On August 20, 2024, the veteran e-commerce platform Vipshop released its second-quarter financial report for 2024.

The financial report showed that in the second quarter of 2024, Vipshop's revenue was 26.875 billion yuan, a year-on-year decrease of 3.6% and a quarter-on-quarter decrease of 3%. Net profit attributable to shareholders was 1.9 billion yuan, a year-on-year decrease of 8%, showing overall fatigue.

Vipshop, which has always focused on flash sales, can be considered a model of the small but beautiful niche in the e-commerce sector. Amid the collapse of so-called boutique and luxury e-commerce platforms, Vipshop has retained a core user base and continued to record consecutive profits.

However, in the fiercely competitive e-commerce sector, no one can remain unscathed. As new and old e-commerce players compete fiercely for the remaining market share, Vipshop, which has been on the defensive, faces even more severe challenges in the context of price wars and service competition.

Marginalization Issue Remains Unsolved

On various social media platforms, discussions about Vipshop's alleged "price discrimination" against returning customers are increasing, with criticism directed at the higher prices for some products for SVIP members compared to regular users. On Xiaohongshu, for example, the comments section of related posts often divides into two camps: supporters and opponents of Vipshop, with heated debates.

It is understood that the alleged "price discrimination" is the result of Vipshop offering no-threshold coupons to new customers and long-term inactive customers. This controversy has uncovered the most pressing issue facing Vipshop at this stage—a lack of effective means to curb user churn.

The financial report showed that Vipshop's active user base decreased from 45.6 million in the same period last year to 44.3 million in the second quarter of 2024, a year-on-year decline of 2.9%. Concurrently, the number of orders fell from 213.8 million in the same period last year to 197.8 million, a year-on-year decrease of 8.1%. While the slight decrease in active users is not a major concern, the faster decline in order volume compared to monthly active users indicates a reduction in purchase frequency among existing users.

Considering the overall saturation and intense competition in the domestic e-commerce sector, the decrease in active users is not an isolated phenomenon. The financial report revealed that Vipshop's marketing expenses in the second quarter of 2024 were 740.7 million yuan, a year-on-year decrease of 17%. Cost control is partly responsible for the decline in active users.

However, compared to established comprehensive e-commerce giants and new players, Vipshop's relatively limited approach and limited viable paths may be the underlying reason for user churn.

From a flash sale perspective, the previous intense price wars in e-commerce to some extent shook the foundation of Vipshop's flash sale model. In e-commerce, the cost of switching platforms for users is extremely low, especially when discounts and traditional shelf shopping experiences converge. Vipshop, which cannot offer the lowest prices, inevitably becomes a target for "siphoning" by other platforms.

While cash flow remains adequate, Vipshop does not possess the same financial muscle as giants to burn money. Instead, it must find solutions in other dimensions, such as customizing products (exclusive offers) to avoid price comparisons across the internet. It is reported that in the first half of the year, Vipshop collaborated with nearly 200 brands in the field of customized products, with GMV from customized products growing by over 140% year-on-year, demonstrating significant results.

On the other hand, Vipshop has attempted to expand its product categories with limited success; to date, its primary focus remains on clothing and accessories. Product offerings often influence consumer demographics. An e-commerce platform must offer a broad range of products and cater to a wide audience to attract a large user base. Clothing flash sales, however, cannot compete with comprehensive e-commerce platforms in terms of both breadth and frequency, making it difficult for Vipshop to effectively counter aggression from other players.

How to avoid marginalization amidst the chaos of e-commerce competition is a pressing challenge for Vipshop at this stage. Beyond increasing investment for growth, Vipshop does not currently have many better options.

Typically, when players enter a high-potential market, the effectiveness of "money power" far outweighs the costs. However, having been established for many years and frequently appearing in variety shows and dramas, Vipshop has become reliant on this approach and has passed the "honeymoon phase" of burning money for growth. Returning to the old path of "buying users" is likely to yield low returns, especially with the persistent issue of user retention unresolved.

Based on this, during the conference call, Vipshop executives stated that the company would adopt a more aggressive customer acquisition strategy but would halt it if the customer acquisition cost was too high and the return on investment took too long. This suggests that Vipshop, which once frequently offered benefits to employees, is becoming more cautious with its resources.

SVIP: The Bittersweet Reality of Vipshop

Apart from the diminishing marginal returns of "throwing money around," Vipshop's caution in reviving its customer acquisition strategy also stems from the robustness of its membership economy.

Data showed that in the second quarter of 2024, the number of active SVIP users at Vipshop increased by 11% year-on-year, contributing 47% of online consumption and supporting an 8% year-on-year increase in average order value.

High-value member users are a key focus in the e-commerce sector during this financial quarter. Both Taobao and JD.com are leveraging their 88VIP and JD.com App's high-frequency users to defend their respective markets.

