Baozun Inc.

Good morning, ladies and gentlemen, and thank you for standing by for Bausen's second quarter 2021 earnings conference call. At this time, all participants are in the listen-only mode. After management's prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded. I will now turn the meeting over to your host for today's call, Wendy Sun, Investor Relations Director of Bausen. Please proceed, Wendy.

Thank you, operator. Hello, everyone, and thank you for joining us today. Our second quarter 2021 earnings release was distributed earlier today and is available on our website at ir.baozhen.com, as well as on global news services. We also posted a PowerPoint presentation that accompanies our comments to the same IR website. On the call today from Baozhen, we have Mr. Vincent Chiu, Chairman and Chief Executive Officer, Mr. Astro Yu, Chief Financial Officer, and Ms. Tracy Lee, our Vice President of Strategic Business Development. Ms. Chiu will review the business operations and 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 Security Exchange Act of 1934 and the U.S. Foreign Security Litigation Reform Act of 1995. These forward statements are based upon management current expectations and current market and operating conditions and relates to events that involve known or unknown risks, uncertainties, and other factors. 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, facilities, or factors is included in the company's filings with the US SEC and in announcements on the website of Hong Kong Exchange. The company does not undertake any obligation to update any forward-looking statements except as required in the applicable law. Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Chu. Vincent, please go ahead.

