Image source: The Motley Fool.
Baozun Inc. (BZUN 5.33%)
Q2Â 2019 Earnings Call
Aug 21, 2019, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, ladies and gentlemen, and thank you for standing by for Baozun's Second Quarter 2019 Earnings Conference Call. At this time, all participants are in listen only mode. After the 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, Investor Relations Director of Baozun. Please proceed, Wendy.
Wendy Sun -- Investor Relations Director
Thank you, operator. Hello, everyone, and thank you for joining us today. Baozun's second quarter 2019 release was distributed earlier today, and is available on our IR website at ir.baozun.com as well as on global newswire services.
On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and the Chief Executive Officer; Mr. Junhua Wu, Chief Growth Officer; and Mr. Robin Lu, Chief Financial Officer. Mr. Qiu will review business operations and company highlights, followed by Mr. Lu, who will discuss financial 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 US Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the terminology such as will, expects, anticipates, future, intends, plans, believes, estimates, targets, 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 or 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 achievements to differ materially from those in the forward-looking statements.
Further information regarding these and other risks, uncertainties or factors are included in the company's filing with the US Securities and Exchange Commission. The company does not take any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law.
Finally, Please note that, unless otherwise stated all figures mentioned during this conference call are in RMB. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead.
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
Thank you, Wendy. And thanks for everyone for joining our earnings call today. We built up our strong start to the year with GMV, gaining its further growth momentum, increasing nearly 60% year-over-year during the quarter. More encouragingly, total net revenue grow at its fastest pace, which is increasing 47% year-over-year. Historic growth was partially driven by our strong performance during the June 18 sales campaigns and highlights the success we are having in acquiring high quality brands and capturing new emerging e-commerce opportunities.
We continue to steadily accelerate brand acquisition, which is focused on generating high quality GMV, especially from brands in apparel and FMCG categories.
During the quarter, we added a net of 12 new brands, which brings the total number of brand partners to 212, compared with 162 a year ago. In addition to penetrating deeper into existing categories, we've also been exploring new brands in -- with tremendous potential. As I'm sure you all know, the Chinese consumer is gaining more purchasing power. This is especially true for younger generation particularly, which are spending more on global premium and luxury goods and are increasingly through e-commerce platforms.
In addition to working directly -- we teamed up with Alibaba this quarter to fine tune customer engagement and a shopping experience on Luxury Pavilion, it's dedicated channel for premium and luxury goods. We now provide services to both their premium sub-marketplaces and a few imports are Alibaba's first party model, all invested back to the brand's. While still in the early stage after the recent dip, we are very pleased with the initial results generated during the June 18 sales campaign. We strongly believe the unique value proposition we offer will help us to penetrate further into the premium category, where we are seeing an increasing number of luxury brands adopting e-commerce strategies.
In addition, we are in the process of operating our warehouses, IT infrastructure for Luxury Pavilion and expect to gradually update -- operate to end-to-end solutions during the second half of the year. We began working with two top tier of highly respected video game companies during the quarter. One, international and the other, predominantly domestic, under a new IP distribution model. Each company operates extremely popular in China and has authorized us to become the official distributor for their physical derivative products and branded us license for us to develop products of our own, such as apparel and accessories, which means games' characters.
While GMV from these products won't be as significant in near-term, we are very excited about the enormous opportunities with this IP distribution model we create. Working with brand partners under this IP model requires not only deep knowledge of store operations, but also omnichannel marketing, user engagement and supply chain management, all of which Baozun is uniquely positioned to offer with our diverse array of cutting edge solutions. Growth of distribution model was also very robust during the quarter, leveraging our full scope of end-to-end solutions and a comprehensive branding and a marketing capabilities. We successfully organized one-day campaigns to increase our engagement, sort of brand's own mini-single days event -- style event that drives the incremental growth in sales.
We are also evaluating opportunities to reach our portfolio of brand partners with diverse new and existing brands -- exciting brands, such as leading international premium infant formula brand, we signed on during the quarter to drive the incremental growth in product sales. Years of operational experience on the distribution model has provided us with unique insights and very good understanding of inventory management, which we are leveraging to drive through -- to drive growth while minimizing inventory risk.
The addition to bringing new brands on board, we have also been working identify ways to optimize our existing portfolio mix by evaluating the current brand both quantitatively and qualitatively when it comes to GMV. After thorough consideration and part of our strategy for focus on high quality GMV, we may strategically convert one of our electronics GMV brand partner into a known GMV partner during the third quarter. Instead of handling their store operations, we provide IT and a marketing solutions to continue our support for this brand. We believe optimizing our brand portfolio toward high quality GMV would ensure the effective and efficient usage of our resources, so we can capture additional market opportunities to drive future growth.
