Ladies and gentlemen, good day, everyone, and welcome to Vipshop Holdings Limited's Fourth Quarter and Full Year 2020 Earnings Conference Call. At this point, I would like to turn the call to Ms. Jessie Fan, Vipshop's Director of Investor Relations. Please proceed.

Thank you, Operator. Hello, everyone, and thank you for joining Vipshop's Fourth Quarter and Full Year 2020 Earnings Conference Call. Before we begin, I will read the Safe Harbor Statement. During this conference call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations, assumptions, estimates and projections about Vipshop Holdings Limited and its industry. All statements other than statements of historical facts we may make during this call are forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as anticipate, believe, continue, estimate, expect, intend, is or are likely to, may plan, should, will, aim, potential or other similar expressions. These forward-looking statements speak only as of the date hereof and are subject to change at any time. And we have no obligation to update these forward-looking statements. Joining us on today's call are Eric Shen, our Co-Founder, Chairman and CEO; and David Cui, our CFO. At this time, I would like to turn the call over to Mr. Eric Shen.

Good morning, and good evening, everyone. Welcome, and thank you for joining our fourth quarter and full-year 2020 earnings conference call. We finished the year of 2020 with strong financial and operational results in the fourth quarter. During the quarter, our total GMV increased by 25% year-over-year to 59.3 billion from 47.6 billion in the same period last year. Continuing the trend of accelerated growth, specifically, GMV for our core apparel related categories increased even faster by 28% year-over-year. Driven by the robust growth in our numbers of active customers, which increased by 37% year-over-year in the fourth quarter. Our new customers grew fast than total active customers during the quarter, showing that our differentiated offering procured by our professional merchandising team are becoming more attractive to customers who did not shop with us before. We believe this strong customer acquisition trends are driven by the superior value and the convenience shopping experience we offer our customers as compared to the marketplace platform. The reason we are able to see continued robust growth momentum in our key operational and financial metrics is due to our focus on and expertise in the discount retail industry. We have over a decade of experience in the inventory filings industry in China and have deep expertise in this field. We offer super value to consumers looking for deals, particularly in apparel related categories, while at the same time, helping brands achieve faster inventory turnover, grow their business and reach new customer segments. Looking into 2021 and beyond, we are deeply devoted to continue to execute on our merchandising strategy, aiming to acquire more top brand while increasing our share in the business of our existing brand partners which will enable us to offer more diversified, desirable product to our customers and attract new customers. In addition, we will continue to enhance our big data capabilities and the technology know-how in order to service a broader customer base, enabling customers from different age group demographic and income levels to shop with us and enjoy our product offering. At this point, let me hand over the call to our CFO, David Cui, so that he may discuss our strategy in more detail and go over our operational and financial results.

Thanks, Eric, and hello, everyone. We are glad to have delivered another quarter with strong financial results. In the fourth quarter of 2020, we delivered accelerated top-line growth driven by the strong 37% year-over-year growth in our number of active customers. Importantly, our non-GAAP net income attributable to Vipshop shareholders also demonstrated robust growth in the quarter, increasing by 33% year-over-year to 2.6 billion from 1.9 billion in the prior year period. Additionally, for the trailing 12-months ended December 31, 2020, we generated a robust free cash inflow of 8.3 billion, which increased significantly from 2.5 billion in the prior year period. We are dedicated to offering our customers with desirable merchandise at this time on a daily basis. While providing them with superior logistics services and post-sales customer service as compared to marketplace platforms. As a result, our conversion rate in the fourth quarter of 2020 increased by 10% from the same period in the prior year. Going forward, we will continue to enhance our product assortment and balance our top-line growth and profitability. We are confident that the healthy customer acquisition and retention trends will continue to drive our growth in the future. By continuously offering value to our customers and providing unparalleled inventory management solutions to our suppliers, we will ultimately generate sustainable long-term value for all of our shareholders. Now moving on to our quarterly financial highlights. Before I get started, I would like to clarify that all the financial numbers presented today are in renminbi amounts and all the percentage changes refer to year-over-year changes unless otherwise noted. Total net revenue for the fourth quarter of 2020 increased by 22.0% year-over-year to 35.8 billion from 29.3 billion in the prior year period, primarily driven by the growth in the number of total active customers. Gross…

[Operator Instructions] Your first question comes from the line of Eddie Wang of Morgan Stanley. Please ask your question.