Thank you, Wendy, and thank you all for joining us. We are satisfied with the progress in achieving our strategic operational goal in the second quarter. Despite sitting on a high base of last year, where the second quarter was the first big promotional event quarter coming out of COVID in China, we were able to deliver a solid GMA growth of 23% year-over-year. In particular, backed by our comprehensive infrastructure and the service offerings, We made a significant inroads in innovating and executing our omnichannel strategy, further penetrating into the luxury sector, which I will further expand on the next slide. However, as we first alluded to in the first quarter results, the Better Quality Initiative, or BCI, has negatively impacted the growth of the apparel and accessories category, especially for international sportswear brands. The impact continued into the second quarter and is now both larger and longer than we initially expected. As an indication of the impact, the total outbound orders of our logistics services declined by 29% year-over-year for the quarter. Total net revenues increased by 7%. The non-GAAP net income for the quarter rose by 4% year-over-year. with the additional impact of our increasing investments for the future growth. Moving on to slide number three. During the quarter, we saw demand flourish for private domain and non-traditional channels. Non-TIMO channels accounted for 32% of photo GMB, an increase of 7% from 25% in the same period last year. As we execute our omnichannel strategy, we are able to help our brand partners generate incremental sales and the customers from a variety of emerging channels. The luxury and the premium sector continue to be one of our key growth drivers, demonstrating both strong growth, momentum, and a high emergence profile. Following our acquisition of Fujet, we visited the headquarters of several European luxury and premium brands. We received very positive feedback regarding the broad awareness of substantial abilities in China's e-commerce market. During the quarter, we onboarded seven brand partners in luxury and the premium sector, and we have laid out a very strong pipeline. We observed that the addition to Tmall stores, the brands are also planning flexible stores across other e-commerce channels. We believe this will be a significant driver over the coming years. Now let's move to our M&A progress. Operationally, we continue to make structural improvements to our business as we make strategic investments to enhance our competitiveness and value proposition. We believe these structural improvements will position us well to deliver long-term growth by providing our clients with better end-to-end e-commerce solutions. Now please turn to slide four. During the quarter, on the warehouse and the logistics front, we made two strategic investments. Bao Liantong enlarges our premium warehouse capacities and allows us to extend our verticals coverage while BIDA enriches us with integrated logistics and delivery resources to achieve meaningful regional cost advantage in Suzhou. Following the end of the quarter, we also announced our potential strategic partnership with China along with its equity investments in our logistics service subsidiary. Our logistics business group has long been well recognized in the industry as one of the leading providers in highly customized and premium logistics services. Now, with expanded capacity and more comprehensive service capabilities, we believe our full chain solutions will continue to drive brand value and generate business leads and financial returns. During the quarter, we were particularly pleased to onboard a leading domestic sportswear brand as our customer for warehouse and logistics services. We believe this could potentially be an entry point for additional brand owners to work with us for their e-commerce operations. Moving on to slide number five. In addition, on top of the investments and partnerships made to bolster our logistic capabilities, during the quarter we also acquired eFashion, an e-commerce solution provider that is focused on bringing international fashion brands to China. This will allow us to further penetrate the branded fashion sector, extending our leadership position. There is also profound progress in integrating our investments from previous quarters we have started to offer our e-commerce solutions to Busan fashion group brands and we'll begin exploring the general development of special offer products later this year with iClick the business development progress is well on track we co-launched a comprehensive package for our brand partners in cosmetics earlier this month and we will also become this brand's operating partner, operations partner for its mini-programs. We anticipate more breakthroughs for the FMCG categories in the 10-cent mini-programming ecosystem later this year. Regarding Foodjet, as I mentioned earlier, we have successfully, jointly acquired new brand partners and built up business leads during the quarter. On top of luxury and the premium sector, Fujet is also actively participating in our business development progress in a broader apparel category. We are pleased with our substantial progress in extracting value from our various acquisitions and the strategic alliance this year. These new partners have joined the Boson family with a rich portfolio of brand partners, on the various forms of business cooperation. As our business scope has now been very much enriched, we will no longer disclose our number of brand partners going forward. As such, Metric currently only captures brands in store operations, hence it's no longer appropriate to evaluate our full business potential going forward. Turning to page six, I want to give an update on our business process re-engineering. As technology empowers future success, we continue integrating technology into our operations and the service models for our brand partners. We have had some solid results from our year-long trials with several proof of concepts and the prototypes in BOC, our business operation centers. In the first quarter, we applied such model broader in our fashion apparel business unit And after comprehensive review and evaluation, we now have decided it's time to replicate such model company-wide. As part of the transformation of our business, we started to build a technology-powered middle office to further improve our service quality and reduce operational costs. We are integrating our technology infrastructure and the management applications into our daily operations. And our ultimate goal is to make our e-commerce operations more digitalized, standardized, and systematic. We believe such initiatives will drive up our economies of scale in the long run. And it promotes resource integration, efficiency improvements, and the competitiveness enhancements. Backed by our comprehensive middle office, our regional service centers, or RSC, in Nantou and Hefei are operational. We have moved about 1,000 employees to these RSCs and the initial trial have generated over 20% in efficiency and accuracy improvements. We are migrating more business units and functions to these regional service centers over the next 12 months and believe such initiative will become an effective driver for margin expansion next year. Lastly, we continue to invest in our people and organizational structure. We truly believe that people are the greatest asset of an organization, and as such, we have strategically grown our management team, in particular to support the broadening of our omnichannel services. We have also enhanced our compensation policies, HR training system, and employee coaching. This enables us to attract and retain the best talents in the industry and ensure that our people grow together with the company. The upcoming new headquarters move is on track and we believe the expansion of upgrades of our working environment will support our growing team, boost efficiency and nurture a culture of cutting-edge innovation. Overall, the second quarter has certainly been a very busy quarter for us, but rest assured we will continue to work tirelessly to further enhance and grow our business. While we anticipate ongoing headwinds from BCI in the second half of this year, online shopping increasingly pervades people's daily life. Therefore, we believe the comprehensive suite of e-commerce solutions that we deploy is key to continuously improve the shopping experience for customers. Ever-changing e-commerce dynamics are presenting us with both challenges and opportunities. We are actively evaluating the market and we will review our priorities and make change of our strategic middle term plan accordingly. Ultimately, we believe that by focusing on our core business proposition, empowering our brand partners to connect with consumers at far greater convenience, We are and will continue to be the partner of choice for all our existing and future brand partners. I will now pass the call over to Arthur to go over the financials. Thank you.

