Good morning, ladies and gentlemen, thank you for standing by for the Baozun third q uarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded. I will now turn the meeting over to your host for today's call, Ms. Wendy Sun, Senior Director of Corporate Development and Investor Relations of Baozun. Please proceed, Wendy.
Thank you, operator. Hello, everyone, and thank you for joining us today. Our third quarter 2022 earnings release was distributed earlier, and it is available on our IR website at ir.baozun.com, as well as on global newswire services. They have also posted a PowerPoint pr esentation that accompanies our comments to the same IR website, where they are available for download. On the call today from Baozun, we have Mr. Vincent Qiu, Chairman and Chief Executive Officer, Mr. Arthur Yu, Chief Financial Officer, Ms. Tracy Li, our Vice President of Strategic Business Development, and Ms. Sandrine Zerbib , President of Baozun Brand Management. Mr. Qiu will review the business operations and company highlights, followed by Mr. Yu, who will discuss financials and key operating metrics. They will all be available to answer your questions during the Q&A session that follows.
Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management current expectations and current market and operating conditions, relate to events that involve known or unknown risk, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties, or factors is included in the company's filings with the U.S. SEC, any announcement on the website of Hong Kong Stock Exchange. The company does not take any obligation to update any forward-looking statements except as required under applicable law.
Finally, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB, and comparisons are on year-over-year basis. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Qiu. Vincent, please go ahead.
Thank you, Wendy. Hello, everyone, thank you all for your time. Despite the ongoing challenging environment, we are encouraged with the resilience of business as shown on slide number two. In addition, we delivered double-digit growth in several categories, including luxury, fashion apparel, and FMCG. Moreover, digital marketing and IT solutions revenue increased by 22%. While product sales continue to decline as planned as we keep optimizing distribution model. Service revenue grows 4% year-over-year. Business development during the quarter was on track with a net addition of seven brand partners for store operations. For existing client base, it's worth note, nothing that our business development also speaks to higher engagement in omnichannel and more value-added services. Our integrated omnichannel operations help brands to timely identify evolving e-commerce trends, thus enhancing resource allocation efficiency.
During the quarter, over 42% of our brand engaged with us on a omnichannel approach. We continuously develop new features and tools to augment bundled value-added service. This quarter, we launched a short video clipping tool which automatically converts long video or live streaming record to short videos. We also co-developed with the marketplace an AI-based outbound calling system to make proactive communications to targeted brand customers. This help us with better purchase frequency and conversion. We expanded the regional service centers to more cities recently and added a new scope to them, supported by our customer service management systems or SANI as the backbone. We improved not only service quality, but also efficiency. A new module named SANI, which means event anywhere, has been developed and ported onto SANI for a centrally managed content creation tool during the quarter.
Despite the short-term headwinds from macro environment, we are glad to see that brand partners still take China as one of the most critical markets with a lot of potential. We continue to see a trend of digital transformation, such as the rapid convergence between online and offline or OMO continues. Along with the digital transformation trend and the emphasis on China for China strategy, brands are investing in IT solutions for th e long term. As such, our technology related revenue sees notable growth with a sound pipeline for additional growth. In light of the strong demand, we officially launched BOCDOP, the Baozun Omni-Channel Digital Operation Platform, a package solution with powerful customization capabilities. BOCDOP is a center on multiple channel order fulfillments, and it delivers powerful omni-channel 360 data intelligence and decision support functionalities to our brand partners.
Following many years of non-stop investment in technology, we started expanding upstream in recent years as a target to evolve into a technology-driven omni-channel commerce player. Early this November, we announced our acquisition of Gap Greater China, one of the largest American specialty apparel brands. Along with the acquisition, we launched Baozun Brand Management, a new line of business that we see as a strategic addition that naturally flows from our core e-commerce service and technology offering. The acquisition is a good fit to develop BBM since we have worked with the brand for many years. We love it and believe in it. It has only been a few weeks since our announcement. We are still in the process of finalizing the acquisition.
