Q3 2022 Baozun Inc Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by for the third.
Third quarter 2022 earnings conference call at this time, all participants are in a listen only mode.
After managements prepared remarks, there will be a question and answer session.
Today's conference call is being recorded.
I would like to turn the meeting over to your high school todays call Ms. Wendy Sun Senior director of corporate development and Investor Relations of Boston. Please proceed Wendy.
Thank you operator, Hello, everyone and thank you for joining us today, almost a quarter of 'twenty 'twenty. Two earnings release was distributed earlier and is available on our IR website at IR Dot dot.
Dot com as well as on global Newswire services that have also posted a powerpoint presentation that accompanies our comments to the same IR website.
They are available for download.
On the call today from both of them to help me still being sent you Chairman and Chief Executive Officer, Mr. Oscar <unk>, Chief Financial Officer, Ms. Tracy Li <unk>, Vice President of strategic business development at me Sundries does it present.
<unk> thousand and brand management.
Joe will review the business operations and company highlights followed by Mr. Li who will discuss financials and key operating metrics. 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 Securities Exchange Act of 19 Stifel and the U S. Private Security Litigation Reform Act of 1995.
These forward looking statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known unknown risks uncertainties and other factors all stage are difficult to predict and many of which are beyond the company's control, which may cause there.
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. S did you see any announcement on the website of Hong Kong stock exchange.
Company does not take any obligation to update any forward looking statement, except as required under applicable law.
Finally, please note that unless otherwise stated all figures mentioned during this conference call.
M D and compel ratios are all year over year basis. It is now my pleasure to introduce our chairman and Chief Executive Officer, Mr. Vincent You Vincent. Please go ahead.
Okay.
Thank you Wendy.
Hello, everyone and thank you all for your time.
Despite the ongoing challenging environment, we are encouraged.
Resilience of our business.
As shown on slide number two.
In addition, we delivered a double digit growth in several categories, including luxury fashion apparel.
G.
Moreover, digital marketing solutions.
By 22% while product sales continued to decline as planned as we keep optimizing distribution model services revenue grows 4%.
Year over year.
Business development during the quarter was on track with a net addition of seven brand partners for store operations.
For existing client base its worth nothing that our business development also speaks to higher engagement omnichannel and moral value added services.
Our integrated Omnichannel operations help brands to timely identify.
Evolving e-commerce trends.
Enhancing resource allocation efficiency.
During the quarter over 42% or Brian <unk>.
Gauge Linzess omnichannel.
Channel approach.
We continuously develop new features and tools to augment bone, though the value added service.
This quarter, we launched a short video Clinton tool, which automatically converts long video and live streaming record to short idiots.
We're also co develop it with our market place.
I paced outbound calling system to make proactive communications to targeted brand customers.
This help us.
With better purchase frequency and conversion.
We expanded the regional service centers to more cities recently and added new scope to them.
Supported by our customer service management systems.
Sure Sandy.
Tobacco, we improved not only service quality, but also efficiency.
Our new module named Danny which means does that anywhere.
Development and ported onto Sandy hoist essentially manage content creation tool.
During the quarter.
Despite the short term headwinds from macro environment, we are glad to see that Brian Connors who'll take China as one of the most critical markets with a lot of potential.
We continue to see a trend of digital transformation, such as rapid convergence between online and offline or <unk> continues.
Along with the digital transformation and the emphasis our China for China strategy, whereas argue about the IV solutions for the long term.
As such our technology related revenue will see notable growth we saw some pipeline for additional growth.
In light of the strong demand, we officially launched <unk>.
Paulson Omnichannel digital operation platform.
<unk> solution with powerful customization capabilities.
These are centered on Bobby both channel order fulfillment and it delivers powerful omnichannel people's feet. They pay intelligence Alethia system support functionalities to our branded partners.
Following many years of non stop investment in technology, we start to expand the upstream in recent years and the target to evolve into a technology driven Omnichannel commerce player.
Early this November we announced our acquisition of greater China.
One of the largest American specialty apparel brands.
Along with the acquisition, we launched the Baldwin Brian management, the new line of business that we see as a strategic addition.
Naturally flows from our core E Commerce service and technology.
Yeah.
It's a good fit to develop PBF since we have worked with the brand for many years, we love it and the fleet.