Okay. Thank you, Vincent. Hello, everyone. Now please turn to page number nine. We saw healthy growth in total GMB, which increased by 23%. to 15.7 billion. Our distribution GMV rose by 5% to 1.1 billion and non-distribution GMV increased 25% to 14.6 billion. Now bringing it down by category, we continued to see strong growth momentum in the electronics and FMCG categories. both growing over 100% year-over-year. This is mainly due to our progress in omni-channel strategies, especially on JD and Tencent mini programs. The luxury sector continues its good performance from last quarter with high double-digit growth year-over-year. On the other hand, Our apparel and accessories category declined 23% year-over-year, which is mainly due to the negative impact of the Better Phone Initiative, or called BCI, on some international brands' partners. While we anticipate the impact of BCI is likely to continue in the second half of this year, We are delighted to see some new business from major domestic apparel and sportswear brands which offsets the negative headwind. Now turn to page number 10. Total net revenues increased by 7% to $2.3 billion. Product sales revenues increased by 5% and service revenues increased by 9%. Given that the majority of the BCI impact is happening in the sportswear category, and that most of these brands normally work with us on a full end-to-end consignment model, the fallout has negatively affected service revenue. Our product sales gross margin was 16.2%, largely flat compared with a year ago. but improved from 15.4% last quarter. Our overall growth margin was 64.6%, up 60 BPM from 64% a year ago. Our take rate for the non-distribution model was 9.1%, down from 10.4% a year ago. This reduction in take rate was expected as we made progress in our omni-channel strategy. In addition, as BCI reduced the revenue contribution of the consignment model, therefore the change in revenue mix led to a lower take rate for non-distribution model as a whole. If we look at take rates of the consignment model itself, it actually showed an improvement year over year to 12.7%. Now let's turn to operating expenses on page number 11. Fulfillment expenses decreased to $560 million, as outbound orders were lower in the quarter due to the impact of BCI. As a percentage of GMV, the fulfillment ratio improved to 3.6% from 4.5% a year ago, driven by efficiency improvements. Our sales and marketing expenses were 648 million and as a percentage of GMB kept relatively stable at 4.1% from a year ago. This is a blended result from the improved effectiveness of our digital marketing services and efficiency gains, offset by the investments in talent to build our stronger digital marketing capabilities. Our technology and content expenses were $115 million, and asset percentage of GMV improved to 0.7% from 0.8% last year, mainly due to the rise in staff costs for incremental IT investments, offset by efficiency improvements. Our G&A expenses increased to $98 million, This increase was in line with our expectations, predominantly reflects the variety of investments we have made this year to support the long-term growth. Firstly, we recruited new talents, especially for our expanding omni-channel services in conjunction with upgraded compensation packages for our critical roles. in order to attract and retain the best talent in the industry. And secondly, we also incurred additional expenses related to our new headquarters. And thirdly, professional fees increased year over year due to our increased M&A activities in the first half of this year. And finally, we also saw an increase in the account receivables provision. As a result of the above, G&A expenses as a percentage of GMB increased slightly to 0.6% from 0.4%. Now please turn to page number 12. Reflecting over additional investment and the impact from BCI, non-GAAP income from operations was $162 million, down by 14% year-over-year. and non-GAAP operating margins was 7.0%. On slide number 13, non-GAAP net income attributable to ordinary shareholders totalled $161 million, an increase of 3% year-over-year. The basic and diluted non-GAAP EAP ADS were 2.04 and 2.01 respectively for the quarter. Now turning to page number 14, we generated a positive operating cash flow of $499 million and used $230 million for our M&A activities during this quarter. As of June 30, 2021, We had a $4.5 billion in cash, cash equivalent and short-term investment, which is a very healthy level based on our normal operational activities. And lastly, on 18th of May 2021, our board of directors authorized a share repurchase program. allowing us to repurchase up to 125 million U.S. dollars worth of our shares. As of June 30th, 2021, we had repurchased a total of 12.5 million of our ADNs. All these thanks to the short-term impact from BCI. We have made good progress during quarter two to execute on our strategy to deliver a sustainable and profitable growth. In the second half of this year, we will continue to execute our plan by investing in our capabilities and expanding our business both organically and inorganically. We remain confident in our business model and we believe Baldwin will deliver unique value proposition to our customers in the long term. This concludes our prepared remarks. Thank you, everyone. Operator, we are now ready to begin the Q&A session.

As a reminder, to ask a question, you want to press star 1 on your telephone. To withdraw your question, press the pound key. Your first question comes from the line of Alicia Yap of Citigroup. Please ask your question.

Hi. Good evening, management. Thanks for taking my questions. I have a question related to these top sportswear brands that you mentioned. Just wondering, has the consumer sentiment recovered from this BCI issue? Because it seems like the alternative channels like top sports and all that are actually seeing some solid recovery of the demand from these global sports trends. So I'm not sure are we seeing similar trends. And as related to these, I'm just wondering also overall consumer consumption sentiment of apparel and also the discretionary accessory. Have we seen any slowdowns? of these purchasing willingness on these apparels and these accessory categories? And do you anticipate some of these, you know, if the consumptions are slowing down, do you anticipate a weakness to continue into the 4Q promotional period?

And also curious to hear if there's any early preparation work by brands for this year to prepare for their single-use days. So any, you know, feedback colors on that will be great. Thank you. Okay.

Thank you, Alicia. Actually, it's a quite large question. So first I want to echo to the specific question like the BSI impact and especially for the sports category. So for the BSI, I think the incidents continue to actually impact our analysis passion in the sports category, and it has lasted longer than we expect. But with the improving trends, we do foresee it's going to improve maybe in the later part of the next quarter or in the earlier part of the quarter full. And the impact on the business basically reflects in consumers' purchasing intentions. like the celebrity endorsements. And in addition, the Southeast Asia's coronavirus will continue to cause the destruction to many apparel and supply chain in the second half of the year. So we do foresee there is a potential for the W11 stock. So that's why from the for the tactics part, and we work with the client to accelerate our own channel of play at plate In recent months you will see our larger account in the next few months they will have very aggressive movement in the new channel development and the arm to drive the incremental sales and also to release the stock pressure caused by the BCI and also to conduct projects in the private traffic domain areas to focusing on the CRM experience. And also if we back to the TML existing environment, I want to say in the next half year the traffic gap between brands will become larger. We believe the brands which we are serving right now still have the competitive merchandise strategy and also they are supported by the sustainable marketing spending. So this, we think, combined with the team further strengthening our operational advantage, we will have a relatively positive outcome in the W11 part. And also, one thing I want to highlight is on the winter Olympics. What we heard in February last year, so we anticipate maybe there's a boost of the winter clothing and also sports health related category. And also currently we are already discussing the resource allocation which came out starting from this month actually. And for the second part, to discuss about the overall consumption and also the consumer, their attitude towards the overconsumption. One thing I want to highlight is if you see the overall data, the first half of the year, the trends of the overall market is still on the rise. They grow like 17%. From this, we still can see a steady momentum is still present. But after 6-18, we expect a two-month downtime due to a corporate shopping behavior highly driven by the low price during the 6-18. So that's the July and August has always been a relatively sluggish time period, so after the 6-18. And moreover, the revisits of the coronavirus have seen again this dilemma about public health, which constantly diminished the consumer's desire to buy. And from the July data, you can see the total online transitions dissembled at its new growth, but with the single digital growth. And if we break down into categories, we see apparel, home appliance, and even beauty all show the slow down momentum. But luxury and the healthy related and the community life has increased pretty disassembled. So from our point of view, We think the market has shown some of the trends on the downtime part, but we still have the confidence and see the opportunity in the following areas. First is the potential in the new channel development with increased traffic flow derived from the major marketplace, and this is driven by the change of user habits and the visit time duration. And the second is the rising categories like luxury, healthy, outdoor, and also the community life, which will trigger to strike for the greater performance in the next half of the year. And the third is the rising categories like luxury, healthy, outdoor, and also the community life, We think the top and the high quality brands will gain more advantage on the traditional platform. That's why we will further differentiate ourselves in terms of the brand selection and also our operation service offering. I hope that solves some of your questions. Thank you. Indeed, thank you.

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

Thanks, management, for taking my question. Can management share some update about the potential synergy with Tynel? And also, how should we think about our M&A strategy going forward? And are we going to see more investment or cooperation? Thank you.

Oh, hello. This is Arthur here. So I think we recently announced our potential partnership with China. So there are two main factors we take into account when we have this partnership. One is we will be able to enjoy a better economy of scale if we get into China's national network, both to reduce the cost and also to reach out to more potential customers. And secondly, there is a very good synergy between what China is good at and what Baozhen is good at. Baozhen is very specifically focused on the bespoke and customized service in logistics for luxury, for the sportswear. And China is more focused on the standard goods. So therefore, we think the combination of two will help us to win more market share. So that's on the China part. In overall, when we look at our M&A strategy for the second half of this year, we actually focus on four key areas to create value. The first one, we're looking at building additional or acquiring additional capability to help Baudrin to deliver more value to the customer. So we are looking at CRM, we are looking at the live streaming, and also the data services. So these are the capability we are looking forward to build more quickly to enhance our value proposition. And secondly, as we all know, the TP and also the JD partner, we are still in a very diversified marketplace. So what we are looking for is to do the consolidation. So our recent deal with eFashion has proved really successful in terms of expanding our market share in the apparel category. So we will continue to look for opportunity for further consolidation. And thirdly, we will looking to use more the M&A opportunity to enhance our connection with the brand. So our recent deal with the Fuxing Fashion Group has created a good example where our brand management company can create more value for the brand by working more closely together. We will continue that. And finally, we are looking at some opportunities for the overseas expansion We are thinking of replicating Belgian's capability to the overseas market and mainly focus on the Southeast Asia where there has a great similarity between the Chinese market and the Southeast Asia market. So that's about our I mandate strategy going forward.

Got it. Thank you.

Thank you.

Your next question comes from the line of Tianhao of TH Capital. Please ask your question. Yeah, good evening, management. I have a couple questions. The first one is regarding the GMV composition. So I wonder what's the, you know, different category, you know, what's the contribution from a different category, such as like apparel, consumer electronics, FMCG, what's their contribution right now for the GMV? That's number one. Number two, you know, as we acquire more brands domestically, internationally, so I wonder what's the GMB contribution, you know, from, you know, different brand partners. The third one is regarding the Omni channel. So we saw TikTok or ByteDance has an e-commerce promotion just the last couple days. I wonder if you guys participated and what's the results of that activity? That's just three questions. Thank you.

Okay. I will take the first two questions and then Tracy can take the last one. Yeah. So in terms of the GMV, if you turn to the slide number five on the right-hand side, you can see our electronics now count for 25% of the GMV. which is growing at about 100%, over 100% year-over-year. And if you look at the FMCG, it actually accounts for 20%. The apparel and accessories totally account for 35%, but as I mentioned earlier, it's actually declining 23% year-over-year due to the BCI impact, mainly on the sports and the men and women clothing. But within this overall category, luxury is actually performing better, grow at a high double-digit from a year-on-year perspective. And finally, the appliance is complete for about 10% of our overall GMV. So that's the composition of our GMV. In terms of the brand partners, as we may know, Baozhen is... we have been working mainly with the global top brands and the majority of our revenue contribution from the large global brands so far. But having said that, in this quarter we have made some good progress. We have win several new contracts from some major domestic sportswear company in China and also some major electronics kind of the brand in China. So we are making really good progress in the major domestic brands in China. I mean the key is to create value. So if a customer wants to grow their business, they will be looking for Bodrum to help them to deliver this value, which is we see more business from the domestic major partners at this moment in time. So that's my question for the top two.

