Vipshop Holdings Limited

Ladies and gentlemen, good day, everyone, and welcome to the VIP Shop Holdings Limited's third quarter 2024 earnings conference call. At this time, I would like to turn the call to Ms. Jessie Zhang, VIP Shop's head of investor relations. Please proceed.

Thank you, operator. Hello, everyone, and thank you for joining VIP Shop's third quarter 2024 earnings conference call. With us today are Eric Shen, our co-founder, chairman, and CEO, and Mark Wang, our CFO. Before management begins their prepared remarks, I would like to remind you that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include but are not limited to those outlined in our safe harbor statements in our earnings release and public filings with the Securities and Exchange Commission, which also applies to this call to the extent any forward-looking statements may be made. Please note that certain financial measures used on this call such as non-GAAP operating income, non-GAAP net income, and non-GAAP net income per ADS are not presented in accordance with US GAAP. Please refer to our earnings release for details relating to the reconciliation of our non-GAAP merits to GAAP merits. With that, I would now like to turn the call over to Mr. Eric Shen.

Good morning and good evening, everyone. Welcome and thank you for joining our third quarter 2024 earnings conference call. Our third quarter results largely meet our expectations aimed at still coaching the customer segment. We moved quickly to adapt our merchandising and operation priorities to external challenges and took concrete measures to find the biggest opportunities for improvement. Consistent with recent industry trends, third-quarter sales decline reflect softer results in our more discretionary categories, as consumers are facing a glowing headwind, which reads on their discretionary spend. On the positive note, SBIP membership growth remains strong and at double digits. In the third quarter, active SVIP customers grew 11% year-over-year, resulting in 49% of our online spending. This reflects that our value proposition is well appreciated by our most valuable customers through the best combination of merchandise, value, and service. So today, We remain focused on these long-standing factors that have made us a reliable place to shop and also have been successful in driving top-line growth in the past. We are pushing them forward in a deeper way, being more relevant in merchandising portfolio, highlighting even more values throughout our assortment. and increasing customer engagement through our worry-free service. This area has been critically important to ensure we continue to differentiate our experience from others. Among the business highlights, we continue to emphasize merchandising capabilities. We believe it's the most impactful way to drive long-term growth. Our team demonstrate that they have the skill set to respond to change in customer behaviors and translate it into business results. Merchandising is a better shape. In the third quarter, we built assortment more relevant to customer lifestyles and trend-right categories. We leaned into categories with still resilient demand. and we create a better mix of appello and non-appello products for family shoppers. As a result, we did see strength in categories like sports and outdoor goods and homeware, despite the broad basic weaknesses. As we enter the promotional season, we feel good about the size and depth of our supply. We are pleased with the strong inflow of quality brand supply. especially within the deep discount inventory. Through much more unique product offerings, some of our long-time brand partners achieved record sales with us through our major promotion channels like Super Brand Day and Super Category Day. Many more brands recognize us as a partner of choice, giving the generally lower cost to serve and higher sales efficiency as well as a glowing base of our hardcore customers. Within our merchandising, we are also encouraged by the momentum building in our Made for VIP line for customized products. In the third quarter, we worked with about 200 brand partners, adding some renowned global brands in women's wear and footwear to the line. sales from these customized products extend in solid growth from previous quarters. We see brand partners increasingly increase MFVIP, which have proven to be efficient to attract more quality customers and repeat orders. More than half of the MFVIP sales came from SVIP and other high-value customers. and the majority of their customers actually came back from more purchases in the broader apparel categories. Turning to customers, we see spending behaviors that are still showing signs of being stretched. Against that backdrop, our team quickly adjusted to focus on providing really good value for them. We prioritized everyday low price and time limit offers, highlight compelling deals for our SVIP members, and provide target incentives for family shoppers who trend to spend on high-frequency categories. Our team is working hard to find more ways to deliver more value for our customers. We also see some early results after we upgrade SVIP privileges, like provide sales and special offers, which have carried on for a few quarters. Through both online access and ground events, they clearly reinforce the trust and loyalty of SVIP members. We are planning these events to stay better aligned with customer interests problems to best meet their multiple needs. As it related to strengthening our business for the future, we continue to experiment and deploy technology in the wide range of user base. One focus is to improve the relevancy and accuracy of search and recommendations so that custom of the different intent are more likely to browse and shop across categories. The other is to leverage AI capabilities to optimize content of all kinds to help customers find and buy what they are looking for. We do see opportunities for technology to become an important drive of both growth and efficiency. Recently, we start to see some marginal strengths of customers, marginal strengths of customer demand. People have shown more willingness to spend, and our customers continue to shop along the holidays and seasonal momentum. While we are doing our best to get back to growth, with customer spending yet to fully recover in the discrete portfolio, we are laser-focused on the long-term strategy that that are pivotal to our long-lasting success that has always been a firm position in this kind of retail for brands to bring in the best of brand partners and to create great value for customers. We are driving necessary change in the more aggressive way so that we have all the right building blocks to compete and win. And through it all, we remain delighted on expanding We remain diligent on executing the retail fundamentals our customers expect from us and respond to their consumption shift in a timely manner. This requires specialized and elaborate efforts in merchandise. Standout strengths will continue to build on. We believe this will help us increase the apparel of our platform and ensure an engaging experience that keeps VIP shop top of mind in the very dynamic market. At this point, let me hand over the call to our CFO, Mark Wang, to go over our financial results.

