E-Commerce China Dangdang (DANG) Q2 2014 Results - Earnings Call Transcript

Aug.14.14 | About: E-Commerce China (DANG)

E-Commerce China Dangdang (NYSE:DANG)

Q2 2014 Earnings Call

August 14, 2014, 7:00 AM ET

Executives

Sophia Zhou – Investor Relations Director

Peggy Yu Yu – Co-Founder, Executive Chairwoman

Jun Zou – Financial Reporting Director

Analysts

Evan Zhou – Credit Suisse

Chi Tsang – HSBC

Ella Ji – Oppenheimer

George Chang – Macquarie

Xin Wang – BOCI

Tian Hou – T.H. Capital

Henry Guo – JG Capital

Binnie Wong – BofA Merrill Lynch

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2014 E-Commerce China Dangdang Inc. Earnings Conference Call. At this time all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. (Operator Instructions) I must advise you that this conference is being recorded today, Thursday, 14th of August, 2014.

I would now like to hand the conference over to your first speaker today, Ms. Sophia Zhou. Thank you, please go ahead.

Sophia Zhou

Thank you, and welcome to our second quarter 2014 earnings call. With me today are Peggy Yu Yu, Executive Chairwoman; and Jun Zou, the Financial Reporting Director of the company. Before we continue, I refer you to our Safe Harbor statements in our earnings press release, which applies to this call, as we will make forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which includes a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that, unless otherwise stated, all figures mentioned during the call are in renminbi.

Now, I would like to turn the call over to our Executive Chairwoman, Peggy Yu Yu.

Peggy Yu Yu

Thank you. Good morning, good evening, everyone. I'm very pleased to report another successful quarter for Dangdang. We achieved strong top-line growth, higher gross margins, and posted a third consecutive quarter of profitability. Very importantly, our excellent execution allowed us to expand our profit margins while investing for future growth.

Our financial condition is solid. We closed the quarter with aggregate of RMB1.6 billion in cash and cash equivalents and we had no bank debt at the end of the quarter. We continue to make good progress in transforming Dangdang, well beyond the online book store. In building an integrated shopping mall with destination categories, we are having more customers buying apparel, baby and maternity and other products from Dangdang.

Our net revenue from principal business and the fees earned from merchants were 31% year-over-year and it reached RMB1.96 billion in the second quarter of 2014. GMV from the market price were 81.6% year-over-year and reached RMB1.4 billion.

The combined sales of both our principal business and the third-party marketplace reached RMB3.3 billion and grow 49% year-over-year. We believe having a distinct category advantage, it’s critical in China’s e-commerce business.

The retail industry in China is highly fragmented with limited category leaders. Dangdang’s first destination category of books has been successful and that we are building our newest destination categories of apparel, baby and maternity products among others.

We offer both principal sales and third-party merchant sales of all of our categories based on customer experience of pricing, selection and convenient factors. We are home to several thousands of quality merchants also in a wide variety of products.

Our commitment to price and quality part of our brand promise. So we are highly selective when adding new merchants to our marketplace. The strong second quarter results validate our strategy and execution.

Now, let me update you on key achievements. Our efficiency allowed us to reduce operating expenses as a percentage of net revenues to 17.5 from 22.4 a year ago while we invested in logistics and marketing spending.

In procurement, we increased the delivery speed to settlement subject and the third city. So that customers in this region are now getting Dangdang parcels faster than before. We added some of China’s largest third-party delivery companies collectively known as Zhongtong Yunda network.

We utilize Guan Air and the rail transportation very effectively to improve delivery speeds. Today, 46,000 packages delivered to second tier and third tier cities that used to be delivered in today cannot be delivered the next day. We are mobilizing strong delivery center or SDC to improve our phone order for human race which is a measure of our ability to fulfill all items in order from a single warehouse.

Our SDC centers give us scalability and the ability to allocate and replenish inventory among warehouses more quickly allowing us to fulfill more orders at local distribution centers. We also increased the number of FTEs in each of our warehouses.

Overall marketing spending rose this quarter as we advertised for destination categories of apparel, baby maternity and books. We made strong headway in mobile Dangdang this quarter by adding new interactive features to enhance customer experience, we saw improvements in customers’ stickiness and conversion rates. We also encourage customers to transit to mobile Dangdang from PC by providing discounts for first time mobile purchases.

Mobile orders were 17% of total orders in the second quarter 2014 and this rose to 22% in June. We expect mobile orders to increase throughout the year. In summary, in the second quarter 2014, we achieved impressive change in both bottom-line – in both top-line and bottom-line while we invested for our future growth and enhanced customer experience.