And specifically to the situation, especially in the past August 18 motion, I actually, I think first of all, the rapid developer has indeed diverted users' time from e-commerce to their channel. So the traditional e-commerce platform is changing. That is all true. But in this part, I want to divide it into two angles. First of all, I think in the past few months, even in the August 18th, majority of the GMA is still driven by the KOL live streaming. So from this point of view, you can see actually brands used to select KOLs from GMA like in . But nowadays, they do have more choice from the other channels. And a certain portion of their budget is shifting to Douyin, too. And the more and more celebrities in Kuala Lumpur are also open account in Douyin, accommodation is stronger. but I think for brands it brings more choice and also I think it will relate to financial benefit for them too. But for the other angle I want to emphasize is on the self-owned live streaming. We also, I think for Jun's team also we successfully launched more than 10 self-broadcasting project in the past few months. We're helping brands to verify the incremental value of the emerging channels in the past few months. Some good news is Roughly, there's a lower overlapping reach for e-commerce consumer between the lean and also the traditional channel. Across different category, I think it's less than 20%. It's relatively 10% to 20%, right? And also, it also proves the value, say, they can have different product strategy, which means the top-selling products on KMLs, is only lightly overlapped with the top selling products, which is very helpful for brands if they want to differentiate the two channels. And also we've seen some good signs on the consumer on doing also things a little younger, like three or five years younger than their channel client base. But on the other side, I think the stable monthly sales and also the drastic cost and the sustainable cost outcome is need to verify it in the longer term. And from our point of view, we will continue to invest in our operation and also our capability in this area. And thanks for the attention for this.

Thank you so much for the quick answer. Thank you. Once again, if you wish to ask a question, press star 1 on your telephone. To withdraw your question, press the pound key. Please limit your question to two questions at a time. And you may press star 1 again if you have a follow-up question. Thank you. Your next question comes from the line of Charlie Chen of China Renaissance. Please ask your question.

Good evening, management. Thanks for taking my questions. I actually have only one question related to regulatory issues. As we know, the Chinese government has conducted a series of regulatory activities to basically regulate the Internet industry, which includes prevention of personal data abuse, et cetera. So how does this regulatory, specifically for personal data abuse, how would this action impact your business in terms of your relationship with brand partners? Will they increase or decrease the investment in digital marketing? And will they change the ways that they do marketing activities online? So have you done anything to position yourself in preparation for these kind of potential changes? Thank you.

Okay, thank you for the question. Yes, as you mentioned, recently there's a lot of different regulations ongoing from different aspects. Yeah, let's talk about the consumer information protection thing and the data security. Yeah, I think we have already received the acknowledgement from Tmall already about the about the reactions we need to take together with Tmall to face the newly in place regulation for consumer data protection. Basically I think from the system point of view we are almost ready to connect to the Tmall in a new way you know, keep us from the sensitivity of consumer data. So, in general, the business process will be smooth, no matter, you know, what kind of new programs added into this process. So, from the consumer experience, nothing changed. All of this process will be normal and in good shape, so that is the number one. Number two, for your question about the brand perception for this and their actions, I think for right now it's not very clear because the new system is not in place yet. So after that, we know that how we are going to do the digital marketing in a different way. But right now I think the brands are quite ready for this change. And I don't think there will be a big change for their digital marketing expense on email platform and Bosun are ready to help them be doing things in a smart way not only to consume digital marketing investment so that is basically I think there is not a big influence for the general business process yes but we take this very seriously thank you

And just one more point to add, Vincent. So given that we have been continuously making the investments into the technology, Odin now has a stronger data security and privacy capabilities than our peers. So we have achieved level three classification for the data security from the government. This will differentiate us from our competitors.

Thank you.

Your next question comes from the line of Joy Hsu from Bank of America. Please ask your question.