As we shared with you in our last call, the success we have had with our international brand honors is being replicated and customized to create solutions for domestic brands. Starting earlier this year, we began working with the leading domestic FMCG brand to help them benefit from the new era of e-commerce in China. We formed a joint venture with them at the end of April to tap into the enormous growth opportunities. We've finished building the infrastructure for this JV during this second quarter, which has already yield solid success with the brand's online GMV in the first half of 2019, more than doubling. This strong growth represents the unique value proposition we offer to domestic brands by combining our in-depth knowledge of e-commerce and technology with brands comprehensive offer network and leadership positioning in FMCG sector. The joint venture will soon begin helping other FMCG brands.
Now, turning to the technology and digital marketing. During the second quarter, we fully integrated our servers with our hybrid cloud model, Baozun Cloud to address growing needs for storage and computing capabilities from our SaaS platforms and the technologies. Of a smooth trial period our e-commerce systems were linked with Baozun Cloud to support operations during the June 18 sales campaign. We're extremely pleased with Baozun Clouds results, which have significantly strengthened our technological capabilities, provided us with added flexibility to rapidly adjust and scale our servers within minutes and they improve the efficiency.
With Tmall now upgrading to Tmall Flagship Store version 2, we believe our continued investment in R&D and technology will provide us greater flexibility and we're ideally positioned to help brands enhance the customer experience, drive higher e-commerce growth.
Digital marketing continues be one of our most powerful tools when it comes to customer acquisition and reinforces the value that we are able to offer existing brand partners. At a recent Golden Mouse awards, we were recognized as the digital marketing benchmark company of the year. We were also among seven shortlisted multi-channel network or MCN service provider certified by Alibaba in the first round.
We are very proud of the digital marketing unit, well recognized full spectrum marketing agency specializing in not only ROI-driven optimization but also the broader strategic implementation of omnichannel brand marketing strategies, content and creativity, as well as event marketing. Our outlook for the rest of the year is very positive with China's e-commerce sector showing increased resilience.
China's e-commerce industry continues to gain gross momentum as a total addressable market spends. According to Tmall, this year's June 18 sales campaign was the first time in history that overwhelmed with 12 -- 20 brands in a sector. We're able to each generate over RMB100 million in GMV. A significant milestone. As China's leading brand e-commerce service provider, we are well positioned to tap through growing opportunities in this huge market. And if it's from China's consumption upgrade. We believes that as addressable market grows more and more brands average their service partners expertise, their online business grows and operations. In May, we had our fourth annual Global Brand E-commerce Summit, which had the theme of Top Talking. We invited over 200 leading brands for in-depth discussion on GMV growth drivers and help technology, innovation and digitalization improving them.
Friends I'm looking for solutions where we can help them integrate all of their systems, digital lives, procedures, optimize value chains and developing innovative new business models, all of which -- Baozun's ideally positioned.
On that note, I'll pass a call over to Robin to go over our financials. Thank you.
Robin Bin Lu -- Chief Financial Officer
Thank you Vincent. We are happy to deliver another solid quarter of growth. Our shifting focus toward high quality GMV brands is clearly paying off, highlighted by the over RMB100 million in non-GAAP operating income we generated for the fourth time during the non-Singles Day quarter. A significant milestone for us. Its clearly demonstrates how we are able to drive profitable growth while at the same time expanding investment in warehouse upgrades, technology and digital marketing.
Net income for quarter grew 83%, year-on-year, with net margin expanded by 80 BPS to 3.9%, and the net margins remained flat at 4.9% on non-GAAP basis. We've also significantly improved operating cash flow during the quarter to enhance the management of our accounts receivable, including making upgrades to our auto gearing reconciliations system and the closely monitoring collection.
They also further experiencing our cash position based on issuance of our five-year convertible bond with the net proceeds of around $270 million. All these negatives provide us with aggregate negative profitability on the confidence in our future growth prospects. Well, we expect GMV to grow by 40% to 45% year-over-year for the third quarter of 2019. And the way we integrate our full-year GMV growth outlook of 40% to 50%. Today's note, this growth outlook has embedded the impact on GMV from the transitioning of electronics brand into potentially are now GMV partners. With our profitability improving, addressable market expanding and the strong cash position, we have decided to strategically reinvest some of our profits throughout the rest of the year to take advantage of the newly emerging opportunities. So that we will strengthen our position over long term. These opportunities include early investments in some key new brands to support operations but they gradually ramp up.
Economic and political infrastructure and warehouse upgrades in the high premium category. And the technology and the digital marketing which outstrength in our unique value proposition with brand partners. We believe these investments are critical and we'll significantly improve our comparative position in the market in the years to come, even if they temporarily impact our bottom line in the short term. We are building this business for the long term and are building to make investments out and ultimately, we've build a platform was technical and highly profitable growth in the future.