It is encouraging that since the news was on air, many other brands has come to us to discuss about China for China strategy and about our technology-driven approach. It has become obvious that our brand management offering clearly can add more to our value proposition, and it differentiates us from traditional service providers. While it will take time and hard work to fully actualize our vision, we believe a closed loop demand to supply value chain, as well as integrated offline and online commerce, will make brands unique and much more successful than before. I shall now hand over the call to Arthur to go over our financials. Thank you.
Okay. Thank you, Vincent. Hello, everyone. Please turn to slide four. During the quarter, our total GMV increased by 16% to RMB 18.6 billion, mainly due to outstanding performance of 1 leading electronics brand. Excluding this brand, the adjusted GMV would have been flat on a year-over-year basis. Total revenues declined by 8% to RMB 1.7 billion, of which product sales declined by 29%, while service revenue increased by 4% compared with the same period of last year. Now let's turn to slide five for a breakdown of revenue. Despite a decline in total revenue, several categories, including apparel and FMCG, achieved double-digit growth. The value-added services has shown more resilience in this quarter, where digital marketing and IT solutions increased by 22% and the warehousing and fulfillment service revenue declined by only 7%.
Overall, the contribution from value-added service increased to 23% of total revenue in this quarter. Please turn to slide number six. In this quarter, our cost of products decreased by 30% to RMB 450 million, mainly due to continued efforts in optimizing product sales business. As a result, despite a reduction of 29% in product sales revenue, the gross margin for product sales improved by 175 basis points to 16.6%. Moreover, our overall gross margin improved by 800 basis points to 76.2% driven by a combination of a higher service revenue mix and improving gross profit margin. Turn to slide number seven. Our non-GAAP income from operations was RMB 17 million during the quarter, representing a non-GAAP operating profit margin of 1%. Non-GAAP net income was breakeven this quarter, mainly impacted by unfavorable exchange rate movement.
Once again, we have prepared waterfall diagrams depicting our analysis of how our top line and bottom line evolved year-over-year. As a reminder, this analysis is unaudited and should solely be used as supporting numbers to aid discussion. First on slide number eight. This diagram shows our net revenue walk from Q3 2021 to Q3 2022. In red, you can see the biggest item impacting our revenue this quarter was product sales. As we continued our efforts to optimize low quality distribution revenue. Revenue from DM and IT services, which we view as value-added services, grow by 22% this quarter. Revenue from warehouse and logistics declined by 7%, mainly due to our decision to de-invest a subsidiary in the business, which I will address more later. Excluding such de-investment, revenue from warehouse and logistics should have been a slight increase year-over-year.
On a positive note, this initiative led to better profitability. Please turn to slide number nine for the indicative work of non-GAAP operating profits. As mentioned earlier, the combination of higher COVID-related costs and general operating deleverage due to lower revenue resulted in less profits for online store operation businesses, generally across all categories. As shown, non-GAAP operating profits from digital marketing and IT improved by RMB 30 million year-over-year. The optimization of low quality distribution business contributed RMB 3 million, and the profits from warehouse and logistics business improved slightly by RMB 1 million. We also generated a positive savings of RMB 3 million from back-office cost optimization. In cost optimization, we continue to gain higher efficiencies by centralizing our operating capabilities, rationalizing incentives, and consolidating office footprint.
More significantly, this quarter, we selected more cities such as Jinan, Chengdu, and Anqing to expand the scope and scale of our regional service center. Now, approximately 60% of our customer service staff are located in regional service centers. By placing customer servi ce staff in regional centers, increased service flexibility and agility to better cope against COVID-induced turbulent. Moreover, we expanded beyond customer service and added more operating functions at regional service centers and live stream studios. We also further deepened our cooperation with Cainiao to leverage on its established infrastructure and network. As you may recall, in the second quarter, we began to manage Cainiao's warehouses in the apparel category, got business referrals in luxury and premium sectors, and also launched more solution for some of our key sportswear brands.