Okay, thanks, Yarik, and hello, everyone. In the third quarter, we maintained disciplined financial management throughout the organization that delivered solid profitability against a weak top-line performance. Gross margin of 24.0% was driven by a small benefit from the increased contribution from the higher margin of payroll categories, as well as other revenues on a year-over-year basis. This was more than offside by the leveraging impact of lower revenue and continued investment in our team. As a result, on the bottom line, non-gap net margin attributable to VIP shop shareholders came in at 6.3%, which was lower year over year, but within our expected range, thanks to our team's meticulous efforts to identify efficiency opportunities. Looking at a still challenging environment, we are later focused on a long-term roadmap to bring the business back into positive territory. We continue to invest in our merchandising capabilities, delve deeper category by category to add quality and value that best satisfy customer needs, while reallocation resource to maximize impact on customer mind share and engagement. And we're always capable of moving these initiatives with a clear picture of their financial implications. We believe we are more integrated in operations now to create a better balance of our focus on sales and profitability. Turning to capital allocation, our priorities have remained consistent. In addition, to prudently invest in our own business and projects that meet our strategic and financial criteria, we look to support our shareholder return and build on our track record of consistency. In the first nine months of 2024, we have repurchased a total of nearly $500 million with $55.3 million left in the existing $1 billion share repurchase program. Also, we have a new two-year buyback program of up to $1 billion in place. And as a reminder, for 2025, we plan to meet no less than 75% of our full-year non-GAAP net income attributable to VIP shop shareholders through discretionary share repurchase and the dividend distributions. Now moving to our detailed quarterly financial highlights. Before I get started, I would like to clarify that all financial numbers presented below are in German B. And all the percentage change are year-over-year change, unlike otherwise noted. Total net revenue for third quarter of 2024 were RMB 20.7 billion, compared with RMB 22.8 billion. in the prior period. Gross profit was RMB 5.0 billion compared with RMB 5.4 billion in the prior period. Gross margin increased to 24.0% from 23.6% in the prior period. Total operating expenses decreased by 6.1% year-over-year to RMB 3.8 billion from RMB 4.0 billion in the prior year period. As a percentage of certain revenues, total operating expenses was 18.2% compared with 17.6% in the prior year period. Fulfillment expenses decreased by 2.0% year-over-year to RMB 1.7 billion from RMB 1.8 billion in the prior year period. As a percentage of total net revenues, fulfillment expenses was 8.4%, compared with 7.8% in the prior year period. Marketing expenses decreased by 7.7% year-over-year to RMB 617.8 million from RMB 669.6 million in the prior year period. As a percentage of filter net revenues, marketing expenses were 3.0% compared with 2.9% in the prior year period. Technology and accounting expenses increased by 4.3% year-over-year to RMB 454.2 million from RMB 435.3 million in the prior year period. As a percentage of children and their revenues, technology and accounting expenses was 2.2% compared with 1.9% in the prior year period. General and administrative expenses decreased by 15.3% year over year to RMB 957.8 million from RMB 1.1 billion in the prior year period. As a percentage of total net revenues, general and administrative expenses decreased to 4.6% from 5.0% in the prior period. Income from operations was RMB 1.3 billion, compared with RMB 1.5 billion in the prior period. Operating margin was 6.4%, compared with 6.7% in the prior year period. Non-GAAP income from operations was RMB 1.7 billion, compared with RMB 2.1 billion in the prior year period. Non-GAAP operating margin was 8.2%, compared with 9.1% in the prior year period. Net income attributable to VIP shop shareholders was RMB 1.0 billion, compared with RMB 1.2 billion in the prior year period. Net margin attributable to VIP shop shareholders was 5.1%. compared with 5.3% in the prior period. Net income attributable to VIP shop shareholders per diluted ADS was RMB 1.97 compared with RMB 2.19 in the prior period. Non-GAAP net income attributable to VIP shop shareholders was RMB 1.3 billion compared with RMB 1.8 billion in the prior year period. Non-GAAP net margin attributable to VIP shop shareholders was 6.3% compared with 8.1% in the prior year period. Non-GAAP net income attributable to VIP shareholders per diluted ABS was RMB 2.47 compared with RMB 3.33 in the prior year period. As of September 13, 2024, the company had cash and cash equivalents and a restricted cash of RMB 22.5 billion and short-term investments of RMB 1.6 billion. Looking forward to the fourth quarter of 2024, we expected our total net revenues to be between RMB 31.2 billion and RMB 32.9 billion, representing a year-over-year decrease of approximately 10% to 5%. Please note that this forecast reflects our current and the preliminary view of the market and operational conditions, which is subject to change. With that, I would now like to open the call to Q&A.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please kindly translate the question in Chinese if you are bilingual. Thank you. We are now going to proceed with our first question. The questions come from the line of Thomas Chong from Jefferies. Please answer your question.

Good evening. Thank you, Manager Chong, for accepting my question. 我的問題是關於9月底政府的宏觀的一個政策 然後就是對消費的情緒 我們是看到從GMV的角度來說 可不可以分享一下最近一段時間的那個情況 因為我們也是給了一個Q4的一個revenue guidance 然後的話也想再多問一下 就是我們怎麼去看2025年GMV跟margin的一個展望 My question is about the recent consumer sentiment after recent government supportive measures. Can management share about the monthly GMV trend in Q4, as well as our expectation on 2025 outlook from the perspective of a GMV and the margin? Given our solid margin profile seen in Q3, in particular 24% of the GDP margin, how should we think about the outlook in 2025? And when should we expect our GMV back to a positive year-on-year growth trend? Thank you.

I will answer these two questions. The first one is to ask about the recent situation, including the situation of Q4, which has been going on for more than 50 days now. In general, we see that Q4 is good in October. There is a special situation, because this time everyone's double 11 is ahead. So we saw a good growth in Q4, a good growth in October. But if you look at October and November together, then it's basically within our expected Q4 range. So in general, it's within our expectations. So in addition to the entire consumer situation, we see That country is also trying to stimulate consumption as much as possible, including doing some home appliances to save money, and so on. But it's a little bit of help to our business. But because we mainly sell clothing, so it's not about the home appliances. So it didn't get a lot of popularity. Then overall, we look at the whole consumption situation, then we generally feel that it is not very different from the Q3 we saw, so the consumer still continues to buy less and more. So if there is no value in something, they basically don't buy much, so in general, the consumption situation is basically the same. In addition, our own expectations for 2025, we believe that Q4 of 2024 may also lead to 2025. This also depends on the overall economic environment and the confidence of the people in the future, including whether their own assets have been upgraded. It also determines whether the entire consumption of the future will be greatly improved. So we are actually looking at the direction of 2025. Then for us, that is to say, that includes the GNV in 2025. We actually fell in 2024. Then we fight in 2025. We fight to get the GNV. Then the other thing is that in 2025, we estimate that there will be no major changes in terms of our efforts. Then because our overall income structure is still relatively stable. Okay, first of all, the recent business trend, quarter to date, I think we have been into the quarter for over 50 days.

