PROSPECTUS SUMMARY

 

The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ADSs discussed under “Risk Factors,” before deciding whether to buy our ADSs. This prospectus contains information from an industry report commissioned by us and prepared by iResearch Consulting Group, a third-party research firm, to provide information on the e-commerce, brand e-commerce and e-commerce solutions markets. We refer to this report as the iResearch Report.

 

OUR BUSINESS

 

We are the leading brand e-commerce solutions provider in China, with a market share of approximately 20% as measured by transaction value in 2014, according to the iResearch Report. Our integrated brand e-commerce capabilities encompass all aspects of the e-commerce value chain covering IT solutions, store operations, digital marketing, customer services, warehousing and fulfillment. We help brand partners execute their e-commerce strategies in China by selling their goods directly to customers online or by providing services to assist with their e-commerce operations.

 

With e-commerce in China growing rapidly in both scale and complexity, more global brands view e-commerce as a valuable part of their China expansion strategy, and brands look to us as a trusted partner for our local knowledge and industry expertise to execute and integrate e-commerce strategies without the investment associated with establishing and maintaining local infrastructure and capabilities on their own.

 

The number of our brand partners grew from 56 as of December 31, 2012, to 71 as of December 31, 2013, to 93 as of December 31, 2014 and to 94 as of March 31, 2015. These brands cover diverse categories, including apparel, appliances, electronics, home, food and health, cosmetics and fast moving consumer goods, insurance and automobile. Many of our brand partners occupy leading positions in their respective industries, such as Philips, Nike, Microsoft and Haagen-Dazs. According to the iResearch Report, we are the leading brand e-commerce solutions provider in China that has penetrated into the most diversified and comprehensive range of categories.

 

We believe our brand partners value us for our integrated e-commerce capabilities, dependable services, deep category expertise, market insight and ability to innovate and adapt to the fast-changing e-commerce market. Our end-to-end brand e-commerce capabilities allow us to leverage brand partners’ unique resources and seamlessly integrate with their back-end systems to enable data tracking and analytics for the full transaction value chain, making us a valuable part of our brand partners’ e-commerce functions. We help our brand partners establish market presence and launch products quickly on official brand stores and major online marketplaces in China, such as Tmall, JD.com and Amazon, as well as social media platforms such as Weixin. We also help our brand partners devise and execute O2O strategies combining the strengths of their online and offline retail networks. By enabling seamless shopping experience across various channels both online and offline, we deliver omni-channel solutions to achieve optimal branding effect and sales results that are responsive to our brand partners’ individual e-commerce objectives.

 

Our store operation capabilities, logistics network and warehousing capacities are crucial to our success. We provide customizable solutions and dedicated personnel with relevant industry experience and brand-specific training in operating e-commerce stores. We partner with leading nationwide and local logistics services providers to ensure reliable and timely delivery. For example, we understand from SF Express, one of the largest express delivery services in China, that we are one of its top 10 customers in China. We are able to achieve next-day delivery in 95 cities across China. We operate five warehouses with an aggregate gross floor area of 72,800 square meters that can handle 300,000 daily orders and 400,000 daily pieces. Our warehouse management system

 

is customized to account for variance in arrangements with brand partners and differences in product specifications, ranging from apparel, electronics to beauty and health products.

 

Technology is key to our success and quick expansion. Leveraging our proprietary and scalable technology infrastructure and systems, we provide integrated e-commerce solutions that synchronize marketing campaigns, centralize management of inventory, order fulfillment and customer service, and collect and analyze real-time consumer behavior and transaction data across internet, mobile and offline channels. The scalability of our systems, built on deep vertical knowledge and modular implementation, allows us to efficiently provide customized solutions across categories and support an increasingly larger array of transactions as we add new brands, integrate new channels and accommodate peaks and surges in consumer demand.

 

We continue to win brands’ loyalty with our track record of articulating their marketing needs into workable solutions that consistently deliver tangible sales results. We collect valuable consumer behavior data through our customer relationship management system. We have also developed our Business Intelligence, or BI, software which enables real-time analysis of transaction data across online and mobile channels to make more targeted and insightful marketing recommendations to our brand partners that leverage the strengths of various channels. We believe that as we increase our solution offerings and channels to our brand partners, launch more marketing initiatives and campaigns together and increase their sales, the stickiness of our relationships with brand partners will also grow.