Motivated by this, by the synergies and after further careful evaluation, we decided to reduce our shareholding of Baobida, a last mile delivery agency, to minimize duplication with Cainiao. As you may recall, last year, priority to our strategic alliance with Cainiao, we invested into Baobida to expand our logistics capabilities. Now with Cainiao alliance, we decided to withdraw our invest to a minority holding in Baobida. Now turning to slide number 10 about our cash flow. As of September 30th, 2022, our cash and cash equivalent totaled RMB 2.9 billion. In light of macro uncertainty, we continue to improve working capital efficiency. During the quarter, we launched new initiatives to further advance our back-end process to improve inventory management, billing, and collection activities. Historically, in order to prepare for the Double 11 festival, the third quarter typically require peak operating cash flow.
This third quarter, benefiting from the progress in our inventory procurement planning, we were able to narrow the operating cash outflow to only $113 million, compared with $740 million a year ago. During the quarter, we purchased approximately 700,000 ADS for approximately $6.1 million. To date, with our share buyback effort, we repurchased a cumulative total of $68 million U.S. Dollar in the last nine months. Lastly, the voluntary conversion into a primary listing status on the main board of The Stock Exchange of Hong Kong Limited became effective on the first of November. Baozun is now a dual primary listing company on both Hong Kong Stock Exchange and the Nasdaq Global Select Market. This marks a significant milestone in our capital market journey.
Overall, our effectiveness in maintaining operations and supporting our partners' success during this period of macro uncertainty underscores the durability and strength of our business model. Throughout this year, we prioritized the cost transformation and working capital efficiency. Our efforts are bearing fruit in terms of higher gross margin, lower operating expense, and better cash flows. The establishment of Baozun Brand Management, along with the acquisition of Gap Greater China, will provide us with good opportunity for future growth. This is my financial review section, and that concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.
Thank you. If you wish to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. Our first question comes from the line of Alicia Yap from Citi. Please go ahead. Your line is open.
Hi. Thank you. Good evening, management. Thanks for taking my questions. I have two questions. First, if management can share with us any preliminary color that, you know, you are seeing in terms of the consumption sentiment and, you know, across all the, you know, channels post the Singles' Day. In relation to that, you know, how should we think about the overall GMV and revenue growth for the fourth quarter? If management also have any preliminary view on the 2023 outlook. Second question is, your digital marketing and IT solution is actually doing pretty well.
If you can elaborate a little bit, what type of the brand customer, and, the operation metrics, like the take rate, that you can share with us related to this service. Will this, you know, revenue line continue to, you know, deliver decent growth in the coming quarter? How should we think about that? Thank you.
Okay. Thank you, Alicia. Maybe Tracy can comment on the Double 11 performance and the consumption sentiment, and I can answer about the views of Q4 and next year, if that's okay.
No problem.
Tracy?
No problem. Thanks for the question. I think right now, the China consumer is still very largely impact from the COVID-19. Also you can see in recent two months, actually from the logistic part of view, there's still a lot of lockdown and impact on that. From the Double 11s number, we can see the overall number is still under pressure, which means there's no big increase. Still, it is a very important window. We see the trends on different categories. On that part, actually, I can summarize some of the observation from our point of view, from our BI system and also from the public system. We see from the consumption trend, the upgraded consumption, home improvement, self-care, and the sports lifestyle are the four heated themes.
Take the sports lifestyle, skin, for example. The sales of the category outdoors, sports equipment, yoga, and also the sports footwear were lifted by range from 28% to 9% year-over-year increase. You can see the fitness, mountain climbing, skiing, urban sports, camping and the running and basketball contribute most of the category. We can see the luxury and also previous jewelry, bags and luggage has been the few of the category are still reach steady growth in the past four quarters. I think among this four area, we still can see the opportunity for next year. There are also downtrends category like the fashion accessories and also men's and the women's footwear.
This has been reflect over two or three quarters decline in most of the daily sales and the big promotion. For all of this part, we still need a steady growth way to sticking out. Besides the category shift, I think we also see the platform pay more attention on the user retention and the acceleration of private domain segments for new business in incrementals, like Alibaba supported multi-address in one order, and the newly added store member enrollment benefits, the membership coupon and membership gifts. All of this has give our potential to collaborate with brand and platform together on the digital marketing and also interactive technology related. I think on that part, we can back to others part to talk about our next year's plan. Yeah.
