Baozun Inc. (NASDAQ: BZUN) Q4 2020 earnings call dated Mar. 04, 2021
Corporate Participants:
Wendy Sun — Director, Investor Relations
Vincent Wenbin Qiu — Chairman and Chief Executive Officer
Arthur Junrui Yu — Chief Financial Officer
Tracy Li — Vice President, Business Development
Analysts:
Binnie Wong — HSBC — Analyst
Alicia Yap — Citigroup — Analyst
Joyce Ju — Bank of America — 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
Presentation:
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 — Director, Investor Relations
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 Global Newswire services. You can also find a PowerPoint presentation that accompanies our comments today on our IR website at sections of Quarterly Results and Webcast & Presentation.
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 section 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 US 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 relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the Company’s control, which may cause the Company’s actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks and uncertainties or factors is included in the Company’s filings with the US SEC and in announcement notice 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 under 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 Wenbin Qiu — Chairman and Chief Executive Officer
Thank you, Wendy, and thank you all for joining us. This being a busy and exciting quarter and I am 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 leading 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’re following along with our presentation, I’ll start on Slide number 2. We executed on our strategy 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 266, and the continuous operating margin enhancement. 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 the 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 5 million orders per hour to support a record-breaking order surge. In addition, we launched a variety of automation and one-click tool kit, including SKU rollouts, labeling, short video processing, and the 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 intelligence 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 of livestreaming studio, that allows us to integrate in-store livestreaming into daily operations and streamline our portfolio of livestreaming solutions.
On the Warehouse & Logistics side, to cope with this year’s extended double peak 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 fulfillment 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 omni-channel strategies. As a third-party service partner, 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 for 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 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 number one in more sub-categories 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, re-engineering 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 service 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 Junrui Yu — Chief Financial Officer
Okay. Thank you, Vincent. Hello, everyone. Thank you for joining our earnings call today. I will talk about our financial performance in Q4 and full-year 2020 and discuss our priorities in 2021.
Let me start with the fourth quarter 2020 financial results, which is on Slide number 7 in our prepared presentation deck. We saw impressive growth in total GMV this quarter, which increased by 28.7% to RMB22.9 billion. Breaking this down, our distribution GMV rose by 13.6% to RMB1.6 billion, and our non-distribution GMV increased 30% to RMB21.2 billion. Overall, the 2020 Double 11 campaign involved 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 the 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 order value, we believe that we have managed this well across the board. We also strategically limited discounts 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 its relationship 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 the low base.
In addition, this quarter, because we proactively adjusted our promotional strategies 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 one 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 RMB3.35 billion, within which, product sales revenue increased by 14% to RMB1.5 billion, and services revenue increased by 25.6% to RMB1.9 billion. With the increase in product sales revenue, cost of products increased to RMB1.3 billion from RMB1.1 billion last year.
Product sales gross margin declined to 12.7%, mainly due to discounting initiatives during the Double 11 period, and a change in the category mix. Our blended gross margin was 62%, broadly in line with last year.
Now, move on to Slide number 9. Along with the business growth, fulfillment expenses increased to RMB851 million from RMB665 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 rates related to the extended Double 11 period this year.
Sales and marketing expenses increased to RMB741 million from RMB648 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 RMB110 million. This was an improvement as a percentage of GMV from 0.6% to 0.5%. Most of this improvement was due to a more effective cost control, productivity improvement and better prioritization of our development pipeline.
G&A expenses slightly increased to RMB69 million from RMB67 million last year. This was mainly due to our investment 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 zero point — improved from 0.4% to 0.3%, which reflected a continued trend of greater economies of scale, while we grow our business.
Now, move on to Slide number 10. All in all, income from operations increased by 53.4% year-over-year to RMB301 million. On a non-GAAP basis, income from operations was RMB333 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 RMB0.4 million, down by 95%. This is mainly driven by paying off the majority of our short-term borrowings during the fourth quarter.
Now, on to Slide number 11. Non-GAAP net income attributable to ordinary shareholders of Baozun totaled RMB272 million, an increase of 68.4%. Basic and diluted non-GAAP EP ADS were RMB3.71 and RMB3.58, 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’re very pleased with our financial results. Not only we were able to deliver high-quality growth resulting in 22% growth in net revenue and a 45% increase in non-operating profit, but we also achieved a second consecutive year of positive operating and free cash flow. As of December 31, 2020, we had RMB5 billion in cash, cash equivalents and short-term investments 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 inorganically through M&A opportunities.