 

We generate revenues from two revenue streams: (i) product sales and (ii) services. We generally operate e-commerce businesses for our brand partners based on one of three business models: distribution model, service fee model and consignment model, or in some circumstances, a combination of the business models. We derive product sales revenues when we sell products to customers under the distribution model. We derive services revenues under the service fee model and consignment model. For services provided, we charge our brand partners fees consisting of fixed fees and/or variable fees based on GMV or other variable factors such as number of orders fulfilled. Under the consignment model, we may also facilitate brand partners’ online sales of products as an agent and receive commission fee calculated based on a formula pre-agreed with our brand partners. In 2012, 2013, 2014 and the three months ended March 31, 2014 and 2015, net revenues from product sales accounted for 85.9%, 83.8%, 74.9%, 73.7% and 74.1%, respectively, of our total net revenues.

 

Our GMV was RMB1,460.4 million, RMB2,620.8 million, RMB4,248.9 million (US$685.4 million), RMB573.7 million and RMB1,157.0 million (US$186.6 million) in 2012, 2013, and 2014 and the three months ended March 31, 2014 and 2015, respectively. For the same periods, our total net revenues were RMB954.5 million, RMB1,521.8 million, RMB1,584.4 million (US$255.6 million), RMB268.5 million and RMB477.2 million (US$76.9 million), respectively. We incurred net loss of RMB47.2 million, RMB37.8 million and RMB59.8 million (US$9.6 million) in 2012, 2013 and 2014, respectively, and recorded net income of, RMB1.8 million and RMB2.0 million (US$0.3 million) in the three months ended March 31, 2014 and 2015 respectively. We incurred non-GAAP net loss of RMB42.7 million and RMB26.3 million in 2012 and 2013, respectively, and had non-GAAP net income of RMB25.1 million (US$4.0 million), RMB3.4 million and RMB7.6 million (US$1.2 million) in 2014 and the three months ended March 31, 2014 and 2015, respectively. See “Summary Consolidated Financial and Operating Data—Non-GAAP Financial Measures.”

 

OUR INDUSTRY

 

Brand e-commerce refers to business-to-consumer, or B2C, e-commerce conducted through official brand stores and official marketplace stores. Brand e-commerce differentiates itself from other models of B2C e-commerce, such as independent direct sales platforms and online stores operated by brands’ offline distributors, as it enables the online stores to be operated with the brands’ unique brand image, look and feel and allows the brands to control their own branding and merchandising.

 

With the growth and rising popularity of e-commerce in China, global brands view e-commerce as an important part of their China expansion strategy, and increasingly elect e-commerce as their key distribution

 

channel in China. Brand e-commerce has experienced and is expected to continue to experience a higher growth rate compared to the overall B2C e-commerce market in China. According to the iResearch Report, China’s brand e-commerce market is expected to increase from RMB22 billion (US$4 billion) in 2010 to RMB800 billion (US$129 billion) in 2014, representing a CAGR of 145.7%. It is expected to further reach RMB2,352 billion (US$379 billion) in 2017, at a CAGR of 43.3%.

 

While international and domestic brands are increasingly focusing on the growth opportunities in brand e-commerce in China, they also face challenges arising from the complexity in distribution channel selection, consumer demands, merchandising, online store operations, technology infrastructure, warehousing and fulfillment. As such, brands look to solutions providers with local knowledge and industry expertise to execute and integrate e-commerce strategies for them without the investment associated with establishing and maintaining local infrastructure and capabilities on their own. With their in-depth understanding of industry vertical expertise and brand partners’ needs, end-to-end brand e-commerce solution providers offer one-stop solutions across the e-commerce value chain for brands while enabling them to maintain a high level of quality and control.

 

The brand e-commerce solutions market in China is still in its emerging stage of development. It is expected to ride on the strong growth in China’s brand e-commerce sector and further increase market penetration. According to the iResearch Report, the market size of the brand e-commerce solutions market in China based on transaction value is expected to grow from RMB26 billion (US$4 billion) in 2014 to close to RMB100 billion (US$16 billion) in 2017, representing a CAGR of 56.7%.

 

OUR STRENGTHS

 

We believe that the following competitive strengths contribute to our leading position in the brand e-commerce solutions market in China:

 

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leader in brand e-commerce solutions and trusted partner to global brands;

 

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end-to-end brand e-commerce solutions with omni-channel capabilities;

 

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proven store operation capabilities and fulfillment infrastructure;

 

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scalable and reliable proprietary technology;

 

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robust and insightful digital marketing capabilities; and

 

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proven and experienced management team with deep industry knowledge.

