Baozun Inc., an e-commerce service provider that helps international brands like Nike and Burberry sell online in China, is growing its business much faster than the growth rate of Chinese e-commerce.
The gross merchandise volume, or GMV, of Baozun increased 63.5% to 3.605 billion yuan (US$544 million) in the second quarter, the company said when it reported earnings last week. China’s online retail sales grew 32.1% in the first quarter of 2017.
The company’s revenue reached 888.3 million yuan ($131 million) in the second quarter ended June 30, an increase of 26.9% year over year.
In business since 2006, The Shanghai-based company provides such services to foreign brands as product development, e-commerce software design, multichannel store operations, customer service and logistics. Baozun employs 3,000 workers and manages online stores for such Western companies as Microsoft Corp., Royal Dutch Shell plc, Red Bull gmbH, Coach Inc., Zara (part of Inditex SA), Philips, Levi Strauss & Co. and Calvin Klein, which is owned by PVH Corp.
In some cases, Baozun buys the merchandise from client companies and sells the goods online in China. That product sales revenue increased 9.6% to 504.4 million yuan ($74 million) in the second quarter over the same period a year ago, the company says.
In other cases, Baozun takes a commission on goods its client brands offer, with the client company owning the merchandise. Baozun also charges fees for its services, such as handling customer calls and managing fulfillment. The revenue from commissions and services grew especially quickly in the second quarter, to 384.0 million yuan ($57 million), an increase of 59.8% from 240.3 million yuan ($36 million) in the same quarter of last year. Strong apparel sales contributed to the big increase in services revenue, the company says.
Baozun says it is changing its business model and in the future will not buy merchandise—it will only handle inventory on consignment, taking a commission on sales. That shift will reduce its inventory risk, the company says.
Baozun also says it is expanding in such categories as fashion apparel, fast-moving consumer goods and products for babies and expectant mothers. The number of clients for Baozun has increased from 120 to 140 in the second quarter than a year ago. For example, the company says it just signed a contract with fashion brand Tommy Hilfiger to manage its stores on two Chinese online marketplaces, Tmall.com and JD.com.
Tmall is operated by Alibaba Group Holding Ltd., whose Taobao and Tmall online shopping sites account for about three-quarters of online retail sales in China. Baozun is closely tied to Alibaba, which acquired a 23.5% stake in Baozun in 2015 for an undisclosed sum.
JD.com Inc., which, like Amazon.com Inc., both sells merchandise it owns and hosts a marketplace where other merchants sell, is No.1 in the Internet Retailer China 500 ranking of the top Chinese online retailers. Alibaba, like eBay, does not own the merchandise sold on its marketplaces and thus is not ranked in the China 500.
Besides managing stores on marketplaces for client brands, Baozun also provides some clients with its Nebula e-commerce software for their own e-commerce sites in China. ”We have seen broad demand and requests to set up and build official brand sites,” CEO Vincent Qiu said in a conference call with investment analysts.