And October was really good, but that was apparently because of the much earlier W11 promotion, which lead to some front load of consumption. And if we add October and November as a date, we are still within the guidance. In terms of consumer sentiment, Of course, the government-sponsored trading programs launched toward the end of September do give us some boost to our certain categories in electronics and home appliances. But since we are primarily focused on apparel categories, we are not a very key beneficiary of such programs. And overall sentiment may have bottomed out following the recent stimulus package, but still, it's a rather rational environment to us. We are still seeing customers are still showing signs of being stressed. They're making trade-offs in family budgets, looking for value, focusing on essentials, and delaying purchases until the need of moment. So we haven't seen a very meaningful recovery in consumer sentiment as compared to prior quarters. And lastly, 2025 outlook, we do believe, we think it's pretty unpredictable. We are going to plan our business cautiously. It depends on a number of factors, whether macro is going to have federal recovery, whether consumer confidence is going to pick up. And there are a lot of uncertainties. So we think probably the trend we're seeing in Q4 would be brought forward into a part of 2025. But we are doing our best to get back to growth, especially in terms of GMV as compared to a small decline for GMV in 2024. And on margins, I think there's not too much to worry about. We focused on growing profit dollars. I think in terms of absolute dollar amount and also on the margin side, we should be able to maintain relatively stable levels. And on costs and expenses, we are going to continue to be very disciplined. And there could be some changes as to certain cost and expenses structure, but it should be not a big swing from what we had done for 2024.

That's all. Thank you.

We are now going to proceed with our next question. The questions come from the line of Alicia Yap from Citigroup. Please ask your question.

Hi, good evening. I want to follow up on the performance of double 11. I want to follow up on the performance of double 11. uh uh So I want to understand the whole period of Double 11, and then some of your thoughts after Double 11. My question is just to follow up on overall the single-stakes performance and also the 4Q guidance. So just wondering during the single-stage period, that 30-plus days, is that you're actually able to achieve a positive growth during the single-stage period? And then in terms of your guidance, is that conservative because you're not too sure about how the December trend, so that's why you're providing that 5%, 10% decline because the visibility in December, I'm not sure. And then also on the return rate. So if you can compare the return rate for these single states versus last year's single state and versus this year, June 18th. Thank you.

Then last year's double 11 was only done for about 20 days. So in theory, if everyone, now I see that other people's stocks have grown well. If we take this ratio, we will also grow by more than 20. But if we look at every, that is to say, if we look at the same 20 days than 20 days, so we see that it is actually similar to our predicted big trend. So we actually objectively see that the whole of our Q4 should still be China China China China China China China The return rate is relatively stable. For example, the return rate this year is about two points higher than it was last year, because our policy has been relatively continuous. It has always been called free return, and the service is also very good. This policy has been continuous for five or six years, so in theory, other platforms, for example, in recent years, Okay, first of all, as to W11 performance, I think most of the platforms are comparing it on a full cycle basis. Basically, we did 28 days

of promotions as compared to roughly 20 days last year. And on this full cycle basis, we are doing very well. We are also doing very well with GMV over 20% growth for sure. And also customer and revenue metrics are exceeding our expectations. But if we look at it on an Apple-to-Apple basis, just comparing the 20 days of the promotional campaigns actually is just in line with our expectations. We think Q4 is still a challenging quarter, and we give our guidance on a relatively conservative basis. One factor is also about weather. We do have a very high base of, especially in last Q4, we had actually extended periods of cold waves, which benefited our business unexpectedly. So this year, apparently, it's not going to be as cold as last year, and so we bake this weather factor into our Q4 guidance as well. That's why we think Q4 is going to be a little bit challenging. And lastly, on return rate, because we have a very stable return policy and also our services for like five to six years, And our return rate has been driven, in our case, mostly structural factors like a power contribution and SBIP contribution, et cetera. So basically, a return rate during the W-11 is actually are trending in line with our expectation, just adding two percentage points in terms of return rate, not like in the case of other platforms who had a sudden change in their return policy, which lead to extremely high return rates. Thank you.