Now let's go over the second quarter 2019 financial results in details. We believe year-over-year comparison is the best way to reveal our performance. Our percentage chance I'm going to give will be on that basis. Once again, please note that all figures mentioned in this financial review section are in RMB.
Total GMV during the quarter increased by 60% to RMB9.73 billion. Our focus remains on growing our non-distribution business, which saw GMV increase by 62% this quarter to RMB8.77 billion in which service fee model leading the pace. Total net revenues increased by 47% to RMB1.70 billion. Product sales revenue increased by 47% to RMB849 million. This increase was primarily due to the acquisition of new brand partners, the increased popularity of brand partners' products, and the Baozun's increasingly effective marketing and promotional campaigns.
Services revenue increased by 47% to RMB855 million during the quarter. The increase was primarily attributable to the rapid growth of the company's consignment model and service fee model, and in particular, the strong growth in digital marketing services. Total costs and operating expenses were RMB1.6 billion, compared with RMB1.10 billion in the same quarter last year. In particular, cost of products increased to RMB679 million from RMB464 million last year, primarily due to higher costs associated with an increase in product sales revenue. Gross margin for product sales increased to 50% from 19.5%, with the margin expansion mainly being generated from high margin brand added over the past 12 months.
Fulfillment expenses increased to RMB392 million from RMB278 million last year, mainly due to an increase in GMV from our distribution and consignment model and warehouse rental expenses, which were partially offset by improvements in efficiency. As a percentage of GMV, our fulfillment expenses ratio improved to 4% from 4.6% a year ago, mainly as a result of cost control initiatives as well as efficiency improvements, which were partially offset by our investments in warehouse upgrades.
Sales and marketing expenses increased to RMB413 million to RMB273 million last year. In line with GMV growth as well as an expansion in digital marketing, which was partially offset by efficiency improvements. As a percentage of GMV, our sales and marketing expenses ratio improved to 4.2% from 4.5% a year ago, mainly attribute both to labor efficiency leverage and the improved profitability for digital marketing services.
Technology and the content expenses increased to RMB102 million from RMB65 million a year ago and the RMB88 million last quarter. The sequential increase in technology and content expenses was mainly due to more upfront investments in emerging opportunities as well as a short-term overlap between our high comps in Chengdu R&D Center and Shanghai and our continued investments in the innovation and the productization. During the second quarter, our investments in technological innovation and the productization totaled RMB21 million, up from RMB18 million last year.
G&A expenses increased to RMB52 million from RMB39 million last year, primarily due to an increase in administrative, corporate strategy, and business planning staff.
Income from operations increased to RMB86 million with operating margin of 5%, unchanged from the third quarter of last year. All in all, non-GAAP income from operations was RMB103 million, a increase of a 30% from a RMB79 million last year. Non-GAAP operating margin was 6.1%, compared with 6.8% in the same quarter of last year. Offsetting interest income, net interest expense totaled RMB3.4 [Phonetic] million compared with a net interest income of RMB145,000 last year and net interest expense of RMB6 million last quarter.
Well, we've completed the CB financing in April with a much lower coupon interest rate, we have proactively retired some of the existing short-term backlogs to cut interest expense. As such, net interest expense was cut meaningfully on a sequential basis.
In second quarter, net income attributable to ordinary shareholders of Baozun increased by 83% to RMB67 million. Basic and diluted net income attributable to ordinary shareholders of Baozun for ADS were RMB1.16 and RMB1.13, respectively, compared with RMB0.65 and RMB0.62, respectively, during the same period of last year.
Non-GAAP net income attributable to ordinary shareholders of Baozun increased by 46% to RMB84 million. Basic and diluted non-GAAP net income attributable to ordinary shareholders of Baozun for ADS were RMB1.45 and the RMB1.41, respectively, compared with RMB1.01 and RMB0.96, respectively, for the same period of last year.
As of June 30, 2019, we have RMB2.55 billion in cash and cash equivalents and short-term investments, compared with RMB514 million as of December 31, 2018. The significant improvement in cash position was mainly attributable to our CB insurance with net proceeds of approximately $270 million and a strong operating cash flow during the quarter, which was partially offset by the retirement of short bank loans a net of RMB368 million.
Turning to guidance. Based on current macroeconomic and operating conditions for the third quarter of 2019, we expect total revenues to be between RMB1.5 billion and RMB1.55 billion, which represent the year-over-year growth rate of approximately 35% to 40%. In which service revenue to increase in line with the growth rate of total net revenue on year-over-year basis.
This concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A sessions. Thank you.
Questions and Answers:
Operator
Thank you. Ladies and gentlemen, we'll now begin the question-and-answer session. [Operator Instructions]
Our first question comes from the line of Alicia Yap of Citigroup. Please go ahead.