Okay. Thank you, Tracy. In regarding to the Q4 outlook, our current view is, from the GMV perspective, we see some good momentum in the electronics and FMCG, but we also see some strong headwinds in terms of the apparels and the sportswear. Overall, we believe our Q4 GMV will be in line with the market, which is likely to be flat year-over-year. In terms of the revenue, at this moment, we still see the optimization of the low quality product sales will continue unless the market sentiment picked up. From a revenue perspective, we think it will be a low-teen decline year-over-year. The main contributor factor is the product sales, which we continue to optimize.
In terms of the next year, I think it's a little bit too early to comment because there are still some very big factor, which is in the overall macro kind of condition and also the COVID policy. Our view for next year from a current perspective is conservative, and we want to plan on a conservative basis for the next year as well, i.e., to focus on the quality instead of focus on the growth. On your second question, Alicia, regarding the digital marketing and IT solution, i.e., our view on the value-added service, I think that's one of the area we see that quite a strong momentum from our client base.
Basically, at this moment, our brand partners start to focus on the medium and long-term investment of their business in China. Therefore, we have seen a strong kind of the pipeline from the value-added service, like the IT solutions, like the digital marketing and the MarTech related kind of the proposals from our offerings. We think that will continue and given the investment into the technology in the last few years, I think Baozun group is well-positioned to take on those opportunities at the current market situation. Okay.
Yeah. Thank you, Arthur. Thank you, Tracy.
Okay. Thank you, Alicia.
Thank you. We will take our next question. Our next question comes from the line of Charlie Chen from China Renaissance. Please go ahead. Your line is open.
Thanks, management for taking my questions. I got two questions here. The first one is regarding the GMV combination. I can see in this quarter, the GMV contribution from non-Tmall channel seems to be a little bit lower than last year, the Q4 2021. Can you explain what's the rationale and background behind this? What's the long-term goal of this GMV growth between Tmall and non-Tmall channel? That's the first question. The second question is regarding the Gap acquisition as well as the whole restructuring. Can you give us more color about the progress after you announced the acquisition of Gap?
I can see Baozun Group seems to be transforming from a pure marketing agency to a more comprehensive service company. How do you expect the length of this transition period? When do you see the synergies or integration should be completed and we can see some results or impact going forward? Thank you.
Hello? Hey, operator. Can you hear me?
Yes, I can hear you loud and clear.
Okay. Seems the line was just got dropped right now.
Please continue to stand by. Your conference will resume shortly.
Hey, operator.
Hi there. I can hear you.
Okay. You can only hear us from this end. Does it mean the way?
Yes, but you are coming through loud and clear.
Actually, how about Charlie, do you actually ask about brand management for the second question? Maybe Sandrine, can you take this one while we try to get the system ready?
Yes, sure. Sure. Hello, Charlie. This is Sandrine. Thank you for your question. It's about three weeks we have signed with Gap. We have not yet finalized the acquisition as you know. This will happen. Generally, if everything goes smoothly on the approval procedure. We are very mobilized in the preparation, which now focuses on really taking some big dives with the different Gap functions to enable a deeper understanding of the operation today and really identify the areas for improvements. Then based on this, we'll be able to be much more detailed. Still, I understand you want to have a little bit of color.
For the time being, what we are learning from this deep dive is confirming what we were seeing during the due diligence. On the one hand, there will be some quick wins in terms of a bit of a restructuring and cost-cutting, mainly coming from the fact that we are now managing from China, a Chinese company. Then, going forward, as we mentioned earlier, we see some real opportunities around products that can be approached differently in a much more locally relevant way. As you may remember, we have full freedom on the supply chain.