You're welcome. We are now going to proceed with our next question. The questions come from the line of Ronald Kwong from Goldman Sachs. Please ask your question.

Thank you, Mr. Shen, Mark, and Jesse. First, let's talk about the interest rate. We have created a historical high in the third quarter. Last year, the interest rate in the fourth quarter was higher than that in the third quarter. Usually, if there are other types of interest rates in the fourth quarter, they will drop some, but last year it was very high. This year, we have a mix of the interest rate in the fourth quarter and the interest rate in the third quarter. And then the second one I want to ask, between this OP and Net Profit, which is Open Profit and Net Profit, I feel that the second one is a bit more expensive. It seems that this tax expense is about $130,000. That should be a bit of what we call a withholding tax. Thank you, management. Just two questions. One is your gross margins reached record high in third quarter. Last year, fourth quarter, Gross margins were even higher. How should we think about the apparel mix, which usually is good for gross margins and the outlook for gross margins for 4Q? Second is your net profit decline was wider than operating profit and seemingly a 30% increase in tax expenses. Is that related to our transfer of cash onshore to offshore to fund our shareholder returns? How should we think about this income line outlook? Thank you.

Then I will answer the first question first. The second question is for Mark to answer. The first question is Q3. Our interest rate management is also good. Then we are 24. Then, but we look at Q3 ourselves. We may have to invest some in subsidies or so on. Because we think that is to say, because of the current competitive environment, we have to make some subsidies appropriately. Then we, but we make subsidies. Still limited. For example, we think it is possible. Q4 is likely to be 23.7. I don't know. It's probably just a little bit lower, but it doesn't mean that the whole transformation today will be 22, 23, or something like that. So, in fact, for the current competitive environment, especially in terms of standard products, we will make some appropriate subsidies. So, in general, it is an estimate of Q4's horsepower. Then the second question, Mark, to answer. Yes.

So in terms of our GDP margin outlook, I think for Q3, we had a 24% which was driven by a small benefit from payroll contribution and also higher other revenue. But looking into Q4, as you know, we continue to invest to grow. So especially given the current competitive environment, If we see an opportunity to invest a portion of our current profit margin to gain sustainable growth in dollars, we would do that. So for a GP margin in Q4, we expect it to be marginally lower than Q3. But it should be well within the range of 23%.

Okay. Okay. Thanks for your question. And regarding the first question, you talked about the gross margin. Let me give you some supplementary comments. For the third quarter, the gross margin expansion was primarily driven by the following reasons. The first one is the higher margin of power categories, which had a higher contribution year over year. The second one is we have many cost-saving initiatives to improve gross margin, including optimized merchandising portfolio, well-managed customer incentive, and so on. The third is higher contribution from higher margin other revenues. That's because the other revenues, we also put some of the extension or less revenue, which is recognized as net revenue approach. That means we recognize the net, recognize the rental income for the extension or less income. So that means the gross margin is higher, which was booked in the other revenues. So that is three reasons for the gross revenue higher than before. And for your second question, that's a very good question. It's regarding the effective tax rate, non-GAAP expenses. Just you mentioned that we distribute some of the dividends from the entities in the China mainland to the entities in Hong Kong. The reason is that we need to do the share buyback, as we mentioned before. OK, this quarter, we remit around 3.5 billion RMB. So that means we have 175 million withholding income tax expenses. OK, so exclude the factor. I mean, the withholding income tax expenses, the ETR would have been around 17% to 18%. I think for the long term, exclude the withholding income tax impact the ETR could be still around 17% to 18%. Thank you. Thank you.