Sure.
It has only been a few weeks since we are announcements we are still in the process of finalizing the acquisition.
It is encouraging that since the news was on there.
Many other brands have come to us to discuss about China for China strategy about our technology driven approach.
It has become obvious that our brine management offering clearly you can add more to our value proposition and this differentiates us from traditional service providers.
While it will take time.
<unk> time at how work tool fully actualized ambition, we believe a close loop demand to supply value chain as well as <unk>.
Integrated offline and online commerce will make brad's unique kind of what much more successful than before.
I shall now hand over the call to author to go over our financials. Thank you.
Okay. Thank you Vincent.
Hello, everyone.
Please turn to slide four.
During the quarter.
Total G&A increased by 16% to $18 6 billion.
Mainly due to outstanding performance of one leading electronics Brent.
Excluding this brand.
The adjusted G M B would have been flat.
On a year over year basis.
Total revenues declined by 8% to $1 7 billion of bleach product sales declined by 29%.
Service revenue increased by 4% compared with the same period of last year.
Now, let's turn to slide number five for a breakdown of revenue.
Despite a decline in total revenue.
Several categories, including apparel and <unk> achieved double digit growth.
The value added services has shown more resilience in this quarter.
Whereas digital marketing and it solutions increased by 22%.
And the warehousing and fulfillment service revenue declined by only 7%.
Overall, the contribution from value added service increased to 23% of total revenue in this quarter.
Please turn to slide number six.
In this quarter, our household products decreased by 30% to $450 million, mainly due to continued efforts in optimizing product sales business.
As a result, despite a reduction of 29% in product sales revenue the gross margin for product sales improved by 175 to.
It was 16, 6%.
Moreover, although overall gross margin improved by 806 to 76, 2% driven by a combination of a higher <unk> revenue mix and improving gross profit margin.
Now turning to slide number seven our non-GAAP income from operations was $17 million during the quarter right.
Representing a non-GAAP operating profit margin of 1%.
non-GAAP net income was breakeven this quarter.
Mainly impacted by unfavorable exchange rate movements.
Once again, we have prepared waterfall diagram.
Our analysis of how our topline and bottomline evolved year over year.
As a reminder, this analysis is unaudited understood solely be used as support numbers two eight discussions.
First on slide number eight.
This diagram shows our revenue walk from quarter, three 2021 to quarter three 2022.
In Red you can see the biggest item impacting our revenue this quarter was product sales.
Speaker 1: As we continue our efforts to optimize low quality distribution revenue. Revenue from BM and IT services, which we view as value added services, grow by 22% this quarter. Revenue from warehouse and logistics declined by 7%, mainly due to our decision to de-invest a subsidiary in the business, which I will address more later. Excluding such de-investment, revenue from warehouse and logistics should have been a slight increase year over year. On a positive note, this initiative led to better profitability. Now please turn to slide number 9 for the indicative work of non-GAAP operating profits. As mentioned earlier, the combination of higher COVID related costs and general operating deleverage due to lower revenue resulted in less profits for online store operation businesses, generally across all categories. However, as shown, non-GAAP operating profits from digital marketing and IT improved by 30 million year over year. In addition, the optimization of low quality distribution business contributed 3 million. And profits from warehouse and logistics business improved slightly by 1 million.
Speaker 1: We also generated a positive savings of three million from back office cost optimization. In cost optimization, we continue to gain higher efficiencies by centralizing our operating capabilities
Speaker 1: Russian lighting incentives.
Speaker 1: and consolidating of his footprint.
Speaker 1: More significantly, this quarter we selected more cities such as
Speaker 1: Jinan, Chengdu and Anqing to expand the scope and scale of our Regional Service Centre.
Speaker 1: Now approximately 60% of our customer service staff are located in regional service centers.
Speaker 1: By placing customer service staff in regional centers,
Speaker 1: Increased service flexibility and agility to better cope against COVID induced turbulence.
Speaker 1: Moreover, we expanded beyond customer service and added more operating functions as regional grocery centres.
Speaker 1: and live streaming studios.
Speaker 1: We also further deepened our cooperation with China to leverage on its established infrastructure and night work.
Speaker 1: As you may recall, in the second quarter, we began to manage Tanyard's warehouses in the apparel category.
Speaker 1: got business referrals in luxury and premium sectors.
Speaker 1: and also launch them all.
Speaker 1: for some of our key spot-swear brands.
Speaker 1: Motivated by the synergies and after further careful evaluation,
Speaker 1: we decided to reduce our shareholding of BaoBita, a last-mile delivery agency.
Speaker 1: to minimize duplication with China.
Speaker 1: As you may recall, last year, prior to our strategic alliance with China, we invested into Gobiada to expand our logistics capabilities.
Speaker 1: However, now with China Alliance, we decided to wait on our image.
Speaker 1: to a minority holding in Bau Bida.
Speaker 1: Now turning to slide number 10 about our cash flow.
Speaker 1: As of September 30, 2022, our cash and cash equivalent totaled 2.9 billion.
Speaker 1: In light of micro uncertainty, we continue to improve working capital efficiency.
Speaker 1: During the quarter, we launched new initiatives to further advance our by-hand process to improve infantry management.
Speaker 1: Feeling and collection activities.
Speaker 1: Historically, in order to prepare for the Double Eleven Festival, the third quarter typically require peak operating cash flow.
Speaker 1: This third quarter, benefiting from the progress in our infantry procurement planning, we were able to narrow the operating cash outflow to only $113 million.
Speaker 1: compared with 714 million a year ago.
Speaker 1: During the quarter, we purchased approximately 700,000 ADS for approximately $6.1 million.
Speaker 1: Today, we thought we share buy-back output.
Speaker 1: We repurchased accumulative total of 68 million U.S. dollars in the last nine months.
Speaker 1: Lastly, the voluntary conversion into a primary listing status on the main board of the Stock Exchange of Hong Kong Limited became effective on the 1st of November .
Speaker 1: Baozheng is now a dual primary listing company on both Hong Kong Stock Exchange and the NASDAQ Global Select Market.
Speaker 1: This marks a significant milestone in our capital market journey.
Speaker 1: Overall, our effectiveness in maintaining operations and supporting our partners' success during this period of micro uncertainty underscores the durability and strength of our business model.
Speaker 1: Throughout this year, we prioritized cost transformation and working capital efficiency.
Speaker 1: And our IFAS are bearing fruit in terms of higher growth margin, lower operating expense, and better cash flows.
Speaker 1: The establishment of Belgian brand management along with the acquisition of GATT Greater China will provide us with good opportunity for future growth.
Speaker 1: This is my financial review section and that concludes our prepared remarks. Thank you.
Speaker 1: Operator, we are now ready to begin the Q&A session.
Speaker 2: Thank you. If you wish to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced.
Speaker 2: Please stand by while we compile the Q&A roster.
Speaker 2: Our first question comes from the line of Alicia Yap from City. Please go ahead, your line is open.
Speaker 3: Hi, thank you. Good evening, management. Thanks for taking my questions. I have two questions. First, if management can share with us any preliminary color that you are seeing in terms of the consumption sentiment and across all the channels post the single stage.
Speaker 3: you know, in relation to that, you know, how should we think about the overall GMV and revenue growth for the fourth quarter? And if management also has any preliminary view on the 2023 outlook. Second question is, your digital marketing and IT solution is actually doing pretty well. If you can elaborate.
Speaker 3: How should we think about that? Thank you.
Speaker 1: Okay, thank you, Alicia. So maybe Tracy can comment on the W11 performance and the consumption sentiment, and I can answer about the views of Q4 and next year, if that's okay. No problem. Thank you.
Speaker 4: No problem.
Speaker 4: Thanks for the question. I think right now the China consumer is still very largely impacted from the COVID-19 and also you can see recent two months actually from the logistic part of view there's still a lot of lockdown and impact on that but soon the W11 number we can see the overall number
Speaker 4: is still under pressure, which means there's no big increase. But still it is a very important window. We see the trends on different categories. So on that part, actually, I can summarize some of the observation from our point of view, from our BI system and also from the public system. We see from the consumption trend, the upgraded consumption, homing improvement, self-care.
Speaker 4: and the sports lifestyle are the four heated skins. Take the sports lifestyle skin for example, the sales of the category outdoors, sports equipment, yoga, and also the sports footwear were lifted by range from 28% to 9% year-to-year increase represent.
