Is Vipshop quietly making big money?

Author | Huang Yu

Editor | Zhang Xiaoling

Vipshop, the vertical e-commerce platform that once surged into the top three in China's e-commerce market and received investment from JD.com and Tencent, has long lost its former glory and is no longer well-known.

However, what subverts people's perception is that Vipshop has been quietly making big profits. Since its listing, it has achieved profitability for 43 consecutive quarters, and the only other e-commerce platform with such a long record of profitability is Alibaba.

Vipshop's performance in the second quarter of 2023 shows that it achieved a net revenue of 27.9 billion yuan, a year-on-year increase of 13.6%; non-GAAP net profit of 2.4 billion yuan, a year-on-year increase of 50.8%; and GMV (Gross Merchandise Volume) of 50.6 billion yuan, a year-on-year increase of 24.5%, far exceeding the market's expected 15%.

At the same time, Vipshop's active user base remains relatively low, with only 45.7 million users, which is incomparable to the 800 million, 600 million, and 500 million users of Taobao, Pinduoduo, and JD.com, respectively.

The reason why Vipshop can survive in the shadow of these comprehensive e-commerce giants and still thrive is by attracting SVIP (Super VIP) users with low-priced brands.

Analysts from GF Securities pointed out that the growth of Vipshop's performance is mainly due to the increase in the number of paid members and ARPU (Average Revenue Per User).

As of the end of the second quarter, the number of active SVIP users on Vipshop increased by 23% year-on-year to 6.7 million, accounting for approximately 44% of online consumption, although it is less than 15% of the total active user base.

Cui Lili, Executive Director of the E-commerce Research Institute at Shanghai University of Finance and Economics, stated to Wall Street News that Vipshop has already shifted its focus to loyal users and repeat purchases.

As we all know, Vipshop is a vertical e-commerce platform positioned as a "brand discount" and is also known as "online outlets". Although there are differences in positioning, fundamentally, it is still competing with Taobao, JD.com, Pinduoduo, and others for customers because these platforms also have a large number of brand merchants. So how does Vipshop attract a large number of SVIP users?

Unlike other platforms, Vipshop almost uses all its resources to retain SVIP users and provide exclusive benefits. For example, it offers unlimited free shipping, waives return and exchange fees for selected products, and provides a discount of up to 9.5% for self-operated products.

In addition, Vipshop has also established a customer service team of over 2,000 people to provide 24/7 human customer service for SVIP users, enhancing the user experience.

In the second quarter of this year, Vipshop added benefits such as Gaode Taxi, SF Express Same City, and Pizza Hut Delivery vouchers on the basis of long-term stable deep discounts, membership benefits, and value-added services, attracting more users to join.

A senior e-commerce practitioner pointed out that these loyal users are people who care about brands and are sensitive to prices. Vipshop's brand discounts, constantly lowering prices, are the core points that attract them. To some extent, Vipshop reflects the downgrading of middle-class consumption and satisfies their pursuit of extreme cost-effectiveness.

CITIC Securities research report also pointed out that it will take time for consumer purchasing power to recover after the epidemic. In the short term, consumers prefer cost-effective consumption represented by brand discount products.

However, relying on bombarding users' minds with low prices every day makes it difficult to guarantee product quality. Vipshop is also facing the dilemma of increasing return rates this year, which may continue into next year.

The management of Vipshop stated that the return rate of SVIP members may even be higher than that of ordinary users. They like to come every day, buy and return, or buy three items and return one, treating Vipshop as a "dressing room" in the mall.

This is not a good phenomenon.

Although it seems to be doing well, the competition in the domestic and international e-commerce market has become extremely fierce. Domestic platforms like Taobao and JD.com are returning to low prices, while foreign platforms like Shein, Shopee, and Temu are also working hard.

Shen Ya, Chairman and CEO of Vipshop, has also admitted that the competition in the domestic e-commerce market is extremely fierce. Various e-commerce platforms use promotions and subsidies to attract users, and emerging live-streaming e-commerce platforms are competing for user engagement.

He said that the company is also under pressure, so it must work harder.

The capital market tends to value future growth prospects more.

Vipshop has provided a revenue growth guidance of 0%-5% for the third quarter, indicating that the company's recovery will stagnate.

As of the close on August 18th, Vipshop's stock price was $14.93 per share, a sharp drop of 8% from the previous trading day, and the company's market value fell to $8.4 billion.

Obviously, today's Vipshop is no longer the hot chicken that was once fought over by JD.com, Tencent, and even Alibaba. The price-earnings ratio (TTM) has dropped from over 200 times during its peak period to less than 8 times now.

With the stock price far below expectations, Vipshop has been actively repurchasing its shares. The management of Vipshop revealed that from the end of March 2021 to the end of the second quarter of this year, Vipshop has repurchased nearly $2 billion worth of company shares, and will continue to promote the repurchase plan in the future.

The market's concerns are not unfounded.

The internet is a rapidly changing and fiercely competitive market. Either be the best or disappear. Platforms like Mogujie and Jumei Youpin, which were once in the same competitive track as Vipshop, are now either delisted or suffering huge losses.

As a special case of vertical e-commerce, how long can Vipshop's "moisture" be maintained? Time will give the answer.