Hi Shen, David and Jessie good evening, and congratulations on the very great results. So my question is on the user growth. We have seen very strong user growth to sustain in the fourth quarter actually accelerate from third quarter. So my question is that, except for the efforts you have made in terms of the customer acquisition in the third quarter. Any new initiatives you have made in the fourth quarter. Can you give us some examples, especially, I think, is on the brand partner side as well as the - you mentioned that on the technology side. So that is my question on the user growth. Thank you.

[Foreign Language]

[Foreign Language]

Eddy, on your question on customer acquisition. Since last year's third quarter, we started to increase our marketing expenses to acquire new customers as well as retain existing customers. So we use various customer acquisition channels, including digital advertising, TV Show and reality show endorsement, mobile pre installation and so on. So on those fronts, in terms of marketing expenses, the pace at which we went in 4Q is very similar to what we have done in the third quarter and in previous quarters. We believe that there is lots of opportunities to acquire new customers in this market, particularly as we have readjusted to focus on discount retail. So we will continue to invest into customer acquisition, but we use the lifetime value model to evaluate the efficiency and effectiveness of how and where we are spending our marketing dollars. So we will continue to spend, but disciplined spending. On top of marketing, we also are much more focused on merchandising, offering our customers really good products and deep discounts on a daily basis. And on the operational side and the technology side, we are also investing to improve the conversion rate and improve the efficiency at which customers can find products that they like and that are suitable to their change from our platform. So all around, we believe there is a flywheel effect in everything that we are doing. And as long as all these parts of the business, they intact, and we will continue to improve on each element, we will continue to acquire customers that will contribute to our long-term growth.

Your next question comes from the line of Alicia Yap of Citigroup. Please ask your question.

Hi good evening Shen, David, Jessie. Thanks for taking my questions. Congratulations on the strong quarter. My question is actually related to a little bit the month-over-month 4Q trend and also the first quarter guidance. So did you actually see some slowdown in December after the very strong single base promotion. And as we go into first quarter, how would you describe the situation this year given the stay in the city Chinese New Year period? So did that actually stimulate more spending budget on the clothing or did that actually have negative impact on spending willingness, given people are not traveling that much and not needing as many relative as before. So just wondering how is this Chinese New Year giving these encouragement to stay at the city changes in terms of the demand, any differences that you see this year versus the previous year. And any color in terms of direction that you think this strong first quarter guidance could carry through the rest of the year. Thank you.

Thank you, Alicia. [Foreign Language]

[Foreign Language]

Alicia, on your question regarding the trend that we have seen. Fourth quarter is always a key season for e-commerce, particularly for us as we are predominantly apparel retailer. And we have in a single state promotional event as well as our anniversary sales event on December 8th, both of which we saw solid results and the trend of robust growth last year into January. As compared to December, January did decelerate a little bit, but mostly due to the weather change as we step out of winter. So when you look at January into February, as you mentioned, as a lot of people are staying in their respective cities and not going back to their hometowns during this year's Chinese New Year, we are seeing better business results than we were originally anticipating. Particularly as compared to previous years where people were very much spending their time with their families rather than shopping. This year, we are seeing pretty solid results, and we believe that should be the industry wide trend. Looking ahead, we believe that the structural changes of people shopping more online and more people learning to shop online that was resulted from the COVID-19 pandemic will continue into 2021 and beyond. And therefore, we continue to believe that there is a lot of opportunities for us to continue to grow and gain customers as with the rest of the e-commerce peers into 2021 and beyond.

Your next question comes from the line of Ronald Keung of Goldman Sachs. Please ask your question.

Thank you. thank you Shen, David and Jessie. I think my question kind of following on the growth in the apparel market. Basically, we see very strong growth and you shed your GMV growth for apparel, in particular, is 28%. It seems like this is a lot faster than the overall apparel market. And therefore, are we kind of benefiting from the increased supply of discounted apparel over the past, say, one-year or two-years be it kind of the buildup of inventory, increased demand of brands and clearing the inventory. And so how have we seen that in market share, say, in discount to apparel and as this kind of inventory cycle maybe lapse later this year, how do we see or how do we tap into the ongoing growth of the business, say maybe private labels or other drivers? Thank you.

Thank you, Ronald. [Foreign Language]

[Foreign Language]

Ronald, we spent in the discount retail business for over a decade, and there has not been a shortage of off-price inventory in the market. Of course, the pandemic did result in a bit of a tailwind. I'm surprised by the business apparel is a very non standardized category. And there are thousands of apparel brands, and they are constantly making new seasons of our products and launching new products. So there will always the inventory or excess inventory in the apparel market as it is almost impossible to predict exactly how much to make for each FTE. And so that is on the existing inventory market. On top of that, we are also more actively investing and looking into made for Vipshop products. These products are on suppliers, especially the top suppliers are making and designing, especially for the Vipshop platform. And so far, the contribution has already reached double digits. And in the future, we will continue to collaborate with more cost suppliers and increase the contribution from the made for Vipshop products. These products will ensure that we will always have supply and supply that is attractive to other consumer base. Going forward, we will continue to look into enhancing our merchandising capability on both the made for Vipshop from as well as the existing of price market in order to bring the best product to our customers as well as serve more suppliers and help to grow their business.