Supply chain is ours, we can really improve the speed to market, the reactivity to trends, and also bring some elements that are more locally relevant in the product design and development. The other aspect is really to work, and actually the first one, we're also trending to this, to work on the gross margin and reduce the discount levels, which are, in our view, too high today. We believe that by differentiating products by channels, which is not really done today, we can really improve the discount situation. The third aspect, which would be a priority, is for us to revamp the current portfolio of stores. It's not gonna be about opening many more stores for the time being.
It's gonna be really to make the current stores, both in terms of, look and feel, and in terms of, operations, much better than what we have today. This is really as much color I can give today. With all this, financially, we think that it can translate into a very significant reduction of the loss in 2023. We consider that loss can be reduced by around half of what it used to be in 2022. We will see a further reduction of loss in 2024 in order to reach break-even point in 2025 and profit in 2026. That is for Gap. I would leave it to Wendy to allocate the other questions to some other people.
Okay. Thanks, Sandrine. Charlie, let me maybe answer your ques tion on the Tmall. The trends you have seen is actually impacted by a major electronic brand outperforming in quarter three. Excluding the increase of this one single brand, our Tmall percentage has actually dropped. IE, non-Tmall has increased by a single digit. That's the true reflection of what's going on in the non-Tmall channel. In addition, our omni-channel strategy is actually not with a purpose to push the people from the Tmall to a non-Tmall channel. It's actually to encourage people to go for the omni-channel, which has increased the thickness and to drive more value-added service from Baozun to the client.
By this quarter, we have 42% of our total brand partners choose Baozun to operate omni-channel for them. This is our current situation. Thank you.
Thank you.
Thank you. We will take our next question. Please stand by. Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead. Your line is open.
Thanks management for taking my question. I have two questions. My first question is, could management share some color about change of domestic and versus international brands? My second question is, could management share some updates about the cooperation with Cainiao and our thoughts about expansion into Southeast Asian like market? Thanks.
Okay. Okay. Tracy, if you can take the first one, I will take the second one.
Sure. No problem. Hello. Thanks for the question. I think in terms of to win in the consumer side, I think they are facing the same pressure no matter it's foreign or local brands, how to solve the short-term problem and how to invest in longer problem to win next round. For the online business, we can see actually most of the players are still emphasizing the importance of the online part because of the relatively poor store performance in recent quarters.
Right now, actually, we are working with our brand partners to come out with the three years plan to talk about how to connect with their consumer directly and then how to allocate their budgets smartly, I mean, cross-channel and also to reach the direct communication with the consumer. Also from the for the local brands part, we are very likely to share. We have some breakthrough in the past few months to seek the collaboration opportunity in professional ways, areas like IT service, counter-marketing, inter-interactive marketing technology, and the customer service. I think in the longer run, these professional in specific areas still will be the win in the service market. Thank you.
Okay. Thank you, Tracy. In regarding to the Cainiao, we have continued our good progress in terms of getting the synergy. As we mentioned in the past, we see the synergy coming from three area. The first one is joint BD. With Cainiao and Alibaba ecosystem, I mean, we are seeing some additional BD opportunity coming in from the ecosystem. Which is help`ing both Baotong logistics and also Baotong as a whole to conduct more business. The second one we see is actually to utilizing the scale and infrastructure of Cainiao.
Basically, in terms of the warehousing and in terms of the last mile delivery, Cainiao scale has provided very good kind of support for us to get more results. Finally, we see is the technology enhancement. Basically, previously, it's actually Baotong made the investment into the technology on the logistics part, and now we can utilize the Cainiao network on the technology enhancement, like the RFID technology, which is giving us more efficiency when we're operating the warehouse. Overall, we think we are in the good trend with our alliance with Cainiao. In terms of the Southeast Asia expansion, we are continue to focus on building our own capability in that region.
Our approach is trying to replicate some best practice and take the learnings we had from operating the e-commerce in China. Our approach in Southeast Asia is to work closely with the brand to grow the e-commerce offerings in that region. When we have made more progress, we will come to report back to the market. Mm-hmm. Okay.
Thank you.
Thank you.
Thank you. We will take our next question. Our next question comes from the line of Wang Zhihao from CICC. Please go ahead. Your line is open.
