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Baozun (BZUN) Q4 2020 Earnings Call Transcript

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BZUN earnings call for the period ending December 31, 2020.

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Baozun (BZUN -0.81%)
Q4 2020 Earnings Call
Mar 04, 2021, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, ladies and gentlemen. Thank you for standing by for Baozun's fourth-quarter and full-year 2020 earnings conference call. [Operator instructions] 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. Our fourth quarter and full-year 2020 earnings release was distributed earlier today and is available on our IR website at ir.baozun.com, as well as on GlobeNewswire services. You can also find a PowerPoint presentation that accompanies our comments today on our IR website at sections of quarterly results and webcast and presentations.

On the call today from Baozun, we have Mr. Vincent Qiu, chairman and chief executive officer; Mr. Arthur Yu, chief financial officer; and Ms. Tracy Li, our BD vice president.

Mr. Qiu will review the business operations and the company highlights, followed by Mr. Yu, who will discuss financials and guidance. 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 1934 and the U.S. Private Securities Litigation Reform Act of 1995. Those forward-looking statements are based upon management's current expectations and current market and operating conditions and relates to events that involve known or unknown risks, uncertainties and other factors all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filing with the U.S.

SEC and the announcement notices and other documents published on the website of the Stock Exchange of Hong Kong Limited. The company does not undertake any obligation to update any forward-looking statement, except as required in applicable law. Finally, please note that unless otherwise stated, all figures mentioned during this 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 Qiu -- Chairman and Chief Executive Officer

Thank you, Wendy, and thank you, all, for joining us. It's being a busy and exciting quarter, and I'm now pleased to report another solid set of results. During the fourth quarter, brand partners accelerated their digital transformation in response to rapid changes across the e-commerce landscape in China. The nature of online consumption is evolving rapidly.

Our unique positioning as a leader of solution-driven platform for brands puts us at the center of this evolution, with technology that enable us to keep our brand partners ahead of the curve. If you are following along with our presentation, I'll start on Slide number 2. We executed on our strategies throughout the fourth quarter. We would like to share a few key highlights with you, including a record-breaking Double 11 campaign, strong momentum in brand acquisition with a net add of six brand partners to reach 263, and the continuous operating margin enhancements.

Overall, our non-GAAP operating profit grew by 54%, while non-GAAP net income increased by 67%. We believe these achievements demonstrate the effectiveness of our high-quality growth strategy and reflect the long-term cumulative results of our investments in technology infrastructure. Now moving on to Slide number 3. Empowered by technology and innovation, we have been able to achieve continuous breakthroughs that improve customer experience and enhance operational efficiency.

2020's 11-day long Double 11 campaign has become a touchstone, validating the efforts we have put into creating such solid, effective and efficient infrastructure. During the quarter, we upgraded our dynamic technology system and expanded capacity to five million orders per hour to support a record-breaking order search. In addition, we launched a variety of automation and one-click tool kit, including SKU rollout, labeling, short video processing and sales intelligence applications from our proprietary Retail Operation Support System or ROSS. By leveraging Baozun cloud infrastructure, AI algorithms and big data analytics, we launched a virtual intelligent dashboard system that improves operational efficiency while reducing risk.

From a digital marketing perspective, we focused on deployment of creative and innovative engagements to drive consumer exposure and commercial rates. Deployment of data-driven analytical tools and the insights enables us to help brand partners better understand their customers and engage with them more effectively through price precise targeting and the positioning insights. This fourth quarter, we established a 1,000 square meter live streaming studio that allows us to integrate in-store live streaming into daily operations and streamline our portfolio of live streaming solutions. On the warehouse and logistics side, to cover this year's extended double peaks during the Double 11 campaign, we not only upgraded our capacity and equipment but also used algorithms to optimize real-time big data monitoring across the entire order flow process.

We improved order procurement efficiency. All these efforts enables us to launch instant arrival services for several of our brand partners that allows us to deliver over 80% of packages to consumers within 24 hours, which in return greatly enhanced customer experience. All these efforts greatly enhanced our value proposition for brand partners, allowing them to extend touch points and capture emerging opportunities for omnichannel strategies. As a third-party service provider, our infrastructure and the tech assets allow us to allocate resources in an optimal way based on a universal online strategy.

