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Important points:
- Baozun's revenue rose 5% last year after the acquisition of Gap China, accounting for 14% of its total annual revenue.
- Product sales from the company's legacy e-commerce business fell 21% last year, and revenue from e-commerce services also fell 5%.
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Written by Edith Terry
Hojun Co., Ltd. (NASDAQ:BZUN) has undergone a major transformation over the last year, acquiring brands and investing in new offshore businesses as it diversifies beyond its position as one of China's largest e-commerce service providers. . But what exactly is going on at this company whose main stakeholders include e-commerce giant Alibaba (NYSE:BABA)?
Some new hints came last week when Baozun released its 2023 annual report and announced two senior management moves. Catherine Zhu has been named the company's new CFO, and Arthur Yu has stepped down from his former CFO role to focus on his other role as president of Baozun E-commerce. Both men joined the company four years ago, and the move is apparently aimed at giving Yu time to focus on revitalizing Baozun's core e-commerce services business.
Baozun's Hong Kong-listed shares fell 4% the day after the announcement, the latest sign of waning investor interest in the company's ongoing transformation. The company previously announced its 2023 results in March, meaning the drop was likely in response to executive changes and new details in its annual report. The company's Nasdaq-listed stock has lost more than 40% of its value over the past 52 weeks.
This annual report highlights Baozun's latest thinking. Over the past year, the company has been moving its brand management business in two new directions domestically, while outside China, it is looking south, or Southeast Asia. The purchase is Gap Co., Ltd. (NYSE:GPS) Established 51% joint venture with China business and private brand owner last year authentic brand group Just a few months later, these became the template for the company's two new brand-related businesses: Baozun Brand Management (BBM) and Baozun International (BZI).
Baozun E-commerce remains the core of the company's brand management business in China, providing back-office e-commerce supply chain management services for brands. Baozun International is doing something similar internationally, initially in Southeast Asia. CEO Vincent Chiu said at the company's latest financial results conference in March that Gap China, which is at the core of Baoshun brand management, will rebuild the chain as a more upscale brand. As a result of these efforts, operating losses have been significantly reduced.
“This breakthrough in our first year is the result of establishing a solid foundation for growth and success in brand management,” said Mr. Chiu. “Baozun brand management is a key element of Baozun Group's second growth curve. Baozun International is a long-term opportunity and we will continue to build the business foundation and infrastructure for it.”
Unimpressive numbers
Although this vision sounds good in theory, the real numbers are still not that impressive. Baozun's annual sales in 2023, including 1.3 billion yuan from Gap China, rose 5% to 8.8 billion yuan ($1.2 billion). The company's core business, which provides e-commerce services to other brands, fell 5% to 5.5 billion yuan, and revenue from selling products through e-commerce fell further by 21% to 2 billion yuan.
Within the product sales category, revenue from home appliance sales fell 29% and electronics sales fell 56%, reflecting a decline in purchasing appetite in China as consumers avoided big-ticket items.
The company's annual loss was 278.4 million yuan, down from a loss of 653 million yuan in 2022. The company's brand management division, which primarily includes the Gap China business, posted an adjusted operating loss of 188 million yuan for the year. The chain closed 86 stores before the acquisition, and Baozun inherited the chain's operating losses.
Baozun's transformation comes amid painful changes in China's e-commerce sector, which is showing signs of maturing after years of strong growth. Major platforms, from Alibaba's Tmall to Tencent's WeChat Channels, are struggling with weak domestic consumer sentiment. Foreign luxury brands, which used to be one of Baozun's main customer groups, are also facing new competition from domestic luxury brands.
Baozun started its business in 2007 with the clever idea of providing back-office capabilities to major foreign brands looking to capitalize on the e-commerce wave that was then emerging in China. The main partner of the company's core e-commerce services business is Alibaba, which owns 14.4% of Baozun. Dependency on Alibaba ultimately became a liability that limited Baozun's growth opportunities, and the company has since begun to diversify by providing e-commerce services to brand partners on various other platforms.
So what is the current situation? Baozun's e-commerce division aims to disrupt Douyin, the domestic version of short video sensation TikTok, in the domestic e-commerce ecosystem by launching a “Creative Content to Commerce” studio and acquiring Location, a top-tier Douyin. We have responded to the impact. According to the annual report, partners.
Baozun Brand Management has been revamped from 70 systems to a single unified operating platform, which will serve as the basis for the division's future growth. Baozun has worked hard to shed the discount brand image associated with Gap stores and introduced a new brand philosophy of “China for China.”
Baozun International's first major creation is Authentic Brands' Hunter brand, and Baozun owns the brand's intellectual property rights in Greater China and Southeast Asia. Baozun International employs his 150 employees in Singapore, Malaysia, Thailand, South Korea, Philippines, Hong Kong and Taiwan. This year, the company will introduce its Hunter brand, known for its outdoor wear and rubber Wellington boots, to Singapore and Malaysia.
Chiu said the international arm also has a similar collaboration with Japan's Honda Motor Co., with plans to launch operations in Singapore and Malaysia later this year, with the two companies collaborating on both online and offline initiatives. He added that this is planned.
Baozun's current price-to-sales (P/S) ratio is 0.13, which looks quite depressed when compared to its domestic competitors. Waimobu (2013.HK), trading at 1.38.global peer sales force (NYSE:CRM) and Shopify(NYSE:SHOP) Both are trading much higher with ratios of 7.81 and 13.58 respectively. Baozun's weak valuation may explain why six out of seven analysts surveyed by Yahoo Finance rated the company a “strong buy” or “buy.” And at least one brokerage firm, Daiwa Capital, recently upgraded the stock to a “buy” rating.
This article was provided by an unpaid external contributor. This does not represent Benzinga's reporting and has not been edited for content or accuracy.
Would you like to earn 27% every 20 days?
This is the average value of Nic Chahine's option purchases. Don't sell covered calls or spreads…buy options. Most traders don't even have a 27% buy option win rate. His win rate is 83%. Here's how he does it.
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