Alicia Yap -- Citigroup -- Analyst
Hi, good evening, Vincent, Robin and Wendy. Thanks for taking my questions. Congratulations on the strong results. I have questions on the product revenues this quarter. So could you help us understand what are some of the reasons that contribute to the strength in product revenue this quarter? Was there any benefit from the VAT adjustment? If so, will the benefit be only one quarter impact? And then if we look at on the product revenue growth, how should we think about 3Q and into the second half? Will the reacceleration sustainable? And can you remind us the total numbers of brands that are currently under the distribution model? Thank you.
Robin Bin Lu -- Chief Financial Officer
Sure, Alicia. I think that's my turn to answer your question. Yes, we have about 47% across in the distributor model, which is a product sales. I think it has two reasons. The first one, the existing brand is still capable of very constant high growth rate, we enjoy, especially in 6/18. And definitely want me to call the way introduce some of our key distribution model brands in last Q4, which is fully ramp up in Q3 and contribute to high growth rate in our 6/18 and full Q3 quarter.
So that's the reason I know, why we enjoyed a very high growth rate in the product sales. And looking forward for the next two quarters, we think the growth rate would be a very in line with total growth rate of the revenue and the way things are -- with the better control of the inventory, we take the full advantage of our experience and expertise in the product sales.
Regarding VAT, basically in our model, we have a very specific regiment with the plan. But in total, it's a very mature impact of our product sales revenue numbers for the VAT tax. And for the total number of brands, we have some brands, but not very disposable in the total number, I would say, about a less than 20% of our brand, we have -- we use a distribution model in different patterns.
Alicia Yap -- Citigroup -- Analyst
Thank you. Robin.
Operator
Thank you. Next question is from the line of John Choi of Daiwa. Please go ahead.
John Choi -- Daiwa Securities -- Analyst
Good evening and thank you for taking my question. I have a couple of questions. First of all, I'd like to ask about the -- Robin, I think you mentioned on your prepared remarks that you guys will be reinvesting into your profit in the second half this year. Can you kind of elaborate on that initiative? And also, how should we think about the operating expenses toward second half this year and also in terms of profitability?
My second question is more about your existing brands. Can you kind of share with us the same-store sales growth and also like the contribution from the new brands and what kind of trend that you guys are seeing from the new -- these new brand partners? Thank you.
Robin Bin Lu -- Chief Financial Officer
Okay. Thank you, John. Let me take the second question first. Our same-store sales growth, which is the existing brand, its growth rate is about 48%. And if you do mathematically, if do the rough calculations, use of 60% minus 48%, around 10% to 12% GMV contributed by the newly operated brands. And the deficit was expanding, has been expanding for -- through this year because we -- virtually we accelerated the new brand acquired for this year.
And back to the first question. Yes, I mean, strategically, for example, we think, the direct cooperation with Ali for the high-premium and Luxury Pavilion category is a very good opportunity for us and for the future. And we do see -- we have some -- we've started some new cooperation from Q2, and now we are -- we do see the brand expansion for this category. And to do the business better in this section, we think we need some new investment in the warehouse and the technology side. So that's the reason why we say we want to reinvest some profits because that will guarantee our future growth and we'll give you our very unique position to work with the platforms.
For the operating margin, yes, we have -- we may have some impact because we do the investment. For this one, we think we have lethal impact, but we are very positive for the future operating margin improvement in the next year. Thank you, John.
Operator
Thank you. Next question is from Natalie Wu of CICC. Please go ahead.
Natalie Wu -- CICC -- Analyst
Hi, good evening. Vincent, Robin, Wendy and co. Thanks for taking my question. I have two questions here. First one is related with Tmall 2.0 initiative. Just wondering how should we read through the related impact on Baozun for this initiative? Could it help your take rate or margin profile in the longer run? I just want to get a sense of that.
And secondly, regarding the new brands you've added this year and to be added this year. Would appreciate if management can give us some color on the incremental operating income versus like GMV. These effects related with these new brands. Just wondering, if there is any difference that we should be noticing regarding that. Thank you.
Junhua Wu -- Director and Chief Operating Officer
Okay, Natalie, this is Junhua. So let me address your first question related to the -- for the version 2.0 initiatives. So the Tmall version 2.0 is your new initiative in terms of their back-end store system. So it's part of their Tmall growth plan after they appointed their new President. So the key point of the Tmall 2.0 is about, they implement a cascade model for helping those kind of brands and merchants to implement their membership management and how do they launch their new products and how do they set up a new scenario by processing all those kind of online offline by supply -- by implementing Tmall iStore system. So they are cascade model for this stage.