 

OUR STRATEGIES

 

Our goal is to be a leading global e-commerce solutions provider for brands. We plan to achieve our goal by pursuing the following key strategies:

 

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deepen existing relationships with brands;

 

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expand and optimize our brand portfolio;

 

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enhance our fulfillment capabilities;

 

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strengthen our data analysis capabilities;

 

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grow our closeout retail platform, Maikefeng;

 

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extend our geographical reach in Asia; and

 

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selectively pursue strategic alliances and acquisition opportunities.

 

OUR CHALLENGES

 

Our ability to achieve our goal and execute our strategies is subject to risks and uncertainties, including those relating to our ability to:

 

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manage risks associated with the growth of the e-commerce market in China;

 

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retain and attract brand partners;

 

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gain further category expertise;

 

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increase product sales;

 

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increase revenues generated from services;

 

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enhance cooperation with marketplaces and other channel partners;

 

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successfully expand and operate our business in Asia;

 

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innovate and grow our new product and service offerings, such as our closeout retail platform Maikefeng;

 

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manage our revenue and product mix;

 

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effectively invest in our fulfillment infrastructure and technology platform; and

 

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manage growth, costs and working capital.

 

We also face other challenges, risks and uncertainties that may materially and adversely affect our business, financial condition, results of operations and prospects. You should refer to “Risk Factors”, beginning on page 16, for a more detailed discussion of the risks involved in investing in our ADSs. For example, as holders of ADSs, you may have fewer rights than holders of our Class A ordinary shares and must act through the depositary to exercise those rights.

 

CORPORATE HISTORY AND STRUCTURE

 

We are a holding company and operate our business through our wholly-owned subsidiaries and a PRC consolidated variable interest entity, or VIE. We commenced operations to provide brand e-commerce solutions in China in August 2007 through Shanghai Baozun E-Commerce Limited, or Shanghai Baozun, a PRC limited liability company founded by our CEO Mr. Vincent Wenbin Qiu, our COO Mr. Junhua Wu, one of our directors Mr. Michael Qingyu Zhang and several other individual investors, or collectively, the Founding Shareholders. Shanghai Baozun, our wholly-owned subsidiary, provides integrated brand e-commerce solutions to our brand partners, including IT services, store operations, digital marketing, customer services, warehousing and fulfillment.

 

In March 2010, we incorporated our wholly-owned subsidiaries, Shanghai Bodao E-Commerce Limited, or Shanghai Bodao, and Shanghai Yingsai Advertisement Limited, or Shanghai Yingsai, in China. In December 2011, we incorporated our wholly-owned subsidiary, Shanghai Fengbo E-Commerce Limited, or Shanghai Fengbo, in China. Shanghai Fengbo and Shanghai Bodao provide brand e-commerce solutions to our brand partners, and Shanghai Yingsai provides marketing services to our brand partners. As we began to expand our business outside of mainland China, we established Baozun Hongkong Limited in September 2013, which serves as our operation center in Hong Kong. In December 2013, we incorporated our holding company, Baozun Cayman Inc., under the laws of the Cayman Islands. We incorporated Baozun Hong Kong Holding Limited in

 

January 2014 to develop our e-commerce solutions business in Hong Kong and internationally. We changed our holding company’s name from Baozun Cayman Inc. to Baozun Inc. in March 2015.

 

The operation of value-added telecommunications businesses in China requires an operating license, which we refer to as an ICP license, and foreign ownership of value-added telecommunications business is subject to restrictions under current PRC laws, rules and regulations. Although our current business does not require an ICP license, we hold an ICP license through our VIE, Shanghai Zunyi Business Consulting Ltd., or Shanghai Zunyi, which is the operator of our Maikefeng platform, to provide us with the flexibility to develop value-added telecommunications services in the future that would be in compliance with PRC laws, rules and regulations. In April and July 2014, through Shanghai Baozun, we entered into certain contractual arrangements with Shanghai Zunyi and its shareholders under which we gained effective control over the operations of Shanghai Zunyi. Shanghai Zunyi was a dormant company before July 2014 and began serving customers through our Maikefeng platform, including our Maikefeng mobile application and mkf.com website, in July 2014.

 

In October 2014, we established Taiwan Baozun Corporation, a wholly-owned subsidiary, to expand our provision of brand e-commerce solutions to the Taiwan market.

 

As a holding company, our ability to pay dividends depends upon dividends and other distributions on equity paid to us by our principal operating subsidiaries. Pursuant to PRC laws and regulations, our wholly owned subsidiaries may pay dividends only out of their retained earnings, and are required to set aside a portion of their net income each year to fund certain statutory reserves. These reserves, together with the registered equity, are not distributable as cash dividends. See “Risk Factors—Risks Related to Doing Business in the People’s Republic of China—We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries to fund offshore cash and financing requirements.” and “Regulation—Regulation of Dividend Distribution.”