As we look ahead, on Slide number 4, we reiterate our vision of "Technology empowers future success." And we will continue delivering, to our brand partners, a customer-centric e-commerce solution to reinforce our value proposition. To capitalize on the opportunities, we are launching a three- to five-year medium-term strategy -- strategic plan to achieve our objective of sustainable and profitable growth. First, we will adopt a "customer first" approach to drive growth by focusing on service differentiation to meet brand partners' diverse needs. We will explore business opportunities and implement customer segmentation strategies to attract potential new business from both our existing and new brand partners.

Though we have been the market leader in China's brand e-commerce service industry, we believe we are -- there are a lot of opportunities for us to become No.1 in more subcategories to increase market share. Secondly, we will drive through -- drive growth through new business expansion. We believe that as e-commerce in China evolves, there are increasing opportunities to explore new channels such as the Tencent mini-programs, Douyin and the JD platforms. In the meantime, we will continue to explore new business models in accordance with the new channels.

Thirdly, we will seek even greater optimization of our cost structure through technology-driven business process reengineering and service-quality-oriented location strategy. As our initial step, we recently established two additional remote service centers in low-cost cities of Nantong and Huaibei, which we believe will improve search quality and reduce costs from the second half of 2021. Lastly, on Slide number 5, what was abundantly clear throughout 2020 was that our people are the greatest assets. This is key to our culture and based on our belief of delivering quality through developing people.

I'm proud of the resilience, agility and the commitment demonstrated by the Baozun team and honored to have once again been awarded Shanghai Best Employers Top 30. Here, I'm excited to announce a major office move planned for the second half of 2021, to a brand-new headquarters with over 40,000 square meters. We believe the new Baozun campus will accommodate our growing talent team, support future business expansion, and nurture the Baozun culture of leading-edge innovation. I will now pass the call over to Arthur, who will go over our financials.

Thank you.

Arthur Yu -- Chief Financial Officer

OK. Thank you, Vincent. Hello, everyone. Thank you for joining our earnings call today.

I will talk about our financial performance in Q4 and the full year 2020 and, in fact, our priorities in 2021. Let me start with the fourth quarter 2020 financial results, which is on Slide n7 in our prepared presentation deck. We saw impressive growth in total GMV this quarter, which increased by 28.7% to RMB 22.9 billion. Breaking this down, our distribution GMV rose by 13.6% to RMB 1.6 billion, and our non-distribution GMV increased 30% to RMB 21.2 billion.

Overall, the 2020 Double 11 campaign involves the largest marketing activities since the emergence of COVID and the longest duration, with a deeper discount across categories and across multiple marketplaces. We have also observed a higher return rate this fourth quarter post Double 11 as a result of the expanded 11 days promotion period. Although these higher return rates led to some discrepancies between the fourth quarter GMV and Double 11 on the value, we believe that we have managed this well across the board. We also strategically limited discount on certain brands in our distribution model to protect brand image and profitability at the expense of faster growth.

We believe the longer-term benefit will outweigh the near-term impact as we strengthen relationships with brand partners and expanded our service growth. Breaking it down by category, which you can see on the right side of the slide. During the quarter, we continued to see modest growth momentum in the sportswear, luxury and FMCG categories. The apparel category has an outstanding quarter.

As you know, the apparel category, which includes sportswear, luxury and men's and women's clothing, contributes over 50% of our total GMV. During the quarter, we saw nearly 30% year-on-year growth. Electronics, which represents about 25% of total GMV, showed major growth as well, with a 20% increase year over year despite the impact of optimization of the smartphone sector throughout the year. FMCG contributed over 10% of our total GMV and had a double-digit growth rate on a low base.

In addition, this quarter, because we proactively adjusted our promotional strategy for sustaining profit, one of the key categories of the distribution model, personal care appliance had a negative growth rate, but we have seen the discounts and sales trend improving in quarter 1, 2021. Now, moving on to Slide number 8, our GMV growth translated into substantial growth in revenue, particularly in-service revenue. Total net revenue increased by 20.2% to RMB 3.35 billion, within which product sales revenue increased by 14% to RMB 1.5 billion and services revenue increased by 25.6% to RMB 1.9 billion. With the increase in product sales revenue, cost of products increased to RMB 1.3 billion from RMB 1.1 billion last year.

Product sales gross margin declined to 12.7%, mainly due to discounting initiatives during the Double 11 period and attained in the category mix. Our blended gross margin was 62%, broadly in line with last year. Now, we move on to Slide number 9. Along with the business growth, fulfillment expenses increased to RMB 851 million from RMB 665 million last year.