They only launch the membership enhancement relating all those merchants and brands and us, to just implement a very comprehensive membership management. So they provide a lot of back-end tools for helping us to develop a new membership in the loyalty program. And a lot of engagements and a lot of new initiatives and mechanism to engage the new membership, to provide a deeper connection with all those consumers to upgrade a service level with all those estimates. Providing a lot of new scenarios and opportunity to drive a higher conversion rate by providing extra services related to membership.
So for that kind of new tools and packages, we do have the opportunity to provide a lot of new extra services to our brand partners relate to that. In the future, while they keep releasing your new features, it's good for us to keep increasing our thickness with all brand, including providing add value, external marketing services, operational services and et cetera. So by now, we see this initiatives from Tmall is really helping the brand partners well and really helping to comprehensive our service offer. Thank you.
Robin Bin Lu -- Chief Financial Officer
Okay, let me take the second question about the margin. Why we talk about the margin I would like -- we like to speak to the private sales and service model differently. For the product sales, our margin, -- so to reason to the improve our margin is, we carefully slack the higher-margin products with the better indicated growth as we reiterate every time, and we think we are on the right track to have the expertise to slack the products, we do the product sales. That's the main reason why you see the gross margin improvement for the product sales.
And about take rate, I think based on the number we've provided, you can quickly calculate pick rate even though there is some natural impact on the electronics brand we just to talk about. For the Q2, we still have a slight increase in the pick rate. That's -- I'm that's the magazines coming from the newly acquired brand with the higher quality GMV across with the higher take rate. And that's where I need to mention it. Even for the new brands, we're still -- nobody will still take the short or long-term to ramp up GMV because some brands as a very key and a very big. And we deal with the many platforms and the many brand stores in the different aggregates and the different platforms. So we -- it still take a very long time to ramp up, so till now because of the Alberta, much more new brands with some of brands do in the ramp up stage, which contribute not too much in the take rate and in turn -- and have some net impact on our cost effective. Thank you.
Natalie Wu -- CICC -- Analyst
Got it. Thanks. They're helpful.
Operator
Thank you. Next we have is Thomas Chong of Jefferies. Please go ahead.
Thomas Chong -- Jefferies -- Analyst
Good evening, management. Congratulations on the solid results and thanks for taking my question. Well, my question is on the GMV growth momentum of our brands by different categories in a quarter. And also, what is our strategy going forward on more brand partners? Will future revenue growth be driven more by same-store sales growth or earlier brand additions? Thank you.
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
Sorry, can you -- the line is not very clear. Can you just rephrase your question please?
Thomas Chong -- Jefferies -- Analyst
Yes, sure. The first question is just on the growth momentum of our brand in GMV by different categories. And the second question is on what is our strategy to import more brand partners in the second half? And also will revenue growth be driven more by same-store sales growth or new brand addition in the second half? Thank you.
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
Sure. When we -- even though we don't disclose the details in the -- across categories I'll give you -- I would like to give you some color about that. And we think I -- for the sportswear categories we enjoy very high growth rate and also in the apparel, demand aggregate will work around, is still very high growth, I would say, I mean some of the key accounts, there same-store sales growth is a higher than the average sales in -- same-store sales growth. So we think we are in a very good track on that. And about the electronics, we don't think that's a main idea for us. And that's why -- the reason why we just, transit one GMV partner to a non-GMV. So that's a first question.
About the second question, I would say, we focus more -- recently we focus more on high premium brands we acquired and we see some traction in Q3 already. And we -- that's a kind of a new category we work with. And regarding FMCG, we are introducing more products -- more brands in this category too. Does that answer your question?
Thomas Chong -- Jefferies -- Analyst
Yes. Thank you very much.
Operator
Thank you. We have Sally Chan of CLSA. Please go ahead.
Sally Chan -- CLSA -- Analyst
Yes, hello. Good evening, management and thank you for taking my question. Congratulations for a very strong GMV revenue. I've actually -- I have a quick follow-up question on the shift of a certain brand in non-GMV model that you mentioned just now. Even taking into consideration that shift, our full-year GMV guidance of 40% to 50% year-over-year is actually maintained. So, just trying to understand the drivers behind a bear and bull case here. For example, are we seeing a stronger brand pipeline than we previously discussed or are we seeing better than expected performance from existing brands? So, leading to us maintaining that full-year guidance? Any sort of color will be very useful.
And the second question is actually on the journey impact from that shift. If we could provide any sort of range or color on the GMV impact, we're very helpful. Another question will be slightly different is actually on our co-operation with Alibaba. It seems that we are working closer with Alibaba luxury pavilion in recent months. So, if you could share some sort of co-operation opportunities that we are looking forward to, they will also be very helpful. Thank you.