I believe many of you have seen our recent [Indecipherable] announcement this year. One of this was to further expand our capabilities on Mini Programs to strengthen value proposition in Tencent ecosystem. Another one is to capture emerging opportunity in the luxury sector. I’m glad to say that 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 integrations through GBO initiatives.
It’s worth mentioning that for the first time, on an annualized basis, our 2020 non-Tmall channels accounted for over 25% of total GMV, in which non-official dot com [Phonetic] GMV also surpassed 20% for the first time. While there might be some initial investments, we believe these results are encouraging and we are confident we will strike a high opening balance by generating sufficient — by generating sustainable and profitable top line growth. In addition, we will continue to optimize our cost base through technology-light efficiency and business process re-engineering 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’re 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, we are now ready to begin the Q&A session.
Questions and Answers:
Operator
Certainly. [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 of — solid set of quarter, especially on the margin side, right? So we see a meaningful improvement on the margins. 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 fast forward to 2021? And should we expect that [Technical Issues] target 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%, well, 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 sense for our understanding? Thank you so much.
Arthur Junrui Yu — Chief Financial Officer
Okay. 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 investments into technology and our optimization of our different brands. We have seen a strong outlook into the 2021 on our margin. So there are several factors: One is, in some of the categories, like the luxury, which we’re enjoying a very good margin compared with the other sectors, and the we are now seeing a great growth in that high. And secondly, our own efficiency drive, like by the technology and innovation, has now seen the benefit coming through, and we have seen some really strong driver 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 and into new business models. 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 the outlook for the margins.
Vincent Wenbin Qiu — Chairman and Chief Executive Officer
Okay. Binnie, I’m here for your second question. Yes, 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, yeah, we can exchange more views on that later on. And — but 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 we will put more resources and trace the channels differently from the major transaction-based channels. So, I think for this year looking forward, I think there is — will be a lot of dynamics going to happen in the private domain or non-traditional channels.
Thank you, Binnie.
Binnie Wong — HSBC — Analyst
Well, thank you. Thank you. And by the way, Vincent, thank you for the — for clarifying, two. I just have a quick follow-up on your comment. So, should we think structurally because there is 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 they will leverage your expertise even more, right, because you have the expertise across multiple channels. So the more diversified e-commerce channel is actually work towards the benefit for Baozun longer-term growth. Is that a fair comment?
Vincent Wenbin Qiu — Chairman and Chief Executive Officer
Thank you for the follow-up question. Yeah, sure. Thank you for the follow-up questions. I think traditionally for the transactional part of the e-commerce, Baozun has established a very strong, solid foundation to enable the brand partners to do business through 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 these kind of things is basically the same. So, actually, we can just use the infrastructure that built up in the past and keep serving all the new business and — to leverage the cost down as well. So that’s the number one.
Number two is that, for the new channels, yes, I think — from a new channel for front-end, I think marketing, the way they spend in marketing dollars will be very different. So, that’s why we think that marketing capability is so important for the emerging new channels. We — you remember, we did this in the more three years ago, and now I think our digital marketing capabilities are 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. Thank you, management. It’s very helpful.
Arthur Junrui Yu — Chief Financial Officer
Yeah. And just to add a point on Vincent’s comments about the multiple channels. We are actually, not only using the organic growth, we are using the inorganic way to enhance our capabilities as well. So, 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 partners in a very effective and also a good service way. So, this is why we’re pulling all those capabilities together.
Binnie Wong — HSBC — Analyst
Okay. Thank you. Thank you, Vincent and Arthur [Phonetic]. Thank you.
Arthur Junrui Yu — Chief Financial Officer
Thanks.
Operator
Thank you. We have our next question from the line of Alicia Yap from Citigroup. Please go ahead.
Alicia Yap — Citigroup — Analyst
Hi. Thank you. Good evening, management. Thanks for taking my call and congratulations on the solid quarter. I have two questions. The first one is 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 on to the future monetization improvement with the existing brands with the launch or even the readiness of this private traffic domain platform?
And second question is, we heard from another e-commerce peer recently that this year Chinese New Year, because it is — these travel restrictions and all that, so they are actually seeing a stronger than usual Chinese seasonality. So, not sure if Baozun also seeing a 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 Junrui Yu — Chief Financial Officer
Okay. Thank you. I will take the first question on iClick and Vincent and Tracy may comment on the Chinese New Year trend. Okay. On the — 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 the very strong OMS and operation capability of Baozun to create a solution. And that solution will be an attractive proposition to our brand partner in the Tencent ecosystem. 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 iClick and another kind of the title [Phonetic] brand, which iClick into — which are new introduction to us. So, we are confident that it will lead to some tangible financial results very soon.