We are now going to proceed with our next question. The questions come from the line of Roger Duan from Barclays. Please ask your question.

Thank you, Guan Licheng, for accepting my question. Good evening, everyone. I have two small questions to ask. The first one is, Is it possible to ask the management to share the performance of our third system from a different point of view? Because, as Mr. Mark just said, it seems that the improvement of the GME ratio in 3Q is my first question. And then the second question is, is it possible to ask the management to share the behavior of our SVIP users this season? I'm going to trust myself. Thank you, management, for taking my question. I have two questions. First, for third quarter, can management share in terms of different product categories? Do we see any difference in terms of performance? Because it looks like apparels have grown in terms of GMV contribution in third quarter. And my second question is on SVIP users. Can management share whether we have seen any changes in consumer behavior during the quarter in terms of shopping frequency or average market size? Thank you.

This is what we wear will fall so but fell not so powerful but the standard will fall stronger than wear ah that is to say that we actually in we also said last time because this kind of price comparison is particularly powerful place now e-commerce competition fierce so we say in terms of standard we will be a little more so that we have recently been strengthening that standard is that we want to do some subsidies do some what And then we have to fight for this benchmark. Don't let it fall so hard. Because our original benchmark is not strong. But in fact, it's like a benchmark. So it's like the needs of users. In fact, in every quarter, it's actually quite positive for us. That's what they need on a daily basis. So the second one is about SVIP. SVIP, we now have 7.5 million users. Q3 also contributed to our 49 sales. Then because we see that the number of users is actually increasing by 11%. So in general, if so, because some users are incomparable, new users and old users. So if we compare, for example, the two-year SVIPs, we can see that their SVIPs will have some declines throughout the up. For example, we said that the price change of its price is not very big. Okay, first, on Q3, category-wise, we see apparel have a small decline in terms of GME, while standardized items

had a bigger decline, but it's not worsening as compared to prior quarters. And still, it's because of the competition on price advantage by other platforms. And with that, we are making a series of adjustments And especially, we are giving out some limited and targeted incentives, for example, for family shoppers to increase their chance of doing shopping across different categories, especially in daily essentials. And we are seeing some early results from that. And we hope that we would gradually narrow the loss from standardized items. And SBIP, we're seeing very solid momentum. We had 7.5 million active super VIP customers in Q3, which accounted for roughly 49% of our online spending. In terms of customer base, though, that was 11% growth year over year. And apparently, new SVIP customers for the quarter, it takes time for them to ramp up their frequency and therefore output. So they have, to some extent, a diluted effect on the whole SBIP base. But if we look at the same cohort, for example, the two-year SBIP customers, we see their performance are actually relatively stable. We do see a small decline in , but that was primarily driven by frequency, less frequency, and average ticket size remained relatively stable. Apart from that, we actually don't see any additional loss of consumer health as to SBIP customers.

We are now going to proceed with our next question. The questions come from the line of Jialong Shi from Nomura. Please ask your question.

Thank you, Mr. Chen. I actually want to follow up. Just now, Mr. Shen mentioned that the SVIP member, the SVIP member who has been here for two years, the spending here has also dropped. And you also said that it is mainly because the purchase frequency has dropped. So I want to ask, if we analyze it from the inside, How much is the decline in its frequency because of its own consumer caution? How much is it because of competition? It may have some purchases transferred to the competitor's side. Then what measures will we take to stabilize its consumption frequency? Because if I remember correctly, it seems that there has been such a trend since the beginning of last quarter. So when can we see that SVIP, which is our core customer group, can stabilize its consumption frequency or the entire purchase interest? This is one of my questions. The second question is that I would like to ask, as you just mentioned, about the exchange rate. Because we mainly invest in clothes, we may not make much profit, but we also have some consumer electronics in our standard products. I have two follow-up questions. The first question is about the Did the decline in the ARPU for SBIP members just try to get more color from management? What were the possible reasons for the decline in the ARPU or average spending for SBIP members? The second question is about the trading subsidies funded by the government. Just wondering if any of VIPS business have benefited or will likely be benefited from this trading subsidy scheme. Thank you.