Robin Bin Lu -- Chief Financial Officer
Thank you. Let me take the first question, I think Vincent will take the second question. When we see our outlook for the whole year we not only consider, I mean there is possible transition of the electronics brand. More importantly, we consider the uncertainty of macroeconomics as we specified in the early of this year. So we -- even though we have a very positive 6/18 numbers, we still very cautious about the economy going to the end of this year. So that's the key reason why we keep the 40% to 50% guidance unchanged. And unfortunately, we just started preparation of Double 11 based on very preliminary discussion with the brands across the categories, we think we get very positive reaction from the brands for that. So, that's -- based on that and the mix of all the information, we decided, we don't change this guidance.
If we have any update I'll give you for the next earnings call. And for -- specifically for this brand, yes, temporarily that we'll have some impact on our growth rate based on the mathematical calculation. But we think that's one-time issue and we've varies one-time plan and then we are very positive for the future growth especially for the next year. And also it has to purely improve our both take rate and the bottom line for this decision. Thank you.
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
I will take the second question about the Alibaba corporation. We have several ways to work with Alibaba for the luxury category. First one is that we are -- we can bring brands directly to platform to operate there are Tmall stores, for example. Some of the luxury brands we're working now just have their official sites. We're talking constantly -- talking to them, trying to bring them onto the Alibaba platform, that is number one. Number two is that Alibaba also have some more invested brands. So we are also working with this kind of brand to deliver our professional operational capabilities. The third one is that, we will also work with the luxury pavilion as a sub-marketplace to enable the hosting. So that is our general working -- ways of working with luxury pavilion. We are also talking to Alibaba about some other potential ways. So, yes, that is our continuous efforts. Thank you.
Robin Bin Lu -- Chief Financial Officer
Yes. I just want to add up something, from the Q3, the most recent result, we think it is already get some traction for the -- to attract more high premium brands to come in. We look this type more in the next earnings call.
Sally Chan -- CLSA -- Analyst
Thank you. That's very clear. Thank you, management.
Operator
Thank you. We now have Billy Leung of Haitong International. Please go ahead.
Billy Leung -- Haitong International -- Analyst
Hi, Vincent. Hi, Junjua. Hi, Robin, Wendy and co. Thanks for taking my question. Just a few quick questions. My first question is on general market trend. We're seeing more and more Chinese e-commerce platforms increasing their effort in lower tier or undeveloped areas in China. I don't know if this has any impact on our products or services. And that's our first question. The second question is on with new -- more new brands coming in, can we just get an idea of the concentration of our key brands in terms of GMV or even just by numbers? And the last question is just on the recent funding of the debt issue, I was wondering if we have further details of how we're going to use that funding. Thanks.
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
Yes, I'll take the first one. Yes, we are to see some emerging channels getting more and more active in market. Our strategy is state on change. So firstly, talking about the GMV generally, we should follow brands. Of course, we will -- quite focus on the existing GMV marketplaces like Tmall and JD. There is -- about today sales performance, but we keep watching the emerging channels very actively. We work with mini programs, social mediums and on some other, short video sites to try to engage the brand with them in different ways. Majorly, not the GMV purposes yet. Majorly for the consumer engagement and certain purpose at present, but we do think there is potential big GMV opportunities ahead. So that is about the market trend. Many new ways of doing business. No matter the demand generation or demand fulfillment, now we will all pay attention to that. That's the first one.
Robin Bin Lu -- Chief Financial Officer
Yes. Thank you, Vincent. So decentralization of our brand base is a viable strategy. Why you look at our numbers, which as I mentioned, we have about 10% to 12% share coming from GMV that we share coming from the new brands which demonstrate they already -- they are gradually decentralizing our focus in that key accounts. But in other way, the key account is still very important part and we are improving the quality of the service for them continuously. And in the 6/18, we do see some of the key accounts, they just hit historical very high growth rate and we both, we enjoyed the result. And we hopefully can get similar result in Double 11. Thank you.
Billy Leung -- Haitong International -- Analyst
Thank you. And just on the...
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
And other question about the -- Sorry go ahead.
Billy Leung -- Haitong International -- Analyst
No. Thank you. I just reminded the last question. Thank you.
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
Sure. Yes, as about the usage of cash, right? Yes. And I think we are in parallel to strengthen our operating cash flow, as we mentioned, and we think we made some achievements in Q2 and very strong path to both operating cash flow and the free cash flow. And in the meantime, we have tons of cash to support our high growth in the operations. And also another purpose of usage of the cash is for the potential M&A. But we are very careful to use this cash and we must think the target will be strategically building our business, but till now, we are still keep watch on that. And we don't see very specific target yet. Thank you.
Billy Leung -- Haitong International -- Analyst
Okay. Thank you. I'll get back in the queue. Thank you.
Operator
Thank you. We now have Tian Hou of TH Capital. Please go ahead.