And 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 partner. 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 not 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 in kind of MOU 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 the 2021, but it’s difficult to split to say, which specific has contributed for iClick and which is not to the iClick. But we are confident about the program.
Vincent Wenbin Qiu — Chairman and Chief Executive Officer
Okay. Yeah. Second one is about CNY sales question.
Tracy Li — Vice President, Business Development
Thank you for the question. We think, actually in terms of the CNY’s sales result, 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 continue for the whole year. And also you can see, actually we have done a serious of astonishing revision on the major platform since the beginning of this year. And among them, you can see it improves 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 is spending efforts in many angles to improve the customer journey’s. For example, to reduce the complexity of searching mechanism and to decrease the promotion channels 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 the promotion and also their investment on consumer and the data assets in longer time.
And from Baozun’s of view, we — actually, we still believe the trends on the consumer perception regarding the entertainer-oriented and also livestream-oriented is going to be the trending topic for the whole year. That’s why we have been paying much more attention on opportunities of livestreaming, especially on the self-owned livestreaming 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 — Citigroup — Analyst
Okay. 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 — Analyst
Good evening, Vincent, Arthur and Wendy. Congrats for the solid fourth quarter and thanks for taking my questions. My first question was related to the — this year’s full-year outlook. As we know, Baozun has already discussed with the brand for this year’s, like growth plan. Just want to get an idea for this year 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, new areas we should actually focus?
And the second question was related to the addressable market because we — of our new channels and the new categories. We know like Baozun actually will look to expand its presence in, like, you mentioned like Douyin, in WeChat and also JD. Just want to get a quantitative 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 Junrui Yu — Chief Financial Officer
Okay. So, I probably will — yeah. I will get Vincent to talk about the first question and then I will cover the second one.
Vincent Wenbin Qiu — Chairman and Chief Executive Officer
Okay. Thank you for the question. Yeah. For 2021 outlook, I think 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 initiatives happening on their private domain, including the official TC, official web source, Mini Program app, this kind of thing, and also some new channel expansion plans. So, I think 2021 may be the first year for the brand to trying to allocate a lot of resources on multiple platform seriously. So, I think in this case, there will be a lot of new initiatives like data application — related application and of CRM, these kind of omni-channel-driven solutions is quite important.
And also, talking about the size of the business in 2021, I think we kind of refer to an aggregated GMV for each of the platform. So, generally, I think that is the addressable market for the brand’s expectation for the channels. Especially those who — which in 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.
Yeah. So for the second one is about the addressable market.
Arthur Junrui 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 it 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’re 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 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 brand partner under the GBO initiatives. 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.
Joyce Ju — Bank of America — Analyst
Perfect.
Operator
Thank you. Can we move to the next question? Presenters, can we move to the next question?
Wendy Sun — Director, Investor Relations
Hey, [Speech Overlap]. Yes, go ahead.
Operator
Yeah. Next question comes from the line of Thomas Chong. Please go ahead.
Thomas Chong — Jefferies — Analyst
Hi. Good evening. Thanks, management, for taking my questions and congratulations on the solid sets 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 a financial outlook? Thank you.
Arthur Junrui Yu — Chief Financial Officer
Okay. Thank for the question. I think we have some time to look into our strategy going forward, which 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 RMB150 billion GMV in three to five years’ time. And we would like to make a operating profit of RMB2 billion by the end of this three- to five-year period. So this is our goal and our financial outlook.
Operator
Shall we go ahead and move to the next question, presenters? The next question comes from the line of Tian Hou from T.H. Capital. Please go ahead.
Tian Hou — T.H. Capital — Analyst
Yeah. Thank you, management. 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 those composition will be in the future?
Arthur Junrui Yu — Chief Financial Officer
Okay. 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 channels, 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 highly strong and higher return rate. In terms of the high discount, 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 discount 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 a industry down for the Q4, due to the extent — due to the extended period of Double 11. So, overall, we hope this is a trend of — for the Q4 online 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.
Arthur Junrui Yu — Chief Financial Officer
And –. Yeah.
Tian Hou — T.H. Capital — Analyst
Okay. Keep going.