SVIP users at Vipshop fall into this category. Unlike miserly Douban users who flee at the slightest hint of commercialization, Vipshop's SVIP users treat the platform like a fitting room, keeping what they like and returning what doesn't suit them, demonstrating robust purchasing power.

Amid the decline in order volume in the second quarter, SVIP users significantly contributed to maintaining Vipshop's overall GMV. Vipshop also stated in its financial report: "The strong performance of our core brands and active Super VIP members demonstrates the fundamental strengths of our business."

For Vipshop, SVIP holds significant importance amidst the inability to break through existing models and uncover new growth avenues. SVIP is one of the few means for Vipshop to acquire customers at low cost while maintaining retention. The former relies on partnerships with high-traffic platforms for "cheap membership sign-ups," while the latter focuses on retaining users by enhancing membership value.

It is reported that Vipshop has partnered with platforms such as Tencent Video, NetEase Cloud Music, and Meituan Waimai, and in the second quarter of this year, offered limited-time benefit packages including Starbucks and Heytea coupons to SVIP members. The "Super VIP Buy 1 Get 7" campaign, for example, allowed some invited users to obtain a Vipshop SVIP annual membership and bundled benefits like Tencent Video VIP annual membership and NetEase Cloud Music VIP six-month membership for just 188 yuan.

However, similar to the repetitive announcements of "good news" from store loudspeakers years ago, which concealed the sweat and toil of business owners, Vipshop's continuous offering of discounts may also reflect concerns about customer acquisition and retention.

On the other hand, as previously discussed in Photon Planet's article "The Laid-Back King of E-commerce: Vipshop," the business of repeat customers is not always rosy, especially for paying SVIP users who are both spoiled and demanding and have developed a habit of buying and returning frequently due to Vipshop's long-term indulgence. Consequently, Vipshop finds itself in a dilemma between service and cost.

Taking price protection and price difference compensation as an example, a Vipshop user told Photon Planet that some branded clothing prices are limited to specific sizes, and after purchase, merchants may relist the same product under a different link, making the original product appear as out of stock to avoid price difference compensation. While this is likely the merchant's behavior, Vipshop strictly enforces "non-compliance with SVIP reasonable and compliant usage regulations" and "expels" users with high return rates.

Merchants on Vipshop also face pressure from the platform. An industry insider has pointed out that Vipshop has various means of punishing merchants, including surprise inspections by audit departments, which can result in severe fines and frozen payments. This further underscores the "double-edged sword" of Vipshop's SVIP program, as passing the buck is often preferable to taking responsibility when conflicts become unmanageable.

Conclusion

After this year's 618 shopping festival, the intense price wars in e-commerce have somewhat subsided, which is undoubtedly good news for Vipshop, allowing it to temporarily relax from the high pressure of defense and focus on cost optimization to improve profitability.

However, as mentioned earlier, in the long run, Vipshop faces an uncertain future amidst sector uncertainties.

Vipshop's financial report indicated that the company expects revenue in the third quarter of 2024 to range from 20.5 billion yuan to 21.6 billion yuan, representing a year-on-year decrease of approximately 10% to 5%. Despite the buyback plan, this outlook failed to prevent a decline in the company's share price—Vipshop finds itself in a predicament, seeking a way out while surrounded on all sides.

In the commercial arena, players struggling with growth bottlenecks, like Vipshop, typically have two classic "destiny-altering" scripts to choose from: either venture overseas to open up new markets or cling tightly to the trendsetter of the times, namely AI, as a lifeline. Vipshop has attempted overseas expansion, such as launching VIPSHOP in Southeast Asia, but with limited success. Against this backdrop, AI is gradually taking center stage.

Earlier this year, Vipshop's self-developed "Chaoche" large model passed the filing process. The financial report showed that Vipshop's investment in technology and content increased by 10% year-on-year in the second quarter of 2024, which may be related to this development.

According to Vipshop, the model can mass-produce e-commerce graphics and content and plans to launch a one-on-one intelligent shopping guide service. While the story of cost reduction, efficiency enhancement, and experience optimization holds water, expectations of a dramatic turnaround and new growth miracles from this initiative seem difficult to fulfill.

It is worth noting that perhaps due to the model not yet being fully refined, there has been little news about the "Chaoche" large model to date.

Ultimately, while Vipshop's overall performance in the second quarter was not disappointing given its solid performance in dimensions such as SVIP and profitability, it also revealed several hidden concerns. For Vipshop, which aims to defend its "discount retail" stronghold, short-term fluctuations in performance are not a major concern, given its stable profitability. However, whether it can amplify its differentiated characteristics and continue to delve into membership services will determine how far Vipshop can go in the future.