We will continue to develop our business in healthy manner and expect to drive future growth through our marketplace and principal business with a strong emphasis on our destination categories.

China’s e-commerce industry has long-term substantial growth potential and it is immensely competitive with raising Chinese e-commerce company IPOs and the future ones to come, we get asked this question a lot, how will Dangdang stand out competitors? My answer is Dangdang will lead in e-commerce development in China and the way we deliver.

Dangdang has a good balance of profitable product lines and the fast-growing younger categories. Dangdang’s growth is based on tens of millions of satisfied customers. Dangdang manages our technology platform supply chain and the marketing efforts very efficiently while other Chinese equity companies are attempting to break away from having attendance on a single product category although gross margins, Dangdang enjoys are optimal category structure backed by a strong financial condition and balance sheet. I am confident of superior operation management will deliver strong results.

Let me now turn the call over to Jun Zou, Dangdang’s Financial Reporting Director for the financial review.

Jun Zou

Thank you, Peggy. I will now discuss the second quarter results in more detail. Our net revenues reached RMB1.96 billion in the second quarter of 2014, the year-over-year increase of 31%.

Media revenue was RMB1.36 billion which was up 44% year-over-year. General Merchandize revenue was RMB524 million up 8.2% year-over-year. Other revenue which is commission-based revenue milling from the marketplace was RMB80 million, a year-over-year increase of 26%.

The GMV of the marketplace in the second quarter was RMB1.43 billion, up 82% year-over-year and above our guidance of 80% year-over-year growth. General merchandize sales from both principal and marketplace grew 54% year-over-year and exceeded books and media sales for the second consecutive quarter demonstrating our continued successful in transforming our company from an online bookstore into an integrated online shopping mall with prominent destination categories.

The combined sales of both principal and marketplace including all types of products such as media and general merchandize reached RMB3.3 billion and grew 49% year-over-year. We grew the number of new customers by 23% year-over-year to about 2,9 million active customers increased by 12% year-over-year to around 8.5 billion.

The average contribution per customer improved 34% to RMB391, up from RMB293 in the same period last year. Total orders in the second quarter were around 15.5 million, up 10% year-over-year.

Gross margin was 80.3% in the second quarter, an increase from 17.1% in the same period last year and 18.3% in the first quarter of 2014. The year-over-year increase resulted from strong gross margin contributions from both the periods for that and the increase in other revenues resulted from the sustained scaling of the marketplace.

Gross profit was RMB359 million, a year-over-year increase of 40.2% and a quarter-over-quarter increase of 30.2%. Fulfillment expenses in the second quarter which includes warehouse and shipping expenses for RMB189.8 million, an increase of 6.3% year-over-year. Fulfillment expenses were 9.7% of net revenues compared to 12% in the same period last year and 9.8% in the first quarter of 2014.

The year-over-year and quarter-over-quarter decreases in fulfillment expenses as a percentage of net revenues were primarily due to lower shipping costs and larger order size. Marketing expenses were RMB81.5 million, representing 4.2% of net revenues compared to 5.1% in the same period of last year and 3.9% in the first quarter of 2014.

The year-over-year decrease in marketing expenses as a percentage of net revenues was due to heavy promotion in the same period a year ago associated with the launch of company/sales channel.

The quarter-over-quarter increase as a percentage of net revenues reflected increased advertising and marketing programs to build awareness of Dangdang’s destination categories.

Technology and company expenses were RMB47 million, which was 2.4% of net revenues compare to 3.1% in the same period in 2013 and 2.5% in the first quarter of 2014. The year-over-year and quarter-over-quarter decreases in technology expenses as a percentage of net revenues were primarily due to the operating leverage.

G&A expenses were RMB 41.6 million, which represented 2.1% of net revenues, compared to 2.3% in the same period last year and 2.2% in the first quarter of 2014. The year-over-year and quarter-over-quarter decreases in G&A expenses as a percentage of net revenues were primarily due to a larger scale and improvements of management efficiency.

Share-based compensation expenses, which were allocated to related expense line items were RMB 2.9 million in the second quarter compared to RMB 2.6 million in the same period in 2013, which was an 11.3% increase.

Net income was RMB 28.8 million, compared to a net loss of RMB 63.9 million in the same period last year, primarily due to the increase in gross profit and operating leverage.

Net margin was 1.5%, compared to a negative 4.3% in the second quarter last year and represents the third quarter consecutive quarter of profits.

Diluted earnings per ADS were RMB 3.35, as compared to a diluted loss per ADS of RMB 0.80 in the corresponding period in the last year. .

Now moving to the balance sheet. As of June 30, 2014, we had total cash position of RMB 163 billion as compared to RMB 1.21 billion as of December 31, 2013.