Arthur Junrui Yu — Chief Financial Officer
Please, please.
Tian Hou — T.H. Capital — Analyst
Okay. So, the follow-up question is regarding your omni-channel. 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, how to say, position yourself in other channels, like Xiaohongshu, Douyin, JD? And what is your competitive advantage over existing operators, if there are any? So that’s the second question. Thank you.
Vincent Wenbin Qiu — Chairman and Chief Executive Officer
Okay. Thank you for the second question. This is Vincent. Actually for the emerging channels like [Indecipherable] or 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 [Phonetic] platform. But right now they are changing. They are more and more turning to e-commerce business, and the — because they need the brand media expenditures and also transaction business on that. So, it is a new one. So it’s emerging, I would call it the 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 the e-commerce operating experiences and also we have been investing in digital marketing for multiple channel 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.
Arthur Junrui Yu — Chief Financial Officer
Thanks.
Operator
Thank you. We have our next question is from the line of Charlie Chen from China Renaissance. Please go ahead.
Charlie Chen — China Renaissance — Analyst
Okay. Thank you. Thank you, management, for taking my question. 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, like, 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 Wenbin Qiu — Chairman and Chief Executive Officer
Okay. I’ll be here for your — to answer your first question. I can say that the Company is more capable in bringing on-board 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 for different platforms, it is — you’re getting more and more, how to say, more and more rich 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, I mean, changes in the brand’s partners strategy in Internet. As we understand, last year was a pretty difficult year on the full-year impact of COVID. So after the full-year, I mean, how does this — how did your Company recognized 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 Wenbin Qiu — Chairman and Chief Executive Officer
Okay. Yeah. I think the last year, the COVID year is very special and it changes. It has a profound influence to the brand, the e-commerce or digital marketing strategies. I think right now e-commerce or digitalization has been the center of the strategy of most of the consumer brands. So, they are pulling in more and more resources to enhance their position on their DTC initiatives and also e-commerce, digital marketing initiatives.
So, I think the key for this one is that, as the center of the strategy, that means the brands will invest for long-term, not only the short-term. So for short-term, its channel sales is discounting its promotions. For long-term, it’s more about system. It’s more about capability and talent. So, in this case, we are quite comfortable working with the brand for longer-term of the partnership.
Arthur Junrui Yu — Chief Financial Officer
Yeah. And just to add a comment on this. We have seen the brand partners start to explore different — to start to explore the different channels. So, for example, in Q4 and Q1 this year, we helped one of the major — one of our major sports partner — a sports 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.
Vincent Wenbin Qiu — Chairman and Chief Executive Officer
Thank you.
Arthur Junrui Yu — Chief Financial Officer
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 Wenbin Qiu — Chairman and Chief Executive Officer
Okay. Thanks for the question. There’s a lot of discussions happening for Mini Program e-commerce. I think from three years ago, we have formed a very solid team to serve the brands through open stores on Mini Program. Right now, we have already tens of existing mini programming working for different brands. So, we think there is 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 Tmall because it is more marketing-driven and more data-driven transactions. So, it is — so, for example, there is not the — it’s not a commission for the platform or even there is not a platform. It’s actually a separated private domains on the ecosystem. So, in this case, it is quite important. And because — there is a social commerce space, so for doing the e-commerce transactions is 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. And for Baozun, I think the middle end, like the order fulfillment — the order processing and the back-end order fulfillment is 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, transactions is easier than before, but marketing is more comprehensive. So in this case, I think we can form up a 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
Hi, management. Thanks for taking my question. 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 their cooperation 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 Junrui Yu — Chief Financial Officer
Okay. So in terms of the brand partners, only — we only had six new addition for quarter four. And quarter four, historically speaking, is not a quarter where a lot of brand partner will open their Tmall, so that’s because it is 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 focused on extremely low-cost in order to win the business. So, in this case, we will optimize our portfolio base, the brand partners kind of the overall strategy on selecting the strategic partner is not meeting our value proposition. But we will do it with our efforts. 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 Junrui Yu — Chief Financial Officer
Okay. Thank you.
Operator
Thank you. As there are no further questions, I would like to turn the call back to Wendy. Over to you.
Wendy Sun — Director, Investor Relations
Thank you, operator. In closing, on behalf of the Baozun management team, we would like to thank you for all your participation in today’s call. If you require any further information, feel free to reach out to us. Thank you for joining us today. This concludes the call.
Operator
[Operator Closing Remarks]