Tian Hou -- TH Capital -- Analyst
Yes. Good evening, management. I have two questions. One is regarding -- is something related to Tmall? So the new CEO of Tmall Jiang Fan, she said, in the next three years, including 2019, GMV and the Tmall is going to be doubled from RMB2 trillion to RMB4 trillion. So the CAGR will be 26%. So I just wonder, as a top partners on Tmall, how are you guys going to benefit from that? Or how are you going to be part of that growth? And quantitatively, so how many new brands are you planning to add to a platform? So -- or maybe also some other measurements if the management can give us some clarification? That's number one question.
Number two is self-sport partnership with Alibaba, which is exclusive. So in the past, Baozun will understand, is also one of the leading guys in those kind of SaaS program. So it sounds like a quite negative for you guys. So can you guys give us some insights about their partnership impact to you? Thank you.
Junhua Wu -- Director and Chief Operating Officer
Okay. Hi, Tian, this is Junhua. So let me answer your first question in terms of the the GMV double in three years. So we did have a workshop as a strategic partner with Alibaba earlier. So talking about this number, so I can assure you some color on that, but please don't treat my things or my answers as official from Alibaba.
So they have very comprehensive plans to break down the GMV double plan, including like three new stuff. One is a new customer, and new products and new scenarios. In terms of the new customer, it's all about the acquisition of the basic traffic from the outside Tmall into the inside Tmall. So right now, the monthly active dynamic consumer is about like 700 million every month dynamically. So they have a very strategic KPI about bringing extra 20 million new customers every quarter to Tmall in the future, one, two years. That's one thing. By expanding all the Tmall service offering to Tier 3 to Tier 6 cities. That's one thing. By enrolling more brands on the Tmall by competing with the outer ecosystem under their radar. That's one thing for new customers.
The new product is like they're about to open a lot of back-end tools and especially data-driven tools to helping all those brands and merchants and partners to just create in design, create new products by the consumer behaviour, consumer needs and the global trend something like that. They are going to facilitate all those brands, merchants and partners deleveraging the Tmall big data to drive more accurate and new products to create new things for consumers. That's creating the demand for fulfill demand.
The third is putting new scenarios. It's more like to the Tmall version 2.0. So, as far as I said last time, they are about to launch a new implementation regarding the membership upgradation. So this is their first approach. So we are we -- we have a lot of capabilities, we just create a new zone in each brand flagship store to create a membership launching program based on brand policy and based on the brand existing CRM program to deeply engage with their existing customer and with enrolling new customer driving higher growth.
So they are providing a lot of tools and policy to empower us as a eco-player to adjusting our -- set up outgrowth. We do benefit a lot of these kind of things from the three new -- from Tmall. So we can just, leveraging their resources to create our own growth. Besides that now, maybe you don't know that before. So according to the Tmall announcement, it's over 50% of the Tmall GMV actually came from a non-brand merchant, a non-brand entities, which means that the branded GMV, like a lot of -- name the brands, including the international brands and domestic brands is below 50% of the total Tmall GMV.
So this should rest a little bit over 50% GMV came from the non-branded entity like factory, a manufacturers and some kind of the retailer and some kind of the local brand owner or something like that. So Tmall is about to set up a very strategic partnership with all those brands, and especially by providing an official with Tmall -- the TP services to those non-branding kind of the entities. This is also increasing and expanding about the addressable market, not by only serving international and domestic brands, but also by having opportunities that serving all those non-brand entities by selling their products and goods online. So we can see that based on the -- roughly in explanation on the growth strategy, we have a lot of potential. Thank you.
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
Yes. This is Vincent, I'll take the second one about the Salesforce. Yes, we did notice that there is strategic announcements between Salesforce and Ali cloud. It is actually Ali Cloud. So Ali Cloud is infrastructure service provider. So it's easy to understand that the SaaS software provided to work the cloud service provider is very natural.
And earlier, we can -- you can also -- you may also notice that there is some strategic statements from Ali Cloud. They said, we don't do SaaS, whereas this, we just want to be integrated. So that's the translation of the Chinese statement. And that means that, we are -- in the future, we can work much closer also with Ali Cloud to bring our services to a broader base of customers.
And also, we think in China market, there is a need for some solutions and services, which is very applicable and is suitable for a local market. Actually, we are enabling the brands to directly facing the consumers. That is our very important mandate. So we are -- our SaaS solutions will quite based on that, to resolve the local -- to fulfill the local industry requirements to deliver a very efficient one to the market. Thank you.
Tian Hou -- TH Capital -- Analyst
Thank you both. Very clear.
Operator
Thank you. We now have Jiang Zhang China Renaissance. Please go ahead.
