Vipshop, the discount e-commerce platform, has been approved to spin off its two offline outlet projects into a Real Estate Investment Trust (REIT), with another 18 similar projects in progress.
<h4>Key Points:</h4>
<ul>
<li>Vipshop reported a 1.2% year-on-year increase in revenue for the first quarter, marking one of only two growth quarters in the past eight quarters.</li>
<li>The company's offline outlet business has achieved strong growth, partially offsetting the weak performance of its traditional discount apparel e-commerce business.</li>
</ul>
Yang Ge
As e-commerce gradually becomes an &#34;old story,&#34; large enterprises are seeking new narratives to maintain investor interest in their stocks. Alibaba (BABA.US; 9988.HK) is focusing on AI and cloud services, JD.com (JD.US; 9618.HK) is positioning itself as a comprehensive enterprise covering diverse businesses such as healthcare and logistics; PDD (PDD.US) is attempting to impress investors with explosive growth in its overseas Temu business.
As for the established discount e-commerce platform Vipshop Holdings Limited (VIPS.US), it is still struggling to shake off the success achieved in its early years through the &#34;daily deals&#34; model. This model primarily focused on selling low-priced branded apparel through group buying, but its growth momentum has gradually depleted in recent years, leading to a decline in revenue starting in 2024.
To some extent, the company is undergoing a &#34;Back to the Future&#34; transformation. The latest financial report released by the company on Thursday shows that its offline outlet business is achieving unexpected success. Although the company has not separately disclosed the specific revenue of this business, its strong performance seems to align with the recent trend of consumers increasingly preferring &#34;experiential shopping.&#34;
This shopping method differs from traditional shopping; consumers often make a special trip to outlet malls or membership stores like Sam's Club under Walmart, viewing shopping as an experience that combines consumption and leisure. Vipshop has not particularly emphasized this part of the business in the past, with its offline operations mainly centered around the Shanshan outlet. However, in the latest performance report, this business has brought some highlights, including the company's plan to spin off the property portion of the Shanshan business into a Real Estate Investment Trust (REIT).
Vipshop indeed needs some new highlights, as its &#34;daily deals&#34; model is no longer fresh. Although revenue growth has stagnated, the company still maintains decent profitability, but its stock price-to-earnings ratio (P/E) is only about 7 times, less than a third of Alibaba's 21 times and JD.com's 24 times. Even the parent company of Temu, PDD, which has faced pressure in multiple markets recently, currently has a P/E ratio of 10 times.
Vipshop's latest performance indicates that its overall business remains weak, although the company achieved revenue growth for the second time in the past two years. However, the company also predicts that it will return to a revenue decline in the second quarter, expressing a rather pessimistic attitude toward the short-term outlook.
Founder and Chairman Shen Ya stated that the performance during the Lunar New Year holiday in February was relatively strong, but the situation quickly weakened afterward. &#34;After the holiday, we saw a noticeable slowdown in sales in March,&#34; he said. &#34;Entering the second quarter, the data for April was also not ideal, showing no improvement compared to March, and as of now, the situation in May remains very challenging.&#34;
<h4>Shift in Focus</h4>
Vipshop has indeed been trying to improve its business, but most of its measures lean towards incremental adjustments, lacking large strategic transformations that could excite investors about high growth potential. Among these, the company has recently allocated more resources to high-spending members and noted that its SVIP member count grew by 9% year-on-year in the first quarter.
For this company, primarily engaged in traditional apparel, another highlight is its recent expansion into sportswear and outdoor products favored by young people. The company pointed out that this segment has continued to perform well, helping to offset the weakness in its core women's and men's apparel categories.
These factors, combined with the 30% year-on-year growth of the Shanshan Outlets business during the quarter, collectively drove Vipshop's first-quarter revenue to 26.6 billion yuan (3.91 billion USD), a 1.2% increase from 26.3 billion yuan in the same period last year. However, the company expects to return to a revenue decline in the second quarter, predicting a year-on-year decrease of up to 5% in revenue for the three months ending in June.
Vipshop's gross margin slightly improved in the first quarter, rising from 23.2% in the same period last year to 24.4%, mainly benefiting from high-margin products and cost control measures. As a result, the company's net profit in the first quarter increased from 1.9 billion yuan in the same period last year to 2.2 billion yuan, a year-on-year growth of 13.6%. However, excluding stock incentive expenses, its adjusted profit remained flat year-on-year at 2.3 billion yuan.
Vipshop's stock price rose 2.1% on Thursday following the earnings report, reflecting a slight optimism among investors. However, the stock has performed flat overall in the past year, indicating that investors still need to see better performance, especially with the Outlets business contributing greater growth momentum and contribution, before they are willing to assign a higher valuation to the company.
The Outlets business itself is not new. Vipshop pointed out that its Shanshan Outlets in Zhengzhou and Harbin have been operating for about ten years. However, the company seems to have increased its investment in recent years, hoping to capture consumer demand for experiential shopping and high-cost-performance products amid a slowing Chinese economy.
CFO Wang Yuhua stated that the application for the separate listing of the Harbin and Zhengzhou Outlets properties has been approved by regulatory authorities at the end of last month, and pricing has also been completed this week. After the spin-off, Vipshop will retain about 49% equity in the REIT and can separate the related business from its financial statements. Additionally, the company expects to recognize a one-time gain of 5.3 billion yuan in the second quarter.
Wang Yuhua pointed out that in addition to the existing Outlets projects, the company currently holds another 18 Outlets projects, &#34;indicating strong expansion potential in the future.&#34; This Outlets model appears quite solid, allowing Vipshop to retain mall operating income while transferring the heavy asset properties to the REIT.
However, the company has not yet disclosed the revenue from the Outlets business separately, reflecting that this segment still accounts for a relatively small proportion of overall revenue. To further attract investors, the company still needs to accelerate the expansion of new stores to highlight its potential to become a large experiential offline retailer

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As e-commerce gradually becomes an "old story," large enterprises are seeking new narratives to maintain investor interest in their stocks. Alibaba is focusing on AI and cloud services, JD.com positions itself as a comprehensive enterprise covering diverse businesses such as healthcare and logistics, while PDD is trying to impress investors with the explosive growth of its overseas Temu business

- Vipshop has received approval to spin off two offline outlet projects into a real estate investment trust (REIT), with 18 similar projects in progress.  
- The company's revenue grew by 1.2% in the first quarter, driven by strong performance in its outlet business, partly offsetting weaknesses in its traditional discount apparel operations.  
- Despite this growth, Vipshop anticipates a revenue decline in the second quarter, reflecting ongoing challenges in maintaining investor interest and a need for more significant strategic transformations.

Leveraging Outlets, Vipshop Seeks to Restart Growth