Hi. Good evening, management. Thank you for taking my question. We noticed that the number of brand partners for store operations increased. As the macro environment is weak, could you please share something about customer acquisition strategy used in this quarter? Could you please share some details about the new brand partners, such as their industry, scale, and the main channels will help them to operate? Thank you.
Okay. Thank you. Tracy, would you like to take on, and then I can maybe add on more colors after you.
Sure. Thanks for the question. For the last quarter, actually, most of our new wins focusing on our new revenue source, which is the IT client and also digital marketing clients. You can see actually they are combined with our emerging category like the our 3C category and also the luxury category. Which indicates actually our strategy on the one-stop solution, which means we actually we start from the operation, but we extended our service to other parts strategy works. You can see actually in this market, we can see some our clients actually invest a lot in the long-term strategy, including the interactive marketing and also their data and also infrastructure set up. Do you have any other supplementary question, answer for this?
No. I think another thing I would like to add is, in terms of the value-added service, we are utilizing the omni-channel and also to utilizing the foundation we have built over the time. We think that will be a main source of the new business coming in in the next few quarters. That's it.
Thank you.
Thank you.
Thank you. Once again, if you wish to ask a question, please press star one and one on your telephone. We will take our next question. The next question comes from the line of Kesong Yang from GF Securities. Please go ahead. Your line is open.
Hello management team. I have two questions. The first one is about the luxury revenue has reached the best growth during the past quarter. Could you please elaborate a little on the future strategies for expanding the luxury category? Also, do you have a certain benchmark percentage of luxury categories contributed to the revenue? The second question is, do you have the investment strategy for 2023? Thank you.
Okay. Let me answer your second question first, and then Tracy can cover the luxury question. In terms of the investment strategy, as you have seen, we recently made the announcement of acquiring Gap China's business. In the short term, our focus will be building the Gap China business and building the Baozun Brand Management as a new business unit. We will focus our effort on integration and also transition to make sure it is a success. In terms of the investment, our focus will in the short term be the brand related investment will be our focus. I mentioned in the last few quarters, Baozun has made investment, either the minority investment or the controlling investment into six brand.
We have made some good progress in terms of those brands, which in Double 11, the GMV from those six brands adding together has grown over 200% year-over-year, which shows the enhancement of Baozun is adding value to those brands. Also, for Gap, the Double 11 performance has also been good. The GMV has grown 22% year-over-year for the Gap during Double 11, which outperforms the market. All this shows with Baozun enhancement, we will be able to add more value to those brand growth kind of story. At the same time, when we're looking at the investment, we're also proactively optimizing our investment portfolio.
As mentioned earlier, the Baobida, which is the last mile delivery investment we made, we actually proactively introduced another strategic investor to take the controlling stake and make Baozun become a minority stake. This is because this investment is a little bit duplicate to our strategic align to with China. With that in mind, we actually optimize our investment portfolio to turn ourselves from a majority shareholder into a minority shareholder. Looking at the medium to longer term, I think our investment priority are focused on the international expansion and also building technology capability on top of the brand management. With the current market condition, we actually keep an open eye on the good value asset as we did for the Gap China acquisition.
Okay, that's on the investment strategy. Tracy, maybe you have something on the luxury business. Yeah. Yeah. Tracy, can you hear me?
I'm on mute just now. Come back to the luxury story. I think we need to look at the industry from different angles. In short term, actually definitely the market is facing pressures on the slowing down growth. Take this Double 11, for example. Many brands have ramped up in variety and intensively of benefits to enhance the sales, such as deeper discount, interest-free installment, and also GWP gifts. On the other hand, we see many of our brands partners are investing for the middle to longer strategy. Some of them take this two years as opportunity to adjust their pricing strategy. They are more focusing on the product innovation itself.