Your next question comes from the line of Thomas Chong of Jefferies. Please ask your question.

Thanks management for taking my question. Can you comment about the trend in marketing expenses as well as the margin outlook for this year?

Thank you, Thomas. [Foreign Language]

[Foreign Language]

Thomas, on your question on user growth and the marketing expenses as well as how it leads to the margin outlook in 2021 and beyond. As we continue to grow more customers and gain customers and accelerating customer growth, we are spending a little more on marketing into the second half of 2020. And we believe that trend should be similar in 2021 and beyond. However, that is given that there is approximately 300 million potential customers that will be interested in discount retail and could become Vipshop's customers. So from that perspective, we believe that there is still a lot of opportunity in the market. And we are still very small as compared to the potential opportunity in this market. So growth will be our top priority. However, we have always been very focused on the balance between our top-line growth as well as our margin profile. Our bottom line will continue to be very solid. As we have mentioned previously, we are maintaining our non-GAAP net margin at a mid- single-digit range, and we will try to grow top-line as fast as possible on top of that. So going forward, we will continue to balance the two, but strive to grow users, grow healthy users that could contribute to our long-term growth sustainability.

Your next question comes from the line of Joyce Ju of Bank of America. Please ask your question.

[Foreign Language] Yes. I will translate my question. Basically, I'm asking for the strategic focus for the management team for this year. Back to 2019, the company has been focused on the merchandise strategy and also the efficiency improvement. And for the last year, the focus was on the recovery from the COVID. Just want to know for this year with the new driver or any new initiatives we should expect? Thank you.

[Foreign Language]

Joyce, looking into 2021 and beyond, we will continue to pursue healthy and fast growth by healthy growth, meaning that we will acquire high-quality customers who will contribute to our long-term growth and profitability. We believe that compared to our current size, there is a lot of opportunity and potential to continue to grow. And at the same time, we will continue to maintain a sustainable healthy net margin profile. As we continue to grow fast, the operating leverage we will come out even more - increase our profitability as well. So that will continue to be our top priority into 2021 and beyond.

Your next question comes from the line of Natalie Wu of Haitong International. Please ask your question.

[Foreign Language] I will translate myself my question and congratulations on a very solid result. My question is regarding offline contribution, just wondering how much of the GMV and revenue contribution comes from offline in the fourth quarter and what management expectation for 2021 and also maybe if there is not to longer-term expectation for that?

[Foreign Language]

Natalie, on your question regarding off-line strategies. On the offline side, we have three different businesses. One is a [indiscernible] outlook. GMV is around 5% contribution, and this business is very profitable. So we will continue to grow that at a healthy pace. And our own one key offline stores, we have two models. One is called Vipshop and the other is called Vipmaxx, and they are quite different in terms of pricing targets. One of these businesses still slightly loss-making, while the other is almost breakeven. And the total GMV contribution of these two, one key offering stores is still quite small today, slightly over 1% contribution. We will continue to explore how to grow these offline stores and explore the online to offline strategy and how to make these stores more digitized. But all of these stores will focus on discount retail. So we are serving our core customers and core suppliers through our offline channel as well. And we are exploring for new ways to create value for our members and customers. Currently, our offline stores are also more actively exploring WeChat Group and how to utilize the traffic and the customers potentially buying more within the WeChat ecosystem. Currently, around a third of the game contribution of the Vipshop and Vipmaxx coming from the more digitized revenues such as WeChat Group, and we will continue to explore how to bring up the profitability as well as grow these businesses more healthily going forward.

Your next question comes from the line of Jerry Liu of UBS. Please ask your question.

[Foreign Language] Thanks. My question is related to the earlier comments about live streaming and short video. Just wondering the main purpose here is to use these channels as a way to acquire customers or are we seeing some opportunities to maybe operate through some of these streaming and video platforms, especially when we look at WeChat, we have been operating on WeChat for a while. But maybe there are some new opportunities in recent times. Thanks.