Okay, let me answer. The first one is that the consumption frequency of SVIP has dropped. So, we actually need to focus on the connection between SVIP and us. For example, 我们最近也在给他们推更多的权益啊 包括今天我们为了延续这些那个SVIP在我们这里 那么有可能获取他要续费 包括他要那个就是说包括新客要开卡等等啊 就是我们的门槛 我们会做适当的降低就让他们更容易的进来 那么另外呢就是包括我们在会员权益上面 比如说今天我们本来是98折 那么我们尽量的推更多95折 to them, including some of our special products. Then we will do a lot of activities with them, such as thinking special sales. Then there are a lot of activities online and offline. Then we actually make our SVIP feel that there will be more differences, or the rights that others do not have. Then the rest of us, such as this kind of service, return, these rights are actually OK, etc. So we are also recently because these users are in our business. It's almost 50% of Q4. In terms of the flow of these users, including whether they can buy more, including our recent S-VIP, because his family still has some products, we will focus on pushing them. In fact, they trust our platform very much. Why not spend on us? We are actually reducing its flow, The second is to strengthen its spending. But the most important thing is that it must feel that our platform is valuable to them. So in general, we are also doing a series of work to strengthen SBIP. The second question is about consumer electronics. In fact, in the offline market, we mainly focus on clothing. So there is almost no electricity. In our big mountain outskirts, we don't see people selling cell phones or home appliances. So in fact, There is almost no impact on the future. There is almost no help. Then we look at it online. We have statistics. For example, we are expected to be at the end of this year. Maybe our entire old and new help us. That is to say, through that kind of old and new government subsidies to buy. Maybe it's just a few billion yuan. Maybe four to five billion yuan. So in general, four to five billion yuan. In terms of consumption, the ratio is not that big. This may have something to do with our lack of awareness. Consumers' lack of awareness has something to do with it. We are also actively promoting it. For example, the government is also expanding its product range. But it has not yet expanded to clothing. So we are also thinking about it. We hope that the government will stimulate the basic consumption of the people.

So for SBIP customers, we do realize that they have a small decline in frequency, even for the same cohort of customers. We are making a lot of efforts to increase engagement with SBIP customers. For example, we are planning to lower the bar for SBIP customers in terms of membership privileges. for renewal and for new customers who become SVIP members for the first time. And we are also planning to cover the additional 5% of discount to more brands and merchants. We are launching a lot of online and also ground events such as the private sales and the special offers to reinforce the trust and loyalty from our SVIP customers. And I think the essence of this SVIP enhancement program is intended to, one, is to increase their retention and also repeat orders. And second is to find more opportunities for cross category purchases, especially for family shoppers. Because most of the S-VIP customers actually do have very strong trust and loyalty in VIP shop. And if we provide a great combination of product value and service, they wouldn't hesitate to shop with us more often. That's for SBIP customers. And for trading programs, for our offline outlets, actually, the primary business is still apparel categories. So we barely benefit from the trading program. And for online business, we expect there should be a few million A few hundred million ranging from 400 to 500 million RMB additional sales from trading programs. This is not meaningful enough to drive our GME or revenue. It could be that our platform is still more recognized by customers as a as a great place to shop for apparel and accessories instead of electronics and home appliances. Having said that, we are moving, we are trying to cooperate with the government departments to see whether they would be willing to extend the trading programs to other categories. Of course, it hasn't expanded to apparel categories for now, but we do see opportunities if the trading program extends to additional categories, we should be benefiting from that.

To the time constraint, this concludes today's Q&A session. At this time, I'll turn the call back to Jessie for any closing remarks.

Thank you for taking the time to join us today. If you have any questions, please don't hesitate to contact our IR team. We look forward to speaking with you next quarter.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines.