Vipshop Holdings Limited

Ladies and gentlemen, good day, everyone, and welcome to VIP Shop 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, VIP Shop's Director of Investor Relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining VIP Shop'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 Security Litigation Reform Act of 1995 that are based on our current expectations, assumptions, estimates, and projections about VIP Shop Holdings Limited and its industry. All statements other than statements of historical fact we 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 Trey, 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 turn-day-turn-day 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 co-apparel-related categories increased even faster by 28% year-over-year, driven by the robust growth in our number of active customers, which increased by 37% year-over-year in the fourth quarter. Our new customers grew faster than total active customers during the quarter, showing that our differentiated offering product procured by our professional merchandising team are becoming more attractive to customers who did not shop with us before. We believe these strong customer acquisition trends are driven by the superior value and the convenient 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 clearance industry in China and have deep expertise in this field. We offer superior 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 brands while increasing our share in the business of our existing brand partners, which will enable us to offer more diversified, desirable products to our customers and attract new customers. In addition, we will continue to enhance our big data capabilities and technology know-how in order to serve a broader customer base enabling customers from different age groups, demographics, and income levels to shop with us and enjoy our product offerings. At this point, let me hand over the call to our CFO, Barry Tui, so that he may discuss our strategy in more detail and go over our operational and financial results.

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 VIP shop 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 312 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 merchandises at a discount 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 trend will continue to drive our growth in the future. by continuously offering value to our customers and providing a parallel 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 are referred 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. Both profit for the fourth quarter of 2020 increased by 12.1% year over year to 7.8 billion from 7.0 billion in the prior year period. Those margins for the fourth quarter of 2020 was 21.9% as compared with 23.9% in the prior year period. Total operating expenses for the fourth quarter of 2020 were 5.4 billion as compared with 5.4 billion in the prior year period. As a percentage of the total net revenue, total operating expenses for the fourth quarter of 2020 decreased to 15.2%. from 18.3% in the prior year period. Fulfillment expenses for the fourth quarter of 2020 were 2.2 billion as compared with 2.1 billion in the prior year period. As a percentage of a total net revenue, fulfillment expenses for the fourth quarter of 2020 decreased to 6.1% from 7.0% in the prior year period, primarily attributable to the change in fulfillment logistic arrangements. Marketing expenses for the fourth quarter of 2020 were $1.7 billion, as compared with $944.1 million in the prior year period. As a percentage of the total net revenue, marketing expenses for the fourth quarter of 2020 were 4.8% as compared with 3.2% in the prior year period, primarily attributable to increased investment in customer acquisition. Technology and accounting expenses before the fourth quarter of 2020 decreased to $272.4 million from $362.2 million in the prior year period. As a percentage of a total net revenue, technology and content expenses for the fourth quarter of 2020 decreased to 0.8% from 1.2% in the prior year period. General and administrative expenses for the fourth quarter of 2020 were $1.3 billion as compared with $1.7 billion in the prior year period. As a percentage of a total net revenue, general and administrative expenses for the fourth quarter of 2020 decreased to 3.5% from 5.9% in the prior year period. Our income from operations for the fourth quarter of 2020 increased by 45.9% year-over-year to $2.6 billion from $1.8 billion in the prior year period. Operating margin for the fourth quarter of 2020 increased to 7.2% from 6.1% in the prior year period. Non-GAAP income from operations, which excluded share-based compensation expenses and amortization of intangible assets resulting from business acquisition increased by 38.2% year-over-year to $2.8 billion from $2.2 billion in the prior year period. Non-GAAP operating income margin for the fourth quarter of 2020 increased to 7.9% from 7.4% in the prior year period. Our net income attributable to VIP shop shareholders for the fourth quarter of 2020 increased by 67.7% year over year to $2.4 billion from $1.5 billion in the prior year period. Net margin attributable to VIP shop shareholders for the fourth quarter of 2020 increased to 6.8% from 5.0% in the prior year period. Net income attributable to VIP shop shareholders per diluted ABS for the fourth quarter of 2020 increased to 3.51 RMB from 2.14 RMB in the prior year period. non-GAAP net income attributable to VIP shops of shareholders for the fourth quarter of 2020, which excluded the share-based compensation expenses, tax effects of share-based compensation expenses, impairment loss of the investment, amortization of intangible assets resulting from business acquisitions, tax effect of amortization of intangible assets resulting from business acquisition, investment gain and revaluation of investments excluding dividends, tax effect of investment gain and revaluation of investments excluding dividends, and share of loss in investments of limited partnerships that are accounted for as equity measure investees. increased by 33.4% year-over-year to $2.6 billion from $1.9 billion in the prior year period. Non-GAAP net margin attributable to United Shops shareholders for the fourth quarter of 2020 increased to 7.2% from 6.6% in the prior year period. Non-GAAP net income attributable to VIP shop shareholders per diluted ADS for the fourth quarter of 2020 increased to 3.70 RMB from 2.84 RMB in the prior year period. As of December 31st of 2020, our company had cash and cash equivalent and restricted cash of $12.8 billion and short-term investment of $7.3 billion for the fourth quarter of 2020. Net cash from operating activities was $7.2 billion. Looking at our business outlook for the first quarter of 2021, we expect our total net revenue to be between 27.2 billion RMB and 28.2 billion RMB, representing a year-over-year growth rate of approximately 45% to 50%. These forecasts reflect our current and preliminary view on the market and operational conditions, which is subject to change. I would now like to open the call to Q&A. Operator.

Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. To give more people the opportunity to ask questions, please keep yourself to no more than one question at a time. And you may press star 1 again if you have a follow-up question. Thank you. Once again, to ask a question, it's star and the number 1 on your telephone keypad. Your first question comes from the line of Eddie Wang of Morgan Stanley.

Please ask your question. Hi, . 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 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 it's on the brand partner side, as well as you mentioned that on the technology side. So that's my question on the user growth. Thank you.

Thank you, Eddie. Mr. Shen, Eddie's question is about our fourth quarter. In fact, the number of users is quite strong. It's even faster than the third quarter. He wants to know how we get our customers. Especially in the fourth quarter, do we have any new customers that we have not done before? For example, we also mentioned that we also have to do some things on the goods side, as well as on the technical side, including the operation of these various aspects. It's not just our hair, but it's how we get these users in general. We actually started to increase our hair from Q3 last year.

Then in fact, Q4 also increases the market investment. Then we actually have a lot of customer channels, including precision marketing, including what we are talking about, mobile phone pre-installing, and that is, for example, what we are talking about, direct entry, direct entry, a lot of TV shows, variety shows, etc. But these strategies, in fact, Q3 and Q4 have always been used. It's not that Q4 is any different from Q3. Then we think that in fact, then The current stage is actually the red flag of the Internet. In theory, we should invest more and more customers. But our customers are actually still strictly based on LTV to measure this cost, to ensure that our customers are actually profitable economically. In addition, there are also many new customer methods, such as live broadcasts, such as short videos, WeChat groups, and social media. We are also making bold attempts. We are also fighting for more customers in these areas. In addition, we have strengthened our goods on goods. We are talking about more and more good goods and differentiating good goods. In addition, we are talking about lower prices. In fact, this is also a key for us to attract more users. In addition, in terms of technology, Eddie, 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've readjusted to focus on discount retail. So we will continue to invest into customer acquisition, but we'll use the lifetime value model to evaluate the efficiency and effectiveness of how and where we're spending our marketing dollars. So we will continue to spend, but discipline 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're 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 taste on our platform. So all around, we believe there is a flywheel effect in everything that we're doing. And as long as all the parts of the business stay intact and we 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 Zhong, David, Jessie. Thanks for taking my questions. Congratulations on the strong quarter. My question is actually related to a little bit of the month-over-month, the 4Q trend and also the first quarter guidance. So did you actually see some slowdown in December after the very strong single-state promotion? And as we go into first quarter, how would you describe the situation this year given the state in the city Chinese New Year period? So did that actually stimulate more spending budget on the clothing, or did that actually have a negative impact on spending given people are not traveling that much and not meeting as many relatives as before. So just wondering how is this year Chinese New Year's giving these, you know, encouragement to stay at the city changes in terms of the demand, you know, any differences that you see this year versus the previous year, and any colors in terms of direction that you think this strong first quarter guidance could carry through to the rest of the year. Thank you.

Thank you, Alicia. How do you look at the revenue of the second quarter, the first quarter and the future? For example, in the fourth quarter, there should be a big drop in December. Will it slow down from December to January? In addition, on the Spring Festival in February this year, what kind of trend do we see when everyone stays in the local for the New Year? Does everyone stay in the local for the New Year? Is there a positive or negative impact on consumption? Is this trend different from the past this year? And after seeing the performance of the first quarter and the fourth quarter last year, how do we look forward to the development of the overall performance after 2021? Q4 is actually a trend of e-commerce.

There is Double 11 in the middle, and also our own Da Chu. It is the anniversary of December 8th. So our performance is good. We also see that January is actually continuous in the previous time. That is, we said that everyone's shopping passion is still relatively forgotten. But in January, because of the weather, the weather is not so cold in China. It lasts for so long. In fact, the reason for the weather is the same as our clothing website. I believe all e-commerce companies should be in the same situation. In addition, when we look at the trend in 2021, we believe that e-commerce should continue to be a red flag. In fact, during the epidemic period, many of us have learned to shop online. We think online shopping is indeed very convenient. So we believe that in 2021, it will still be a red flag for e-commerce. We also believe that our own business, such as Vipshop, sells clothes. Zulie sells clothes. We believe that in 2021,

Alicia, on your question regarding the trend that we've seen, fourth quarter is always a peak season for e-commerce, particularly for us as we are predominantly apparel retailers. And we have a single-day 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 lasted 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 put 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's a lot of opportunities for us to continue to grow and gain customers as with the rest of the e-commerce tiers into 2021 and beyond.

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

Thank you. Thank you, Shandong, David, and Jesse. I think my question kind of following on the growth in the apparel market, basically we see very strong growth, and you've shared your GMV growth for apparel in particular was 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 products over the past, say, one year or two years, the kind of the bit of inventory, increased demand for brands in clearing their inventory. And so how have we seen that in our markets here, say, in discounted apparel? And as this kind of inventory cycle maybe laps 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. Thank you, Ronald. Yes, we have been in the clothing industry for many years.

China China China China China China China Then there is a very important thing that we actually have a lot of products now. In fact, it is a brand that is customized for us. Then we have more than two-digit proportion of products that are customized. In this case, in fact, we are better We've been 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 on the supply side, but since apparel is a very non-standardized category and there are thousands of apparel brands and they're constantly making new seasons of products and launching new products, so there will always be inventory or excess inventory in the apparel market as it's almost impossible to predict exactly how much to make for each SKU. So that's on the existing inventory market. On top of that, we're also more actively investing and looking into made-for-VIP shop products. These products are what our suppliers, especially the top suppliers, are making and designing, especially for the VIP shop platform. And so far, their contribution has already reached several digits. And in the future, we will continue to collaborate with more top suppliers and increase the contribution from these made-for-VIP shop products. These products will ensure that we will always have a supply and supply that is attractive to our consumer base. Going forward, we will continue to look into enhancing our merchandising capability on both the made-for-VIP shop front as well as the existing off-price markets. in order to bring the best products 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 questions. Can you comment about the trend in marketing expenses as well as the margin outlook for this year? Thank you.

Thank you, Thomas. Thank you, Thomas. This is a question about the profit and market cost of 2021. The number of users has increased and so has the market cost.

In fact, since 2021, We actually have a judgment on the whole, that is, we think that the market share we are talking about, in theory, there are 300 million users. So for us, growth is still a major problem, because our number of users is still far from enough. It's still relatively small. So we think growth is the main topic. In addition, while we are growing, In addition, we are fully aware of the energy efficiency. We believe that our energy efficiency is also relatively stable. Even if the market cost is slightly higher, we have confidence in the overall energy efficiency. So if we are in the same market growth and energy efficiency aspect, we believe that we will prioritize the growth aspect. Let's continue to run faster in this good time.

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 trends should be similar in 2021 and beyond. However, that is given that there is approximately 300 million potential customers that would be interested in discount retail and could become VIP shop customers. So from that perspective, we believe that there's still a lot of opportunity in the market and we're still very small as compared to the potential opportunity in this market. So growth will be our top priority. However, as 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've mentioned previously, we are maintaining our non-gap net margins at a mid-single-digit range, and we'll try to grow top line as fast as possible on top of that. So going forward, we will continue to balance the two, but try to grow healthy users that could contribute to our long-term growth sustainability.

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

Ms. Shen, Mr. Cui, and Ms. Jessie, good evening. Congratulations on your good performance this quarter. My question is actually about a relatively big picture. Because if we look back now, in 2019, the U.S. Bank of America may have spent most of its time to optimize their product structure, improve efficiency, and optimize the entire logistics system. In 2020, we mainly targeted the epidemic at the beginning of the year. In the second half of the year, we took advantage of the opportunity to increase the number of new users. I would like to ask Mr. Shen and Mr. Cui, in 2021, 我们整体有没有大的新的方向或者是一个像沈总或者是管理层 有没有一个新的增长点或者是战略的重点 可能我们可以跟大家分享一下 我们应该怎么看就是有没有new growth driver I will translate my question Basically I'm opting for the strategic focus for the management team For this year, back to 2019, the company has been focused on the merchandising strategy and also the efficiency improvement. And for the last year, the focus was on the, you know, recover from the COVID. Just want to know for this year, what's the new driver or any new initiatives we should expect? Thank you. 那么我们其实在2021年,乃至将来,其实我们也是

As mentioned above, we want to pursue a healthy and fast growth. We believe that our growth must be healthy. For example, the customers we acquire must be long-term consumers who contribute good profits to us rather than those with poor quality or loss of money. We believe that we still have a lot of space for high-speed growth. Joyce, looking into 2021 and beyond,

We will continue to pursue healthy and fast growth. By healthy growth, we mean 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 will come out even more and improve 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.

Thank you. Good evening. Thank you, Mr. Chen, Mr. Cui, and Jackie for accepting my questions and congratulating me on such a good performance. My main question is to ask about the impact on GMV and revenue contributions, and what is the situation of these two contributions in 2021 or the next normal period? I will translate myself. Thanks for taking my question, and congratulations on very solid results. My question is regarding the offline contribution, just wondering how much of the GMV and revenue contribution comes from offline in the fourth quarter, and what's management expectation for 2021, and also maybe if there is need to longer-term expectation for that. Thank you.

We have a lot of Our business accounts for about 5% of the total profit. In fact, this is a very profitable profit. In addition, we have two offline stores. Each of us has several hundred offline stores. One of them has a slight loss, and the other one has stopped. However, the total number of offline stores Natalie, on your question regarding offline strategies,

On the offline side, we have three different businesses. One is Changchang Outlets. Its GMB is around 5% contribution, and this business is very profitable, so we'll continue to grow that at a healthy pace. And our own 1C offline stores, we have two models. One is called VIP Shop, and the other is called VIP Max, and they're quite different in terms of pricing targets. One of these businesses is still slightly loss-making while the other is almost break-even. And the total GMV contribution of these two 1P offline 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're serving our core customers and core suppliers through our offline channel as well. And we're exploring for new ways to create value for our members and customers. Currently, our offline stores are also more actively exploring WeChat groups and how to utilize the traffic and the customers potentially find more within the WeChat ecosystem. Currently, around a third of the GME contribution of VIP Shop and VIP Max are 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.

Thank you, Mr. Guan. Hello, Mr. Wang. I would like to go back to what I said about live streaming and short videos. I would like to ask, are we mainly using this for testing our app? Or have you seen any developments in this area, for example, using other platforms? Especially, Thanks. My question is related to the earlier comments about live streaming and short video. I'm just wondering if 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've been operating on WeChat for a while, but maybe there are some new opportunities in recent times. Thanks. 对,那个就是我们看到其实现在直播包括短视频其实现在越来越受欢迎,那么包括用户会有很多时间花在这个上面。

To be honest, in this aspect, in the trial, to be honest, what we did was not particularly good. In fact, we think that the current results are average. We think that we need to explore more in these aspects, find more content that is suitable for users or that is welcomed by users, and how to better fight for its market and obtain its transformation. For example, in our main station, live broadcasts and short videos must be passed on to us, our users. For example, our live broadcast on Douyin, the users will stay in the Douyin store, but half of the users will come over. For example, there are 100 users in the Douyin store today, and 50 users will buy from our app, but not all of them will buy from our app. So we believe that in the future, these platforms, including live broadcasts, will be a new ecosystem, and we will actively embrace it.

Thank you, Jerry, on your question regarding live streaming and short video. We do believe that live streaming apps and short video apps are where a lot of our customers are spending a lot of time, and we are and have been actively investing and exploring customer acquisition methods through 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're targeting the content as well as how we're acquiring customers in these newer formats. On our own VIP shop app, the live streaming customers would be 100% our own. However, for example, like in the Dory mini stores, about half of these customers would come to our app afterwards, whereas the other half would retain and remain shopping with us and maybe going forward in the Dory mini stores. So we will continue to work with these various channels in order to improve the efficiency, and we will continue to look at the ways to best invest into customer acquisition through the live streaming and short video apps.

Your next question comes from the line of Fei-Feng Zhang of CICC. Please ask your question.

Yeah. Hi, Shen Zong, David, and Jesse. Thanks for taking my question. Congratulations on the results. It's a follow-up question. As Shen Zong mentioned the VIP shop product, how are the VIP shop product on the special edition will impact our business Can we have better price or better profitability or the special edition can help us to gain more consumers in the elaboration that would be very helpful. And do you have any target for the VIP shop product? Thanks.

Thank you, Feitong. Mr. Feitong, this question is about the special edition products that we mentioned. Is there any difference between these products and the ones that we sell regularly? For example, is it more profitable? or help us get some different clients. Will this affect the overall image of our platform and financial data? We are doing this kind of special products. In fact, for us, the profit is the same. Because we don't ask for special products.

We ask the suppliers for more profit. But for this kind of special products, our request is Thank you, Mr. Chen.

regarding your question on Make for VIP Shop products and how it's different and how it will impact VIP Shop as a platform. The take rates or the gross margin for the Make for VIP Shop products are actually the same as other products for a given brand. However, when we go work with brands on Make for VIP Shop products, we ask for more value, meaning the prices that they offer should be similar to other products that they're giving us on a consignment basis and on a their natural off-price products. And we also give additional traffic support to these made-for-VIP shop 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 will continue to look into ways to best invest into the made-for-VIP shop products.

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

Thank you, Mr. Shen, David, and Jessie. My question is about R2. I remember Mr. Shen also mentioned that the R2 of new users is relatively low compared to our mature users. I would like to ask, since we started increasing the number of users in the second quarter last year, Thank you for taking the question. My question is regarding the R2. I remember the management mentioned that the R2 from new users is relatively low. So could you please provide us some color about the trend of ARPU from new users who joined the API shop since the second quarter of last year? And have you ever seen their spending on our platform increase since they have joined us for more than a half year? And how should we look at the ARPU going forward considering the new user mix? Thank you.

So, Because we are like Q4 or this year in 2020, basically our up is low. Because we have this kind of policy adjustment called 88免, and we introduced a lot of new and old classes in 2020. Then we actually found that this kind of new and old class is pulling up in the short term, but in the long term, it will increase its up for a while.

Veronica, the output for new customers usually doubles in year two from our historical numbers. And from the customers that we've acquired in the past few quarters, we continue to see solid retention and solid output 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 declining year-over-year in 2020 versus 2019 is because we're acquiring a lot more new customers and old, 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, dragging down the average ARPU for the total customer pool. Additionally, we've also made changes to the free shipping method in lowering the free from 288 to 88 RMB, 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 size. From historical trends, we're confident that all 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 Jun Kim of Macquarie. Please ask your question.

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

Thank you. Other revenues represent our offline revenues, some offline revenue and advertising revenues. And our offline revenues It only represents a very small portion of total revenues, right? So it doesn't change that much, right?

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 business and not as focused in the marketplace and therefore the commission rate has decreased as contribution of GMB from third party platforms has decreased slightly to around 5% in the fourth quarter. The increase is primarily due to contribution actually from 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, Shenzhen outlets contributed to around 13% of other revenues.

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

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

Thank you.

Thank you. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating.