11 event will be changed little bit. So I think we need to monitor and follow more closely with all this kind of change and adjust our strategy to eliminate any potential category, potential instance to some specific categories. And we also plan to grow more in the new customer set and more new channels to be developed. This also can help us balance between different brands, different categories and different platforms to give us some more predictable forecast of the business.

Okay. So for the second question, Nicky, about the outlook of 4Q to create profit margin. So generally, we think the 4Q will be stable compared with 3Q. So it's more stable. So next year, we think the take rates will be slightly increased because we sell more value-added services to those brands and also we have more good brands onboard, and they -- with better commercial trends. And also, for the product sales margin, we have witnessed a significant growth for the product margin in the past several quarters. And while we introduced some new distribution counters and the FMCG and the cosmetics category, their gross margin is usually higher than our current, like appliances in the 3C category gross margin, so which means that, gradually, in a mixed -- in the mixed gross margin results, it could be improved as well.

Next question is from Billy Leung at Haitong International.

Beck, wish you all the best. Just a few questions. The first one is management mentioned that we have been helping brands for services on platforms such as WeChat, Mini apps. The question, are we seeing clients more and more requiring services on platforms outside of Tmall's ecosystem? And if that's the case, do we see a trend where we are doing more services outside of Tmall's platform? And will that affect our cost in the longer term? And my second question is just a smaller question. On our balance sheet, I think that we picked up a new long-term borrowing. So I was just wondering what the nature of that is and what the reason for that is.

Okay. I'll take the first one, Vincent here. Brands today, they are doing business in much more comprehensive way than before, not only they need to take care of offline and online channels, and they also need to look into different online channels, including the existing big platforms like Tmall. So a lot of brands also rely on platforms like JD to produce a generous GMV. And also, every brand now is considering to engage more with -- especially younger generation of the consumers. So that makes sense to pay more attention on the social commerce platform like Pinduoduo, Wechat, Xiaohongshu, all these kind of platforms. So today, they are comprehensive. So we need to engage consumers, not only transactional basis, but also in nontransactional basis, CRM system, these kind of different activities. So I think this is not the first day to be working with multiple omni-channels, and we think in the future, they will all try to take more advantage of the omni-channel landscape of Chinese e-commerce market.

Okay. So Billy, thank you. So for the second question about the long-term borrowings on the balance sheet, so yes, so we have a chance to lock in a lower rate for a long-term borrowing, but it's not so long, it's just beyond 1 year to within 2 years. But accounting-wise, we need to record it as long-term borrowing. So -- but next year, it will be transferred to the short-term borrowing so because we can lock-in a lower rate. So we think it's -- economically, we should do this.

Last question for today is from Tian Hou at T.H. Capital.

The question is related to the brand partners. So as far in Q3, you added 10 brand partners and GMV partners. So I wonder, Q4, how many do you expect to add it on your platform? And also, in 2019, can you give us some color on how many brand partners do you expect to have on your platform? That's my question.

Okay. Thank you, Tian Hou. So basically in the past several years, in the past 2 years, every year for full year, from January to December, we add around 20 number of brands into our portfolio. So -- but for this year, just for the first 3 quarters, so we already added new -- there are 20 new brands. So we believe for the year-end, we may add more like around maybe 5 to 6, but not too much because it's already close the year-end, and usually, those new brands will have missed the Double 11 campaign, so they will wait until the next quarter. And also for the next, next years, especially like 2019, we will be -- we feel very aggressive in acquiring new brands. So we already -- just like we said before and also Junhua mentioned before, we already have a very good pipeline, including FMCG brands, cosmetics brands, apparel brands, luxury brands, yes, all those brands and even some domestic brands in the pipeline. So we think next year is going to be even stronger.

Thank you. This concludes our Q&A session. And now I hand it over back to Ms. Ellen Chiu for closing remarks.

Hello. Thank you, operator. In closing, on behalf of the Baozun management team, we would like to thank you for your participation in today's call. If you require any further information or have any interest in visiting us in China, please let us know. Thank you for joining us today. This concludes the call.

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