Good evening, Vincent, Arthur, and Wendy. Thanks for taking my questions. I have two questions. The first one is related to the category growth. Because we recall this quarter we have seen like FMCG and actually grow very strong and like you mentioned Luxury also grows nice and while Foursquare and electronic seems annual decline. Just want to get more colors or updates in terms of the third quarter and fourth quarter specifically with our, you know, outlook for the K-degree growth perspective. And the second question is, we have seen this quarter, the gap between the GMV growth and revenue growth seems like, you know, pretty wide. Just want to get more details or colors in terms of how we should actually understand this and what's the plan going forward. Thanks a lot.

I think, Jo, sorry. I think the second question is not very clear for a few repeats.

Sure, I think the GMV growth and the revenue growth this quarter seems there is a pretty wide gap. Just want to understand how this actually, what's the reason behind and going forward, how should we expect that gap to narrow or to, you know, sustain?

Thank you. Okay, Joyce, this is Arthur here. I think, as I mentioned in the prepaid remark, The increase in the GMV mainly contributes by our omni-channel strategy and mainly from the JD channel and also the mini-program channel. And those two channels, we are strong in terms of the items... Your call is being held by the other party.

Please wait for a moment.

Hello, can you hear me, guys?

Oh, yes, yes. Yeah, thanks, Paul.

Yeah, OK. I will continue. So in the second half of the year, we will see continued growth in the electronic and in the FMCG category, which is mainly driven by our omni-channel strategy from JD and from the mini program. Regarding to the second question, I think you mentioned the tech rate is actually dropping, so this is anticipated. As we are now deploying more resource into the Omni channel, the new channel, as I tried to explain in the last time, is lower margin than the matured channel in the PMO. So therefore, as we grow faster in the Omni channel, especially in the mini program, we are still in the stage of making the investment to grow the business for over a longer period of time. So after we have built a significant size of the business, our investment will have a greater return and we will see the market improve. in the medium and longer term. And we see no reason why the new channel cannot be as profit as the traditional channel. So this is what we are looking for.

Your next question comes from the line of Ashley Xu for Credit Suisse. Please ask your question.

Thanks management for taking my question. There are two from me. First is I want to check how many brands have already tested on the new Douyin platform or have launched official stores. And from our communication with the international brands, what do you think are holding some of them back given my impression is that most of the international brands have been more cautious in testing this new channel? And my second question is about the apparel growth. If we exclude the names that have been impacted by the BCI issue, what would be the growth for the rest of our brand portfolio? Thank you. Regarding the pipeline on the lean part, actually I think I agree with you because right now players is majority driven by the local grants and most of them actually complying, actually implement a clean rate operation strategy. It's not a very traditional, I mean, I'll say it's a formal channel developed strategy on the way. Regarding the overseas grants right now, I think right now the first wave of the category is still on the apparel and the sports category and followed by some of the consumer goods and also cosmetic parts. But I want to emphasize on even the brands, they open their flagships. The business right now is majority driven by the KOL live streaming, which means their economy, I mean environment, is not very mature right now. still driven by the supply chain and also by the KL itself but on the other hand we also see there's a I mean the channel value part is how to say it's very expect from the and they want to try different angles in the next few months. So we treat our P-Zone but with tortures on the channel.

Yeah. Hi, Ashley. It's Arthur here. On your second question, can you repeat your question once again? Because I wasn't sure I'm 100% clear about your question.

Yeah, because we already disclosed that the apparel category is declining 20% in the next few months. So we want to try different angles. 3% year-over-year. Just want to get an idea about the brand portfolio that are not impacted by this BCI issue. Like if we separate the brand into two groups, how much is the unimpacted names growing?