Speaker 4: And also you can see the fitness, mountain, climbing, skiing, urban sports, camping, and the running and basketball contributes most of the category. And also we can see the luxury and also previous jewelry bags and luggage has been several, I mean, few of the category are still reach steady growth in the past four quarters. So I think.
Speaker 4: Among these four areas, we still can see the opportunity for next year. But also, there are also downtrend categories like the fashion accessories and also men's and women's footwear. And this has been reflected over two or three quarters decline in most of the daily sales and the big promotion. So for all of this part.
Speaker 4: we still need steady growth way to figure out.
Speaker 4: Besides the category shift, I think we also see the platform pay more attention on the user retention and acceleration of private domain settings for new business incrementals like Alice's multi-address in one order and the newly added store member enrollment benefits, membership coupon and membership gifts.
Speaker 4: And all of this has given our potential to collaborate with brands and platforms together on the digital marketing and also interactive technology related. So I think on that part we come back to others part to talk about our next year's plan.
Speaker 1: Okay, thank you Tracy. In regarding to the Q4 outlook, our current view is from the GMV perspective.
Speaker 1: We see some good momentum in the electronics and SMCG, but we also see some strong headwinds in terms of the apparel and the sportswear.
Speaker 1: So overall, we believe our Q4 GMV will be in line with the market, which is likely to be flat year over year. In terms of the revenue, at this moment, we still see the optimization of the low quality product sales will continue unless the market sentiment picked up.
Speaker 1: So from a revenue perspective, we think it will be a low teen decline year over year. The main contribute factor is the product sales, which we continue to optimize.
Speaker 1: In terms of the next year, I think it's a little bit too early to comment because there are still some very big factors which is in the overall micro kind of condition and also the COVID policy. But our view for next year from a current perspective is conservative.
Speaker 1: And we want to plan on a conceptive basis for the next year as well, i.e. to focus on the quality instead of focus on the growth.
Speaker 1: On your second question, Alicia, regarding the digital marketing and IT solutions, i.e. overview on the value-added service, I think that's one of the areas we see that quite strong momentum from our client base. So basically, at this moment, our brand partners
Speaker 1: start to focus on the medium and long-term investment of their business in China. So therefore we have seen a strong kind of pipeline from the value-added service like IT solutions like digital marketing and market-side.
Speaker 1: related kind of the proposals from our offerings. So we think that will continue and given the investment into the technology in the last few years I think Baudrine is well positioned to take on those opportunities at the current market situation.
Speaker 3: Okay. Thank you, Arthur. Thank you, Tracy. Okay.
Speaker 1: Thank you, Alicia.
Speaker 2: Thank you. We will take our next question.
Speaker 2: Our next question comes from the line of Charlie Shen from China Renaissance. Please go ahead, your line is open.
Speaker 5: Thanks, management, for taking my questions. I got two questions here. The first one is regarding the GMV combination. I can see in this quarter the GMV contribution from non-TMO channels seems to be a little bit lower than last year, the 4 Q2 021. Can you explain what what these would be?
Speaker 5: rationale and background behind this and what's the long-term goal of this GMB growth between Timo and non-Timo channel. That's the first question. And the second question is regarding the GAAP acquisition as well as the whole restructuring. So can you give us more color about the progress after you acquired, announced the acquisition of GAAP? And also I can see...
Speaker 5: going forward. Thank you.
Speaker 6: Hello?
Speaker 7: Hey operator, can you hear me?
Speaker 2: Yes, I can hear you loud and clear.
Speaker 7: Okay, it seems the alarm just got dropped.
Speaker 2: Please continue to stand by, your conference will resume shortly.
Speaker 8: ahead.
Speaker 7: Hey operator.
Speaker 2: Hi there, I can hear you.
Speaker 7: Okay, you can only hear us from this one. Does it mean the way?
Speaker 2: Yes, but you are coming through lighting clear.
Speaker 7: Actually how about Charlie, do you actually ask about brand management for the second question?
Speaker 7: Maybe, Sanjini, can you take this one while we try to get this one ready?
Speaker 9: Yes, sure, sure.
Speaker 10: Hello Charlie, this is Sandrine. Thank you for your question. So it's about three weeks we have signed with the app. We have not yet analyzed the acquisition and the release will happen. And generally if everything goes smoothly on the approval procedure.
Speaker 10: So we are very mobilized in the preparation which now focuses on really taking some big dives with the different lab functions to enable a deeper understanding of the operation today and really identify the areas for improvements. And then based on this, we'll be able to be much more detailed....to have a little bit of color...
Speaker 10: So for the time being, what we are learning from these feedbacks is confirming what we were seeing during the due diligence. That on the one hand, there will be some quick wins in terms of a bit of restructuring and cost cutting, mainly coming from the fact that we are now managing from China and a Chinese company.
Speaker 10: And then going forward as we mentioned earlier, we see some real opportunities around products that can be approached in a more locally relevant way. And as you may remember, we have full freedom on the supply chain.
Speaker 10: So supply chain is ours so we can really improve the speed in market reactivity to trends and also bring some elements that are more locally relevant in the product design and development. That's one aspect. The other aspect is going to work and actually the first one will also trending to this.
Speaker 10: to work on the gross margin and reduce the discount levels, which are in our view too high today. And we believe that by differentiating products by channels, which is not already done today, we can really improve the discount education.
Speaker 10: The third aspect which would be a priority is for us to revamp the current portfolio of stores. So it's not going to be about opening many more stores, it's going to be really to make the current stores both in terms of look and feel and in terms of operations much better than what we have.
Speaker 10: we have today. So this is pretty much cover I can give today. With all this financially we think that it can translate into a very significant reduction of the loss in 23. We consider that loss can be reduced by...
Speaker 10: around half of what it used to be in 22, then we will see a further reduction of loss in 24 in order to reach break-even point in 25 and profit in 26.
Speaker 10: So that is for gaps and I would leave it to Wendy to allocate the other questions to some other people.
Speaker 1: Okay thanks, Zhenjuan. Charlie, let me maybe answer your question on the chemo. So the trends you have seen is actually impacted by a major electronic grant outperforming in quarter three. So if we are excluding the increase of this one single grant, our chemo percentage
Speaker 1: has actually dropped, i.e. non-T-MOL has increased by a single digit. So that's the true reflection of what's going on in the non-T-MOL channel. In addition, our mini-channel strategy is actually not with a purpose to push the people from the T-MOL to a non-T-MOL channel.
Speaker 1: Timo channel, it's actually to encourage people to go for the omni channel, which is to increase the stickiness and to drive more value added service from Baudrillin to the client.
Speaker 1: So by this quarter, we have 42% of our total brand partners choose both to operate our mini-channel folder.
Speaker 1: So this is our current situation.
Speaker 11: Thank you.
Speaker 12: Thank you.
Speaker 2: Thank you. We will take our next question.
Speaker 2: Please stand by.
Speaker 2: Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead, your line is open.
Speaker 3: Thank you management for taking my question. So I have two questions. My first question is could management share some color about trend of domestic versus international brands? And my second question is could management share some updates about the cooperation with China and our thoughts about expansion into Southeast Asian market? Thanks.
Speaker 1: Okay, so Tracey, if you can take the first one, then I will take the second one.
Speaker 4: Sure, no problem.
Speaker 4: Hello, thanks for the question. I think in terms of the to win in the consumer side I think they were facing the same pressure no matter is foreign or local brands. How to solve the short-term problem and how to invest in longer problem to win next round. But for the online business we can see actually most of the players are still emphasizing the important.
Speaker 4: of the online part because of the relatively fewer store performance in recent partners. So right now actually we are working with our brand partners to come out with the three years plan to talk about how to connect with their consumer directly and how to allocate their budgets smartly, I mean cross channel and also to reach the direct communication with the consumer.
Speaker 4: Also, for the local brand part, we are very lucky to share that we have some breakthroughs in the past few months to seek the collaboration opportunity in professional ways, areas like IT service, content marketing, interactive marketing technology and the consumer customer service. I think in the longer run, be professional in specific areas still will be the win.
Speaker 4: in the service market.
Speaker 4: the service market. Thank you.
Speaker 1: Okay, thank you Tracy. In regard to the China, we have continued our good progress in terms of guiding the synergy. So as we mentioned in the past, we see the synergy coming from three areas. So the first one is joint BD. So with China and the Alibaba ecosystem, we
Speaker 1: we are seeing some additional bidi opportunity coming in from the ecosystem, which is helping both Baozheng logistics and also Baozheng as a whole to conduct new business.