Jiang Zhang -- China Renaissance -- Analyst
Hi, guys. Good evening. Thanks for taking my question. So I just got a question regarding to the brand shifting from GMV to non-GMV. Can you just give me -- just let me know what the reason behind it. And, is this more of a -- do think this is more of a structural trend of brands wanting to like to say, bring things, bring all the operations in-house or is it -- it's like a one-off event. Any additional color would be greatly appreciated. Thanks.
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
Okay. Thanks Robin. Let me answer his question. I think that's not related to the in-house or outsource ad hoc. That's our decision to suspend the service. The reason for that is very simple, because of the very, very low take rate, which impact our -- I would say two factors. One is, it will impact our P&L. The second one, really ways to sum up our limited resources. We want to better utilize the limited resources to the higher GMV and based on the strong pipeline we have, we've made this decision. So I would say that there is some temporary impact on the GMV, but there is not much impact on the revenue and no impact on our bottom line. Thank you.
Jiang Zhang -- China Renaissance -- Analyst
Sorry, just to clarify. So you said there is a slight impact on the GMV and yet...
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
Very, very slight impact on the GMV, but no impact on our bottom line.
Jiang Zhang -- China Renaissance -- Analyst
Got it. Okay great.
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
Sorry -- there is a impact in GMV, little impact in the -- very, very little impact in the revenue and no impact on the bottom line.
Jiang Zhang -- China Renaissance -- Analyst
Okay, great. Thank you very much. Appreciate you guys.
Operator
Thank you. Next question is from the line of Joyce Ju of Bank of America Merrill Lynch. Please go ahead.
Joyce Ju -- Bank of America Merrill Lynch -- Analyst
Hi, thank you management for taking my question. My first question is about take rates. Can you give us more color on the take rate trends, specifically your Q3 guidance for service revenue seems lower than the GMV growth. Does that mean a decrease in trend for take rates? In view of the cooperation with Alibaba to add a luxury or premium brand can help us to improve our take rates.
And my second question is about your brand pipeline. Can you give us more color on the new brand to be added in the second half? And also give us some updates on your relationship with your existing key brands. Thank you.
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
Sure, let me answer your question about the take rate. When you do a simple calculation, let's say, around 9.4% in Q1 and 9.7% in Q2 . And for the GMV, I would say there are similar amount coming from the electronics brand we just mentioned and we are going to transfer. And if you look at that by Q1, Q2, I would say excluding that we have, we have great improvement in our take rate in the brands excluding that one. I think that's a very good result. When they are focused on the high quality GMV and attract more new brands come in. So based on this trend, we have reason to believe we will have a gradual improvement in our take rate overall. So what's your second question, please?
Joyce Ju -- Bank of America Merrill Lynch -- Analyst
It's about to our brand pipeline. Any color to share with us of the new brands we added, like what kind of key category domestic brands. Also can you give us updates on your relationship with your key brands like say, like Nike? Yes. Thank you
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
Okay. This is Vincent, I'll take this question. We -- this year -- the whole year till now, I think, we have a very strong pipeline with very good potential from several of the key sectors, including apparel, luxury, FMCG and even some of the home products. So very strong pipeline. So, that is one thing. The new brand is quite exciting to us, not only about the size of GMV, but also the comprehensiveness of our different services.
About the key brands, yes, we are. We always keep our very close attention to the key brands, including those very famous lunches. [Indecipherable] we are working with them very closely and we think the key brands is very satisfied with our services. We are also have the willingness to work for long term with them as well. So in this case, both sides, just mentioned to work closely and for long. Thank you.
Joyce Ju -- Bank of America Merrill Lynch -- Analyst
Okay. Thank you very helpful.
Operator
Thank you, ladies and gentlemen. That's the end of a question-and-answer session. And I would like to hand the conference back to our presenters Ms. Wendy Sun. please go ahead.
Wendy Sun -- Investor Relations Director
Thank you, operator. In closing, on behalf of Baozun's management team, thank you for your participation today. If you require any further information or keen to visit us in China, please let us know. Thank you for joining us today. This concludes the call.
Operator
[Operator Closing Remarks]
Duration: 63 minutes
Call participants:
Wendy Sun -- Investor Relations Director
Vincent Wenbin Qiu -- Chairman of the Board of Directors and Chief Executive Officer
Robin Bin Lu -- Chief Financial Officer
Junhua Wu -- Director and Chief Operating Officer
Alicia Yap -- Citigroup -- Analyst
John Choi -- Daiwa Securities -- Analyst
Natalie Wu -- CICC -- Analyst
Thomas Chong -- Jefferies -- Analyst
Sally Chan -- CLSA -- Analyst
Billy Leung -- Haitong International -- Analyst
Tian Hou -- TH Capital -- Analyst
Jiang Zhang -- China Renaissance -- Analyst
Joyce Ju -- Bank of America Merrill Lynch -- Analyst