Yeah, I think if you look at our overall portfolio, so we have a wide range of different portfolios. So even though Baldwin is traditionally very strong in the sportswear in apparel, which the sportswear and apparel are impacted by the BCI, but within this category, the luxury is actually a spotlight where we have growth in a high double-digit year-over-year. So that's one of the categories, even that we've seen the wider category of apparel is actually growing. Outside of the apparel, if you look at the FMCG and you look at the electronics, even our omnichannel strategy will actually grow very healthy So some of the category even grow in a high double digits or even over 100% year over year. So this is a proof of the Baldwin business model where we have a wide range of different categories within Baldwin and helping us get through the difficult time like the BCI series.

Okay, thank you.

Thank you, Anthony.

Your next question comes from the line of Andre Chang of JP Morgan. Please ask your question.

Thank you, Vincent, Arthur, and Wendy. My question is regarding the investment in the current environment. There are a lot of changes in the regulatory front and the overall consumption front. So I wonder, what's your plan about how to use the cash in the second half of this year and next year? How should we think of the investment and also the impact on the non-operating from, say, any one of the items we should pay attention to in the second half of this year and the next year. Thanks.

Okay. Thank you for the question. I think, first of all, I would like to restate that Bulgini's overall operating cash flow is positive, which means we are able to create the blood for ourselves. which is a very important factor if you take into account in the current situation where getting more funding is more and more difficult. So with that, we currently have 4.5 billion in cash reserve, which we can either use it to secure our operations or we can make investments to build our capability to grow faster. So, as I mentioned in the question earlier, we have four different areas for future investments. But overall, we will use cash more cautiously during this period, because in this period, cash is the key. So, we will put more emphasis on the liquidity of the whole company, and when we select the the target for acquisition or target for investment, we will be more cautious and we will make an investment when we have a higher certainty that we will be more successful. So that's how we are going to plan to use the cash.

Your next question comes from the line of Robin Leung of Siwa. Please ask your question.

Hi, management. Thanks for taking my question. This is Robin asking on behalf of John Choi. I have a follow-up question on the tech rate trend. This quarter, the decline, I think management mentioned that it's because of the BCI and also new channel contribution. But this quarter, the non-T more mix is actually lower than 1Q, but the year-on-year decline is even more. So how should we think about the trend in the second half? Which factor between the BCI and also new channels is impacting the take rate more? And should we expect the take rate to decline by over 1 percentage point every quarter? And also, my second question is on the revenue. Our look in the second half, we look at the two-year CAGR. This quarter is growing at mid-teens. Management did mention the domestic sportswear brand will help to offset, but I think usually it takes a few quarters to pick up. So should we expect 3Q and 4Q will also grow at mid-teens? Should we expect a meaningful rebound in 2022? Thank you.

Okay, so on the first question on take-free, I think there are two factors impacting the take-free. Number one and the largest impact is the omni-channel strategy. As I mentioned earlier, we are in an investment stage, so that will dilute our take-free. But also the second factor is the BCI. As we know, the BCI impacted category is traditionally bought in high take rate category. So if you take the BCI impact out of this, if you look at our non-BCI fusion model as a whole, where we have a consignment model excluding the BCI impacted, it actually shows an improvement to 12.7% year over year. So basically, it's actually, if we take out the BCI and we take out the omni-channel strategy, then it's actually an improvement year over year. And as I mentioned earlier, over a period of time, when we have the economy of scale for those new channels, there is no reason why we cannot get back to the normal take rates as we are currently enjoying in the PMO channel. So that's on the take rates. On the second question, in terms of degrowth, of the GMV. I think we are confident that even with the BCI impact for the third and fourth quarter we still have a high confidence in our omni-channel strategy, and the BCI impact probably will likely to be there in Q3 and Q4. But given the strong pipeline in our omni-channel kind of customer, we are confident we will maintain a very good growth rate in terms of the GMB.

Got it. Thank you.

Thank you. Seeing no more questions in the queue, let me turn the call back to Ms. Wendy Sun for the closing remarks.

Thank you, Alfreda. In closing, on behalf of the Bowser Management Team, we'd like to thank you for your participation in today's call. If you require any further information, please feel free to reach out to us. Thank you for joining us today. This concludes the call.

Thank you all again. Thank you, everyone.