Speaker 1: The second one we see is actually to utilizing the scale and infrastructure of Tainio. So basically in terms of the warehousing and in terms of the last mile delivery, Tainio has provided very good support for us to get more results.
Speaker 1: Finally, we see the technology enhancement. So basically, previously, it actually both makes the investment into the technology on the logistics part. And now we can utilize the China network on the technology enhancement like the RFID technology, which is giving us more efficiency when we are operating the warehouse.
Speaker 1: So overall, we think we are in the good trend with our alliance with China. In terms of the Southeast Asia expansion, we are continuing to focus on building our own capability in that region and also our approach is trying to replicate some best practices.
Speaker 1: and take the learnings we had from operating the e-commerce in China. But also our approach in Southeast Asia is to work closely with the brands to grow the e-commerce offerings in that region. So when we have made more progress, we will come to report back to the market.
Speaker 1: Okay. Thank you. Thank you. Thank you.
Speaker 2: Thank you. We will take our next question.
Speaker 2: Our next question comes from the line of Wandell from CICC. Please go ahead, your line is open.
Hi, good evening management. Thank you for taking my question. We noticed that the number of brand partners for store operations increased. As the micro environment is weak, could you please share something about customer acquisition strategy using this quarter? And could you please share some details about the new brand partners such as their industry scale and the main channels we have?
focusing on our new revenue source, which is the IT client and also digital marketing clients. And you can see actually they are combined with our emerging category like the our our CC category and also the luxury category. So which indicates actually our strategy on the one to one to one stop solution, which means we
Actually, we start from the operation, but we extended our service to other parts strategy works.
And you can see actually in this market, we can see some of our clients actually invest a lot in the long term strategy, including the interactive marketing and also their data and also infrastructure setup.
Do you have any other supply and entry questions, answers for this?
No, I think another thing I would like to add is in terms of the value added service, we are utilizing the OMIMI channel and also to utilizing the foundation we have built over the time. I think that will be a main source of the new business coming in the next few quarters. That's it. Thank you.
Thank you.
Thank you.
Thank you. Once again if you wish to ask a question please press star 1 and 1 on your telephone.
And we will take our next question.
The next question comes from the line of Qi Fan Yang from Guangfa Securities. Please go ahead, your line is open.
Hello, management team. So I have two questions. The first one is about the luxury revenue has reached the best growth during the past quarter. So could you please elaborate only on the future strategies for expanding the luxury category? Also, do you have a certain benchmark percentage of luxury categories contributed to the revenue? The second question is under have like crerase so they cannot Cars supers261. So I have aUnrete berries
the investment strategy for the 2023. Thank you. Okay, let me answer your second question first and then Tracey can cover the last three questions. Yeah, in terms of the investment strategy, as you have seen, we recently made the announcement of acquiring type China's business.
So in the short term, our focus will be building the GATT China business and building the Boston Brand Management as a new business unit. So we will focus our efforts on integration and also transition to make sure it is a success.
And in terms of the investment, our focus will in the short term be the brand related investment will be our focus. So I mentioned in the last few quarters, Baojun has made investment either the minority investment or the controlling investment.
For GAP, the double 11 performance has also been good. The GMV has grown 22% year over year for the GAP during double 11, which outperforms the market. All this shows with Belgian enhancement, we will be able to add more value to those brands growth kind of story.
At the same time, when we are looking at the investments, we are also practically optimizing our investment portfolio. As mentioned earlier, the BaoBida, which is the last mile delivery investment we made, we actually practically introduced another strategic investor to take the controlling stake.
and make Belgium become a minority state. This is because this investment is a little bit duplicate to our strategic alliance with China. So with that in mind, we actually optimised our investment portfolio to turn ourselves from a majority higher...
to turn ourselves from a majority shareholder into a minority shareholder.
Looking at the medium to longer term, I think our investment priorities are focused on the international expansion and also building technology capability on top of the brand management.
And with the current market conditions, we actually keep an open eye on the good value asset as we did for the GAG China acquisition.
Okay, so that's on the investment strategy. So Tracy, maybe you had something on the luxury.
Business, yeah.
Thank you.
Yeah.