 

For our private placement of ordinary shares and convertible redeemable preferred shares, see “Description of Share Capital—History of Securities Issuances.”

 

The following diagram illustrates our corporate structure and the place of incorporation of each of our significant subsidiaries and VIE as of the date of this prospectus:

 

 

 

Note:

(1)

Shanghai Zunyi is our VIE in China and is 80% owned by Mr. Vincent Wenbin Qiu and 20% owned by Mr. Michael Qingyu Zhang. It primarily serves as our platform for developing our Maikefeng business.

 

CORPORATE INFORMATION

 

Our principal executive offices are located at Building No. H, No. 1188 Wanrong Road, Zhabei District, Shanghai 200436, the People’s Republic of China. Our telephone number at this address is +86 21 6095-6000. Our registered office in the Cayman Islands is located at the offices of Novasage Incorporations (Cayman) Limited, at Floor 4, Willow House, Cricket Square, P.O. Box 2582, Grand Cayman KY1-1103, Cayman Islands.

 

Investors should submit any inquiries to the address and telephone number of our principal executive offices. Our corporate website is www.baozun.com . The information contained on our website is not a part of this prospectus. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4 ^th Floor, New York, NY 10017.

 

IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY

 

As a company with less than US$1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For so long as we remain an emerging growth company, we are permitted to rely on exemptions from some of the reporting requirements that are applicable to public companies that are not emerging growth companies. These exemptions include:

 

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being permitted to provide only two years of selected financial data (rather than five years) and only two years of audited financial statements (rather than three years), in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

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not being required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act of 2002 in the assessment of our internal control over financial reporting; and

 

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not being required to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards.

 

We have taken, and may continue to take, advantage of some of these exemptions until we are no longer an emerging growth company. We have, however, elected to “opt out” of the last exemption listed above and, as a result, we will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

 

We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (b) the last day of the fiscal year in which we have total annual gross revenue of at least US$1 billion, (c) the date on which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds US$700 million as of the prior June 30, and (d) the date on which we have issued more than US$1 billion in non-convertible debt during the prior three-year period.

 

CONVENTIONS THAT APPLY TO THIS PROSPECTUS

 

Unless otherwise indicated or the context otherwise requires, references in this prospectus to:

 

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“ADRs” are to the American depositary receipts, which, if issued, evidence our ADSs;

 

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“ADSs” are to our American depositary shares, each of which represents              Class A ordinary shares;

 

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“Baozun”, “we,” “us,” “our company,” and “our,” refer to Baozun Inc., a Cayman Islands company, formerly known as Baozun Cayman Inc. and unless the context requires otherwise, includes its consolidated subsidiaries and variable interest entity;

 

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“brand e-commerce” are to B2C e-commerce conducted through official brand stores or official marketplace stores;

 

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“brand partners” are to companies for which we operate official brand stores or official marketplace stores under their brand names or have entered into agreements to do so;

 

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“China” and the “PRC” are to the People’s Republic of China, excluding, for the purpose of this prospectus only, Taiwan and the special administrative regions of Hong Kong and Macau;

 

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“GMV” are to gross merchandise volume, which is (i) the full value of all purchases transacted and settled on the stores operated by us (including our Maikefeng platform but excluding stores for the

 

operations of which we only charge fixed fees) and (ii) the full value of purchases for which customers have placed orders and paid deposits on such stores and which have been settled offline. Our calculation of GMV includes value added tax and excludes (i) shipping charges, (ii) surcharges and other taxes, (iii) value of the goods that are returned and (iv) deposits for purchases that have not been settled;

 

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“O2O” are to online-to-offline and offline-to-online commerce;

 

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“official brand stores” are to brands’ official online stores;

 

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“official marketplace stores” are to brands’ flagship stores and authorized stores on third-party online marketplaces;

 

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“RMB” and “Renminbi” are to the legal currency of China;

 

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“ordinary shares” are to our ordinary shares, par value US$0.0001 per share, prior to the completion of this offering, and to our Class A and Class B ordinary shares, par value US$0.0001 per share upon and after the completion of this offering;

 

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“transaction value” are to the value of all purchases made through stores operated by a brand e-commerce service provider, and such definition is consistent with the iResearch Report; and

 

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“US$” and “U.S. dollars” are to the legal currency of the United States.

 

Unless otherwise indicated, information in this prospectus assumes that the underwriters do not exercise their option to purchase              additional ADSs, representing              Class A ordinary shares.