Our fulfillment expense as a percentage of GMV improved to 3.7%, helped by our efficiency program and offset by an increase in the labor hourly rate related to the expanded Double 11 period this year. Sales and marketing expenses increased to RMB 741 million from RMB 648 million last year. As a percentage of GMV, our sales and marketing expense ratio improved to 3.2% from 3.6% a year ago, mainly due to the effectiveness of our digital marketing services and efficiency gain from deploying the latest technology in data operation. Technology and content expense were RMB 110 million.

This was an improvement as a percentage of GMV from 0.6% to 0.5%. Most of this improvement was due to more effective cost control, productivity improvements and better prioritization of our development pipeline. G&A expenses slightly increased to RMB 69 million from RMB 67 million last year. This was mainly due to our investments in talent acquisition and infrastructure, and was offset by effective cost control and procurement initiatives.

As a percentage of GMV, the G&A expenses ratio improved to 0. -- improved from 0.4% to 0.3%, which reflected a continued trend of greater economies of scale while we grow our business. Now, we move on to Slide number 10. All in all, income from operations increased by 53.4% year over year to RMB 301 million.

On a non-GAAP basis, income from operations was RMB 333 million, up 53.8% from last year. Operating margin increased 9%, while non-GAAP operating margin increased 10%. To offset the interest income, net interest expense narrowed to RMB 0.4 million, down by 95%. This is mainly driven by paying off the majority of our short-term borrowing during the fourth quarter.

Now on to Slide number 11. Non-GAAP net income attributable to ordinary shareholders of Baozun totaled RMB 272 million, an increase of 68.4%. Basic and diluted non-GAAP EP ADS were RMB 3.71 and RMB 3.58, respectively, which grew by 33.9% and 32%, respectively. I'll now move to Slide number 12.

Overall, 2020 was a remarkable year, and we are very pleased with our financial results. Not only were we able to deliver high-quality growth resulting in 22% growth in net revenue and a 45% increase in nonoperating profit, but we also achieved a second consecutive year of positive operating and free cash flow. As of December 31, 2020, we had RMB 5 billion in cash, cash equivalent and short-term investment in our bank account after our successful secondary Hong Kong listing. This gives us a solid foundation to pursue a sustainable and profitable future growth.

Looking ahead into 2021. As Vincent just outlined in our new strategic plan earlier, we will continue to enhance our value proposition by focusing on customer first to drive growth. We will do this both organically and alternately through M&A opportunities. I believe many of you have seen our recent announcement this year.

One of this was to further expand our capabilities, our mini-programs to strengthen value proposition in Tencent ecosystem. Another one is to capture emerging opportunity in the luxury sector. I'm proud to say the integration of both deals is well on track, and we expect to see tangible financial results starting in the second quarter of 2021. We are also making progress in strengthening our omni-channel capabilities, such as Douyin and Jingdong, and continuing to explore opportunities in new business model iterations through DBO initiatives.

It's worth mentioning that, for the first time, on an annualized basis, our 2020 non-Tmall channels accomplished for over 25% of total GMV, in which non-baozun.com GMV also surpassed 10% for the first time. While there might be some initial investments, we believe these results are encouraging. And we are confident we will strike the high opening balance by generating sufficient -- by generating a sustainable and profitable top line growth. In addition, we will continue to optimize our cost base through technology-like efficiency and business process reengineering initiatives.

We believe this will transform how we serve our brand partners by improving our service quality and reducing costs at the same time. And last but not least, in order to enhance sustainability in terms of our long-term growth, we are initiating a comprehensive ESG program to improve environmental, social, and governance aspect of the company to create long-term value for our shareholders. And this concludes our prepared remarks. Thank you very much.

Now, operator, you are now ready to begin the Q&A session.

Questions & Answers:


Operator

[Operator Instructions] We have the first question from the line of Binnie Wong from HSBC. Please go ahead.

Binnie Wong -- HSBC -- Analyst

Hi. Good evening, management. Thank you for taking my questions here. So, congratulations on a strong set of results and wrapping up 2020 with a good set -- solid set of quarter.

Especially on the margin side, right? So, we see a meaningful improvement on the margin. And then this is something that's also almost close to our historical high, right? And then do you think that, like, any structural drivers you think that, I guess, post COVID, that we can think about that will go forward to 2021? And should we expect that [Inaudible] we talked about earlier, we should expect actually a better -- a higher raising -- I guess, raising the long-term margin target from here? And then the second question is also very encouraging to see that you talk about this non-Tmall channel contribution is also rising. That contribution rise here was 25% of total. And so, if we -- can you help us to just understand, in terms of that 25%, how are they allocated? Is it some in mini-program or maybe some into brands' flagship stores? How is that 25% allocated? Just to get what -- a sense for our understanding.