The brands group, they emphasize on the consumer-centric and increase their budgets on content marketing and the data infrastructure. We see a lot of innovations initiative happening this Double 11. They lifted their NFT triumphed. You see a lot of limited edition SKUs and online fashion shoes have moved into the live stream topics to continue to drive the sales and also to attract new members. I think that is the two sides of the factor base in currently in the industry. For Baozun, we still treat luxury as our strategic part of our overall business because of the luxury market is still growing. They are still have lower penetration, and we see a lot of good leads in new pipelines right now.
Winning in the longer run, I think it's not just to rely on one or two cases. We rooted in, I think, over 10 years practicing fashion, and then we develop our luxury industry solutions in more forward-looking strategy, which is more omni-channel with leading IT solution and more consumer-driven with a strong in-house sales team and more reliable and value-added service related logistic solutions. With all of this, we have the strong belief to grow with the market in the next one or two years.
Thank you.
Thank you. We will take our next question. Our next question comes from the line of Charlie Chen from China Renaissance. Please go ahead. Your line is open.
Thanks management for taking my questions again. I have one question regarding the launch of BOCDOP. I heard Vincent mention that. Can you share more color about this topic and how to think about the cost and the top line contribution for 2023? Thank you.
Thank you for the question. This is Vincent. I'll talk about the concept of this BOCDOP. We call this BOCDOP. In Chinese, we give it a Chinese name called the Bǎoduò , this product line or solution. Arthur, maybe you can talk more about the revenue, you know, of local expectations.
Yes, sure.
Yeah. Yeah. Actually, in the past several years, Baozun's core system, we would call this a middleware system, including all the order fulfillment, order management and processing system and also, order fulfillment system. We call this a middleware. This, middleware or DOP, digital operating platform, plays a very important role to support a omni-channel, you know, retail and D2C-based business. 'Cause all the traditional ERPs, they don't have this kind of offerings. In China, because of the omni-channel and the, and the online offline integration is much faster and advanced than the other countries and markets. There's a strong demand in the local market for this kind of system. With this system, all the brands can operate their retail and D2C, you know, business.
You know, they can open stores on Tmall and JD and WeChat everywhere in the same time, and they can process all the orders from different channels and make sure they can deliver all these orders to the customers. That is the system. Previously, this is about a highly customized system for each of the clients. Baozun, you know, did the same as the other players. Recently we, you know, put a lot of investment in the packaging and the product price of this solution. Right now, I think the productization level is much higher than before. We package this as a solution. You know, it's more ready for market.
We are trying to market the solution to, you know, Baozun client base and also other new clients and also some medium and, you know, small size of the clients, you know, trying to help them with the omni-channel solution, you know, strategy. That is the concept of the products. We are seeing a very good progress. We're trying to make it better, you know, in the future, in the near future. Arthur, about the revenue.
Yes.
What's your view on that? Yeah.
Yeah, sure. Charlie, thanks for the question. From a financial point of view, I think we made continued investment into technology, which is to build the competitive advantage of Baozun over our competitors. From the introduction of the BOCDOP, which is actually helping us to commercialize those technology in a more advanced way. Looking forward, we will be able to see the investment side. We continue to make a similar amount of investment into technology year-over-year, the cost would not increase. However, we foresee the revenue from the technology will increase year-over-year because our better structured productization and also commercialization of IT offerings. In return, that will help us to drive our profit margin from the tech offering into the market.
One more thing. Thank you, Arthur. One more thing is that, you know, not only support all the clients with omni-channel, order processing and fulfillment capability, but also, with all the data, you know, collected from different channels. We can also deliver a much better, you know, business intelligence capability and decision support capability to all the brands.
Yeah.
Yeah. Thank you.
In addition to that, I think investment into technology not only benefits the traditional e-commerce business, it will also benefit the Baozun Brand Management business as well. With Gap China, we will be able to use our technology to drive the transformation of the brand we acquire as well. That will help to create more value.
Thank you very much.
Thank you. There are no further questions. I would like to hand back to management for closing remarks.
Thank you, operator. In closing, on behalf of the Baozun management team, we would like to thank you for your participation to this call. If you require any further information, feel free to reach out to the IR team. Thank you for joining us today. This concludes the call.
This concludes today's conference call. Thank you for participating. You may now disconnect.