Tracey, can you hear me?
Yes, come back to the to the luxury story. I think we need to look at the to the to the industry from different angles. In short term, actually definitely the market is facing pressures on the on the slowing down growth. Take this W11 for example, many brands have ramped ramped up in variety and intensively of benefits.
to enhance the sales, such as deeper discount, interest-free instalment, and also a GWP gift. But on the other hand, we see many of our brand's partners are investing for the middle to longer strategy. Some of them take these two years as opportunities to adjust their pricing strategy. They're more focusing on the product innovation itself.
and also the brands group, they emphasize on the consumer centric and increase their budgets on content marketing and the data infrastructure. We see a lot of innovations, initiatives happening in this W11. They lift their NFT triumph and also you see a lot of limited edition SKUs and online fashion shows have moved into the livestream topics.
to continue to drive the sales and also to attack new members. So I think that is the two sides of the factor base currently in the industry. And for Bozeng, we still treat luxury as our strategic part of our overall business. Because of the luxury market is still growing, they still have lower penetration and we see a lot of duties in new pipelines right now.
and more reliable and value-added service related solutions. And with all of this, we have the strong belief to grow with the market in the next one or two years.
this really tastes logistic solutions. With all of this, we have the strong belief to grow with the market in the next one or two years. Thank you.
Thank you. We will take our next question.
next question?
Our next question comes from the line of Charlie Shen from China Renaissance. Please go ahead, line is open.
Thanks management for taking my questions again. I have one question regarding the launch of BLC, DOC. I heard Vincent mention that. Can you share more color about this topic and how to think about the cost and the top-line contribution for 2023? Thank you.
Thank you for the question.
I'll talk about the concept.
of this BOCDOP, we call this Bogdok. In Chinese, we give it a Chinese name called the Baozou, this product line or solution. And then also maybe you can talk more about the revenue.
of local expectations.
Yes. Yeah, yeah, actually, in the past several years.
In the core system, we call this a middle-end system, including all the other fulfillment, other management and processing systems, and also other fulfillment systems.
We call this Middle End. This Middle End or DOP, Digital Operating Platform, plays a very important role to support the Omni Channel, retail and D2C based business.
Because all the traditional ERPs, they don't have this kind of offerings. And in China, because of the omnichannel and the...
And the online-offline integration is much faster and advanced than other countries and markets. So there's a strong demand in the local market for this kind of system.
With this system, all the brands can operate their retail and D2C business. They can open stores on T-Mobile and JD and WeChat everywhere at the same time. And they can process all the orders from different channels and make sure they can deliver all these orders to the customer. So that is the system.
So previously it's just about a...
highly customized system for each of the clients. Bosun did the same as the other players. Recently, we put a lot of investment in the packaging and the product ties of this solution. And right now, I think the productization level is much higher than before. So we package this as a solution. It's more ready to market. So we are...
progress and we're trying to make it better in the near future. And other about the revenue.
What's your view on that? Yeah, sure. So Charlie, thanks for the question. From a financial point of view, I think we made continued investment into technology, which is to build the competitive advantage of forging over our competitors. And from the introduction of the Bogdok.
which is actually helping us to commercialize those technologies in a more advanced way. So looking forward, we will be able to see the investment side. We continue to make a similar amount of investment into technology year over year, so the cost would not increase. However, we foresee this proposed contract.
The revenue from the technology will increase year over year because of our better structured productization and also commercialization of IT offerings. So in return, that will help us to drive our profit margin from the type offering into the market.
One more thing, thank you officer.
not only support all the clients with the omni-channel, all the processing and fulfillment capability, but also with all the data collected from different channels, we can also deliver a much better business intelligence capability and decision support capability to all the clients.
Yeah, thank you. And also in addition to that, I think investment into technology not only benefits the traditional e-commerce business, it will also benefit the business management business as well. So with China, we will be able to...
to use our technology to drive the transformation of the brand we acquire as well. So that will help to create more value.
Thank you very much.
Thank you. There are no further questions, so I would like to hand back to management for closing remarks.
Thank you operator. In closing, on behalf of the Baozeng Management Team, we would like to thank you for your participation in today's call. If you require any further information, feel free to reach out to the IR team. Thank you for joining us today. I'd like to conclude the call.
This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.
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