Arthur Yu -- Chief Financial Officer

Thank you, Binnie. And I will take the first one about the margin in 2021, make some comments, and then I will pass on to Vincent for the second question. Yeah. So, in terms of the margin in 2021, we made our investment into technology and our optimization of our different brands.

We have seen a strong outlook into the 2021 on our marketing. So, there are several factors. One is, in some of the categories like the luxury, which we enjoy a very good margin compared with the other sectors, and we are now seeing a great growth in that area. And secondly, our efficiency drive, like, by the technology and innovation has now seen the benefit coming through, and we have seen some really strong drivers to enhance our profitability and our overall margin in the -- in 2021.

At the same time, I just want to add another comment. 2021 is a year of investment. As just -- we mentioned, we're actually making investments into new channels, into new business models, which we will expect to see some early investments, but we believe this investment will lead us to higher top-line growth in 2021 and also in the next three to five years. So that's my outlook for the margins.

Vincent Qiu -- Chairman and Chief Executive Officer

OK, Binnie. I'm here for your second question. Because I think last year is a quite different year because we see this very clear trend of multiple-channel or omni-channel trend is realizing quite quickly. So, it's the first time -- as you -- as we said, it's first time that the non-Tmall channel contributes more than 25% of the total GMV.

Inside of this 25%, we are seeing that several channels like the official web store, like mini-program and JD, all growing quite apparently. So, I think the detailed distribution of this, yes, we can, you know, exchange more views on that later on. And -- but the interesting thing is that I think a lot of brands now take several of the new channels as their private domain -- so-called private domain or dot-com initiative, like the mini-program and even Douyin for a lot of brands will take this as a private domain. So, I think there will be more, you know, resources and trace the channels differently from the major transaction-based channels.

So, I think, for this year, looking forward, I think there will be a lot of dynamics going to happen in the private domain or nontraditional channels. Thank you, Binnie.

Binnie Wong -- HSBC -- Analyst

Thank you. And by the way, Vincent, thank you for clarifying. I just have a quick follow-up on your comment. So, should we think structurally because there's more and more channels, say, you'd also mentioned some of the short video platforms? Does that mean that brands actually rely more to use a third-party service solutions, like Baozun, even more of a higher demand, right? Because now they have multiple channels and they don't know how to allocate -- what percent they don't know, but that it will leverage your expertise even more, right? Because you have the expertise across all of the channels.

So, the more diversified an e-commerce channel is actually worked toward the benefit for Baozun's longer-term growth. Is that a fair comment?

Vincent Qiu -- Chairman and Chief Executive Officer

Thank you for your follow-up question. Yeah, sure. Thank you for the follow-up question. I think traditionally, for the transactional part of the e-commerce, you know, Baozun has established a very strong solid foundation to enable the brand partners to do business online.

So, I think for the new channels, basically, for the mid end and the back end, I think it's mostly the same. For example, technology, order processing, payment collection, order fulfillment, customer experience, customer service, all this kind of thing is basically the same. So actually, we can just use the infrastructure built up in the past and keep serving all the, you know, new business and, you know, to leverage the cost down as well. So that's the number one.

Number two is that for the -- for a new channel, yes, I think for a new channel for front end, I think the marketing, the way they spend in marketing dollars will be very different. So that's why we think the marketing capability is so important for the emerging new channels. We -- you remember, we did this in -- more than three years ago. And now I think our digital marketing capabilities are, you know, very strong than before.

So, in this case, we can deliver an end-to-end solution for the brands on new channels and new platforms. Thank you.

Binnie Wong -- HSBC -- Analyst

Thank you.

Vincent Qiu -- Chairman and Chief Executive Officer

Yes. I'll just add a point on Vincent's comments about the multiple channels. We're actually not only using the organic growth. We are using the inorganic way to enhance our capabilities as well.

For example, you may remember in our iClick deal, we are utilizing the SaaS capability of iClick to deploy our front-end -- the front-end mini-program solution, which helped us to deliver the growth to our brand partner in a very effective and also a good service way. So, this is why we are pulling all those capabilities together.

Binnie Wong -- HSBC -- Analyst

OK. Thank you. Thank you. Thank you for [Inaudible].

Thank you.

Operator

We have our next question from the line of Alicia Yap from Citigroup. Please go ahead.

Alicia Yap -- Citi -- Analyst

Hi. Thank you. Good evening, management. Thank you for taking my call.

Congratulations on the solid quarter. I have two questions. The first one is, you know, related to your recent partnership with iClick. Could management help us to frame the financial opportunity in terms of the incremental upside from the revenues or even the additions of the new brands onto the future monetization improvement with the existing brands with the launch or even the readiness of this private traffic domain platform? Second question is we heard from another e-commerce peer recently that this year, Chinese New Year, because of travel restrictions and all that.

So, they are actually seeing a stronger than usual Chinese New Year seasonality. So not sure if Baozun also is seeing the similar trend that this New Year is a little bit stronger than usual. So if so, could you elaborate on the demand? Is that strong demand on fashion or electronics, or even FMCG? Thank you.

Arthur Yu -- Chief Financial Officer

OK. Thank you. I will take the first question on iClick. And then Vincent and Tracy may comment on the Chinese New Year trend.

OK. On iClick, since acquisition, we have started to conduct several workshops. So, the workshop is looking into the IT and data of both companies. What we are looking for is to have an integrated IT solution, which combines the very strong SaaS front end and very strong OIMS and operation capability of Baozun to create a solution.

And that solution will be an attractive proposition to our brand partner in the content deposition. So, this is the first thing we are currently doing. And secondly, we have seen -- there has already -- the cross-selling opportunity, which we have already seen, which is there is a travel kind of brand, we have introduced to it iClick, and another kind of the [Inaudible] brand, which iClick did introduction to us. So, we are confident that it will lead to some tangible financial results very soon.

Thirdly, we are now looking into the digital advertising operation because iClick, historically, are very strong in the digital advertising area. And we are looking at how to combine our -- kind of our digital marketing and to create more synergy and to create a better outcome for our brand partners. So, combining all those three things together, we think we will start to see the financial results from the second quarter of this year. But now purely just we can category to say this is purely done through the iClick deal and not done through the iClick deal.

Because the reason we do this kind of avenue is to build our capability to allow Baozun's original mini-program team or mini-program business to grow bigger. So, this will contribute to the top-line growth of Baozun for 2021, but it's difficult to split to say which specifically has contributed to iClick and which is not to the iClick. But we're confident about the program.

Vincent Qiu -- Chairman and Chief Executive Officer

OK. Yes. Second one is about the RMB sales. Ms.

Li?

Tracy Li -- Vice President, BD

Thank you. We think, actually, in terms of RMB sales results, we do see a good sign regarding the consumer perception regarding the trends. And also, we think the private domain, the trend is going to be continuing for the whole year. And also, you can see, actually, we have done serious astonishing revision on the major platform since the beginning of this year.

And among them, you can see to improve the consumer experience and enhance membership and the sales management are the major topics.So, to our observation, from the Q1, we already see the platform spending efforts in many angles to improve the consumer journeys, for example, to reduce the complexity of searching mechanism and to decrease the promotion channel to synchronize the traffic and also to create a more friendly environment to brands and also service partners to doing business on the e-commerce platform. So, all of these efforts and the methods have been -- I think, lead the environment to be more healthy, and also promising for the growth. And to brands, I think it will also affect their budget plan on media and promotion and also their investment on consumer and data assets in longer time. And from Baozun's point of view, we -- actually, we still believe the trends on the consumer perception regarding the entertainer RMPs, and also live stream RMPs is going to be the trending topic for the whole year, that's why we have been getting much more attention on opportunities of live streaming, especially on the self-owned live streaming and also short video production, performance advertising and also interacting marketing technologies to expand our capabilities on the new marketing tools.

Thank you.

Alicia Yap -- Citi -- Analyst

Thank you.

Operator

Thank you. We have our next question from the line of Joyce Ju from Bank of America. Please go ahead.

Joyce Ju -- Bank of America Merrill Lynch -- Analyst

Good evening, Vincent, Arthur, and Wendy. Congrats for the solid fourth quarter. My first question was related to this year's full year outlook. As we know, Baozun has already discussed with the brand for this year, it's like growth plan.

Just want to get an idea for this year, like, when you discuss the -- like outlook with brands, like is there any like outlook which you see different from like last year? Or generally speaking, you see the growth plan, how it compared to last year? And is there any, like, you know, new areas we should actually focus? And the second question was related to the addressable market because we -- of our new channels and new categories. We know, like, Baozun actually will look to expand its presence in, like you mentioned, like Douyin, WeChat, and also JD. Just want to get a quantitive idea how big will be the potential market? How much GMV contribution we should actually expect from these new channels in the following years? Thanks a lot.