[Foreign Language]

Thank you, Jerry. On your question regarding live streaming and short video. We do believe that live streaming app and short video apps are where a lot of our customers are spending a lot of time. And we ask and have been actively investing and exploring customer acquisition methods in these newer channels. However, we do think that the results are not up to our expectations. And therefore, we still have more room to improve how we are targeting the content as well as how we are acquiring customers in these newer formats. On our own Vipshop app, the live streaming customers would be 100% our own. However, for example, like there are many stores, about half of these customers would come to our app afterwards, whereas on the other half is retained and [remain shopping with us and maybe going forward in the remaining store. So we will continue to work with these various channels in order to improve the efficiencies, and we will continue to look at the ways to best invest into customer acquisition to the live streaming and short video app.

Your next question comes from the line of [Haitong Zhang] (Ph) of CICC . Please ask your question.

Yes, hi Shen. David and Jessie, thanks for taking my question. Congratulations on the robust results. It is a follow-up question, as Shen mentioned, the Vipshop product. How are the Vipshop products and the special addition will impact our business, can we have better price or better profitability or the special addition help us to gain more consumers any elaboration on that would be very helpful. And do you have any target for the Vipshop product?

Thank you, [Foreign Language]

[Foreign Language]

Regarding your question on make for Vipshop products and how it is different and how it will impact Vipshop as a platform. The take rate or the gross margin for the make for Vipshop products are actually the same as other products or a given brand. However, when we go work with brands, make for Vipshop products, we ask for more value, meaning the prices that they offer should be similar to other products that they are giving us on a consignment basis and their natural off-price products. And we also give additional traffic support to the make for Vipshop products as these products are more differentiated and should result in better conversion rates for customers as well as help us acquire new customers because these products could only be found on our own platform. And going forward, we are looking to wait the best invest into the make for Vipshop products.

Your next question comes from the line of Veronika Shen of China Renaissance. Please ask your question.

[Foreign Language] Well thanks management for taking my question. My question is regarding the ARPU. Well, I remember the management mentioned that the ARPU from new users is relatively low. So could you please provide us some color about the trend of ARPU from new users who joined Vipshop since the second quarter of last year. And have you ever seen their spending on our platform increase. Since they have done us for more than half year and how should we look at the ARPU going forward considering the new user mix? Thank you.

[Foreign Language]

Veronica, the ARPU for new customers usually doubles in year two from our historical numbers. And from the customers that we have acquired in the past few quarters, we continue to see solid retention and solid ARPU growth on a quarterly basis. So we are quite confident about the long-term sustainability and healthy contribution from these newer customers. And the reason that ARPU is seen decline year-over-year in 2020 versus 2019 is because we are acquiring a lot more new customers and all old customers who have not shopped with us for a while. And therefore, by adding them to the mix, the ARPU for these customers is usually lower, driving down the average ARPU for the total customer pool. Additionally, we have often made changes to the free shipping method and lowering the free shipping from RMB288 to RMB88, which has impacted the short-term ARPU of some of our super VIPs as well as customers who are still getting used to these newer adjustments as they are shopping more frequently, but not enough to cover the slight decrease in the ticket side. From historical trends, we are confident that all of these issues will continue to go away as the comp becomes more apples-to-apples. And these high-quality new customers will buy more in the future. As well as these existing super VIPs and old customers are already buying more frequently. So we will continue to see better trends into 2021 and beyond on the ARPU side.

Your last question comes from the line of Han Joon Kim of Macquarie.

Great. Thank you for your time today. I have noticed that your other revenues have been growing a bit faster than the product revenues, and I presume this is advertising revenue. So should we assume that the tighter relationship that we have with brands is helping them put more advertising on to that platform and as our kind of user growth cut continues, should we continue to see kind of other revenues grow at a faster clip than product revenue, is that the way to think about the outlook? Thank you.

Other revenues represents our offline revenues revenue and advertising revenues. And our offline it only represents a very small portion of total revenues. So it doesn't change that much.

Yes. So on the other revenues line, it grew slightly faster for a few reasons. I will give the breakdown in the fourth quarter third-party marketplace contribution is around 14% compared to last year, that came down a little bit. But the advertising is growing slightly faster. This is due to us being more focused on the primary first-line of business and not as focused in the marketplace. And therefore, the commission rate has decreased as contribution of GMV from third-party platform has decreased slightly to around 5% in the fourth quarter. The increase is primarily due to contribution actually from Shan Shan Outlets. As in last year's fourth quarter, it only contributed to around 7% of other revenues. But in the fourth quarter of this year, Shan Shan Outlets contributed to around 13% of other revenues.

I see there are no further questions, I will now hand the call back to the management for the closing remarks.

So. Thank you for taking the time to join us, and we look forward to speaking with you next quarter. Thanks.

Thank you all.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now all disconnect.