Arthur Yu -- Chief Financial Officer

OK. So, I probably will -- yeah, I will get Vincent to talk about the first question, and then I will cover the second one.

Vincent Qiu -- Chairman and Chief Executive Officer

OK. Thank you for the question. Yes. For 2021 online traffic, a lot of surprises, how to say, surprises to look -- to expect.

I think, firstly, from the brand point of view, you can see a lot of the initiatives happening on their private domain, including the official TC, official web source, mini-program app, this kind of things, and also some new channel expansion plans. So, I think 2021 may be the first year for the brand to try and to allocate a lot of resources on multiple platforms seriously. So, I think, in this case, there will be a lot of new initiatives like data-related application and CRM is kind of omnichannel driven solutions is quite important. And also talking about the size of the business in 2021, I think we can refer to an aggregated GMV for each of the platform.

So generally, I think that is, you know, the addressable market or the brand's expectation for the channels, especially those who -- which is previously not a brand e-commerce marketplace. But right now, it's getting more and more brand e-commerce oriented. So, I think the potential is huge. So, for the second one, it's about the addressable market.

Arthur Yu -- Chief Financial Officer

Yeah. Yeah. So, in terms of the addressable market, I think it will one -- on one hand, it will depend on the market trend, i.e., where the brand partners will select how they sell their products. And Baozun last year, because we are omni-channel -- we have the omni-channel capability, it doesn't matter how I change from Tmall or non-Tmall, we are there to support our customers.

And in terms of the category, we actually see still a very strong in terms of the luxury and apparel kind of category. This is which we are making the investment into to further grow our market share. And also, we have seen some new opportunity in the healthcare, which is, after the COVID-19, people now are making further attention to their own personal health. So, we think that there will be some new opportunities in that as well.

And finally, on the new business model, we are seeing some new ways of cooperating with the client partner under the GPO initiative, and that will help us to further strengthen our relationship with the brand partner, which is giving us more room to further grow the business in the existing business. So that's our view on the channels and on opportunities for next year.

Operator

[Inaudible] the next question.

Wendy Sun -- Investor Relations Director

[inaudible] yes, go ahead.

Operator

Next question comes from the line of Thomas Chong. Please go ahead.

Thomas Chong -- Jefferies-- Analyst

Hi. Good evening, management, and congratulations on a solid set of results. I think this is the first time that we talk about the three- to five-year strategic plan. May I ask about how we should think about it translating into financial outlook? Thank you.

Arthur Yu -- Chief Financial Officer

OK. Thank you for the question. I think we have some time to look into our strategy going forward. Our goal is to deliver a sustainable and profitable growth.

Our long-term view is, depending on the market growth overall rate, we are looking at to become a business with RMB 150 billion GMV in three to five years' time, and we would like to make an operating profit of RMB 2 billion by the end of this three- to five-year period. So, this is our goal and our financial outlook. Can you go ahead and move to the next question, presenters?

Operator

The next question comes from the line of Tian Hou from T.H. Capital. Please go ahead.

Tian Hou -- T.H. Capital -- Analyst

So, I saw the GMV -- the distribution GMV as a percentage of total continued to decline. So, can management share with us some of your thoughts and outlook in that front? In terms of the two business models, distribution and services, how do you think, you know, those composition will be in the future?

Arthur Yu -- Chief Financial Officer

OK. Thank you for the question. In terms of the distribution model, as you can see, in Q4, it's actually not performing strongly. So this is due to one of our personal appliance brand, which is a big brand, which has an overall softness in their overall performance in the Q4 2020.

And actually, Baozun, our online channel is performing better than that brand's off-line channel. And also, the Tmall channel is performing better than other channel online. So basically, we are confident in terms of -- so this is only a one-time kind of performance drop. So, in Q1 this year, we have already seen a trend of recovery and we are seeing an improvement, hopefully, so this brand will be able to recover.

And Baozun, we have shared our insights into the brand to help them to recover quickly through the Tmall channel online. And secondly, the reason why it has the impact is also due to the high discounts and higher return rate. In terms of the high discounts, because it's a distribution model for Baozun, so we actually -- in order to protect the brand image, we didn't go further on the discounts in order to achieve the volume. We actually go for the profit and also the longer-term brand image because, as a responsible brand partner, we think that's something we should be doing.

And in terms of the higher return rate, it's actually industry down for the Q4 due to the extended period of Double 11. So overall, we hope this is a trend of -- for the Q4 only. And hopefully, in Q1 this year, we will see a recovery.

Tian Hou -- T.H. Capital -- Analyst

Thank you so much. I have a follow-on question. OK, keep going.

Arthur Yu -- Chief Financial Officer

Please, please.

Tian Hou -- T.H. Capital -- Analyst

OK. So, the follow-up question is regarding your omnichannel. So, I realize a lot of brands are seeking out much more fresher and newer channels, go beyond Tmall. And so, in other channels, in terms of operator like you guys, are there any existing operators? And how do you, you know, how to say, position yourself in other channels, like Xiaohongshu in JD? And, you know, what is your competitive advantage over existing operators, if there are any? So that's the second question.

Thank you.

Vincent Qiu -- Chairman and Chief Executive Officer

OK. Thank you for the second question. This is Vincent. Actually, for the emerging channels like [Inaudible] you just mentioned Xiaohongshu, they traditionally were not a lot of existing operating service partners just because previously this kind of channel or platform is not a TMA platform.

But right now, they are changing. They are more and more turning to e-commerce business. And the -- because they need the brand's media expenditures and also transaction business on that. So, it's a new one.

So, it's emerging, how we call it, emerging new channels. So, for Baozun, we are as new as the others, but for the front-end operations. But we did have more than 10 years of e-commerce operating experiences. And also, we have been investing in digital marketing for multiple channels for more than three years.

So given this tool, I mean, fulfillment capability technology plus digital marketing of more than three years of investments, I think we are very solid and very strong in facilitating the brand in e-commerce business on any of the new emerging channels. Thank you.

Tian Hou -- T.H. Capital -- Analyst

Thank you, Vincent. That's all my questions.

Vincent Qiu -- Chairman and Chief Executive Officer

Thanks.

Operator

Thank you. We have our next question from the line of Charlie Chen from China Renaissance. Please go ahead.

Charlie Chen -- China Renaissance -- Analyst

Thank you, management, for taking my questions. I have two questions. First of all is about the brand partner pipeline. How does that look like, especially, we understand that the company has been exploring the opportunities in categories like premium brands, luxury brands as well as health, food.

So how is the progress there? And in particular, any initial signal that the Full Jet is helping the company to get breakthrough into the premium brand segment? I will take the first one first. Thank you.

Vincent Qiu -- Chairman and Chief Executive Officer

OK. I will -- I'll be here for your -- to answer your first question. I can say that the company is more capable in bringing more new brand partners, including different categories. Right now, I think the pipeline is very strong.

We see not only the demand for the traditional channels like Tmall is growing in our pipeline, but also the private domain opportunities is also a lot. So, I think, you know, for different platforms, you're getting more and more, you know, I would say, more and more reach pipeline items. And for the categories, we think that different categories like fashion, like cosmetics, like premium or luxury are very promising. So, we are happy to see that.

For Full Jet, I think they are very experienced in talking to global brands and premium brands, so we are working with them closely, not only to work with the local team of the premium brands but also the global team. So, in this case, I think we can form up a better positioning and integrated strategies to work with a potential brand. Thank you. Please go ahead with the second one.

Charlie Chen -- China Renaissance -- Analyst

Sure, sure. Thank you. My second question is more of a high-level changes in the brand partners strategy in Internet. As we understand, last year was pretty difficult year on the full-year impact of COVID.

So, after the full year, how does -- how do your company recognize the difference between the marketing activities now versus pre-COVID? I understand you talked about the private domain, etc. Can you give us more details on how they spend their dollars differently? Are they using the private domain to get new traffic or maintain their users? Or any other details that you can share more with us? That would be great. Thank you.

Vincent Qiu -- Chairman and Chief Executive Officer

OK. Yes. I think the last year, the COVID year, is very special, and it changes. It has a profound influence to the brand e-commerce or digital marketing strategies.

I think right now, e-commerce or digitalization has been, you know, the center of the strategy of most of the consumer brands. So, they are, you know, pulling in more and more resources to enhance their position on their DTC initiatives and also e-commerce digital marketing, you know, initiatives. So, I think the key for this one is that at the center of the strategy, that means that the brand will invest for long term, not only short term. So, for short term, its channel sales is discounting promotion.

For long term, it's more about system. It's more about capability and talent. So, in this case, you know, we are quite comfortable working with the plan for longer term of the partnership.

Arthur Yu -- Chief Financial Officer

Yes. And just to add a comment on this, we have seen the brand partners start to explore different – to start and explore the different channels. So, for example, in Q4 and Q1 this year, we held one of the major -- one of our major soft partner -- soft brand partner to do some Douyin live video show, which achieved some really good results. And that we have seen more brand partners talking to us about different channels.

Charlie Chen -- China Renaissance -- Analyst

Great. Thank you very much. That's all my questions. Thank you.

Operator

Thank you. We have the next question from the line of Ashley Xu from Credit Suisse. Please go ahead.

Ashley Xu -- Credit Suisse -- Analyst

So, on the mini-program, because in the past, we have seen that effective take rate is actually lower than the service fee model on Tmall. Just want to understand whether this is attributed to structural difference in these two platforms? Or it's just due to different development stage? And if we look at the long term, do we see similar monetization opportunity on mini-program compared to Tmall? Thank you.

Vincent Qiu -- Chairman and Chief Executive Officer

OK. Thanks for the question. There's a lot of discussions happening for our mini-program, you know, e-commerce. I think from three years ago, we have formed a very solid team to serve the brands to open stores on mini-programs.

But right now, we have already tens of existing mini programming, you know, working for different brands. So, we think there's a lot of potential on that. Talking about the structure of different platforms, especially for mini-program, I think they are quite different from the traditional ones like [Inaudible]. It's more marketing-driven and, you know, more data-driven transactions.

So, it's -- so for example, there is not the -- it's not a commission for the platform or even if there's not a platform. It's actually separated by private domains on the ecosystem. So, in this case, these are quite important. And because there is a social commerce space.

So for doing the e-commerce transactions, it's easier than the traditional platforms. So, I think in this case, yes, the front end maybe is not as -- a lot of things to be done as a traditional platform. But for Baozun, I think the middle end, like the order fulfillment -- the other processing and the back-end order fulfillment, it's the same. So, in this case, in this value chain part, I think the cost structure and the profit model will be the same.

For the front end, transaction is easier than before, but marketing is more comprehensive. So, in this case, I think we can form up, long term, a very healthy charge model for the brand partners. Thank you.

Operator

The next question comes from the line of Feitong Zhang from CICC. Please go ahead.

Feitong Zhang -- CICC -- Analyst

We saw the net addition of brand partners in the fourth quarter was five to six. We know we are adjusting our brand portfolio in the fourth quarter, so just wondering how many brand partners are terminated from the collaboration with us and how many new brand partners we acquired in the fourth quarter? What is our brand acquisition strategy moving into 2021? Can we share some color on our current brand pipelines? Any color would be very helpful. Thank you.

Arthur Yu -- Chief Financial Officer

OK. So, in terms of the brand partner, only -- we only had six new addition for quarter 4. And quarter 4, historically speaking, is not a quarter where a lot of brand partners will open the Tmall app, so that's because it's after the Double 11. And for the sales, it's actually not a bad number from our perspective.

From a full-year perspective, we actually added 35 new brand partners, which is a good contribution to our portfolio. And secondly, I just want to maybe talk about the principle in terms of adding the brand partner. We're only looking for those brand partners which will contribute to our sustainable and profitable growth. I.e., our proposition is how can Baozun add value to the brand partner and how we can create -- how we can help the partner to grow their business.

We are not a company where we focus on extremely low cost in order to win the business. So, in this case, we will optimize our portfolio if the brand partner's kind of -- the overall strategy on selecting the strategic partner is not meeting our value proposition. But we will do it with our effort. We will try to keep our overall growth and try to serve as many as brand partners as possible.

Feitong Zhang -- CICC -- Analyst

Thanks. Very helpful.

Arthur Yu -- Chief Financial Officer

Thank you.

Operator

Thank you.

Duration: 60 minutes

Call participants:

Wendy Sun -- Investor Relations Director

Vincent Qiu -- Chairman and Chief Executive Officer

Arthur Yu -- Chief Financial Officer

Binnie Wong -- HSBC -- Analyst

Alicia Yap -- Citi -- Analyst

Tracy Li -- Vice President, BD

Joyce Ju -- Bank of America Merrill Lynch -- Analyst

Thomas Chong -- Jefferies-- Analyst

Tian Hou -- T.H. Capital -- Analyst

Charlie Chen -- China Renaissance -- Analyst

Ashley Xu -- Credit Suisse -- Analyst

Feitong Zhang -- CICC -- Analyst

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