We have no backlogs as of June 30, 2014 and additionally, we generated cash flow from operations of RMB 246 in the second quarter of 2014.

Turnover days for accounts receivable were 1.9 days in the second quarter of 2014, compared to 4.2 days in the corresponding period last year with more customers show various online payment methods instead of cash on delivery.

Turnover days for inventories in the second quarter of 2013 were 109 days, as compared to 103 days in the second quarter of 2013. This we prepared inventory for new warehouses in Tianjin and Chenzhou this quarter

Turnover days for accounts payable were 145 days in the second quarter of 2014, compared to 139 days in the corresponding period a year ago, due to better commercial terms with our suppliers.

Our CapEx for the second quarter of 2014 were RMB 23.7 million, primarily for our new warehouses in Tianjin and Chenzhou.

Finally, our outlook for the third quarter of 2014 is as follows: we expect total net revenue in the third quarter of 2014 to be around RMB 1.98 billion, representing a year-over-year growth of 30%. We also expect our GMV from our marketplace to grow at the rate of 80% year-over-year to about RMB 1.7 billion in the third quarter of 2014.

Now we will open the call to questions. Please go ahead. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Evan Zhou from Credit Suisse. Please ask your question.

Evan Zhou – Credit Suisse

Hi, good evening, Peggy, Sophia, Zou Jun. Thanks for taking my questions. First question is about the – your marketplace business. How do you see the mid-term growth target for that business maybe into the next year, next two years? We’ve been through some pretty decent grow within for the past several quarters at 80% or most of the next quarter at 80%.

So, how do you see that trending going forward? And if you could break that down into the different categories of growth at which category is growing as faster will be helpful for us?

Peggy Yu Yu

Evan, the market growth rate we target near and mid-term could be around 80%. In terms of breakdown, the largest is apparel and then baby maternity, then consumer electronics then food and beverage, so on and so forth.

Evan Zhou – Credit Suisse

Right, and which category do you see like faster growth?

Peggy Yu Yu

Apparel growth is – yes, apparel which is Dangdang’s destination category, we have dedicated more resources in terms of mobile and web page exposure in terms of advertising dollars and in terms of other resource and the category grows fast. And then, baby and the maternity because Dangdang has a very large young moms and pregnant women following so much to our baby book category are also performing very strong.

Evan Zhou – Credit Suisse

Right, understood. Thanks. My second question is regarding the phone, I mentioned that we…

Peggy Yu Yu

Second question regarding what? Sorry, I didn’t hear you.

Evan Zhou – Credit Suisse

Fulfillment.

Peggy Yu Yu

Oh, fulfillment, okay.

Evan Zhou – Credit Suisse

Yes, yes. So you mentioned recently, you recently add the central – you are doing that work and also that enables to the next stage into your Q2 sweep it is. I was wondering that how do you see that will potentially impact our fulfillment and just spending revenue going forward and also, I think we recently add a launch to be open a new warehouse in Tianjin and how do you see that the ramp up phase and how do you see that the new launch of the warehouse have an impact on our fulfillment going forward? Thanks.

Peggy Yu Yu

The Tianjin distribution center which is about 1 million square feet will help Dangdang with a lot of intra warehousing shipping features. And it acts both as a distribution production center as well as the largest SDC from delivery center which takes inventory from different manufacturers and then sent to different warehouses at different Dangdang locations.

So this warehouse will help us with getting orders and getting orders from vendors faster and it will also help us a local center to be able to fulfill orders all orders from one single location. So the Tianjin warehouse I think in the long run is part of the major backbone in our logistics network and it’s going to help us to increase the service level at Dangdang warehousing operation. And in terms of cost, it’s going to have a slight increase in helpful factor, but by having already very low warehousing expense.

I think this cost or expense reduction from Tianjin warehouse is somewhat limited. It’s going to help our future a lot and your question regarding the delivery network of Zhongtong Yunda. Zhongtong Yunda is helping us to reach different locations and at faster speed and the agreement we have with Zhongtong and Yunda are very good results because Zhongtong is one parcels and Dangdang has many parcels from third-parties. And we don’t see much cost pressure by adding Zhongtong Yunda and how I would describe it.

Evan Zhou – Credit Suisse

Got it. Yes, helpful, thanks Peggy.

Operator

Thank you for your question. The next question comes from the line of Chi Tsang from HSBC. Please ask your question.

Chi Tsang – HSBC

Great, thank you for taking my question and congratulations on a solid set of results. I wanted to ask you a couple of questions regarding the media business first off. That business seems to be sort of ticking up, it’s up about 43.5% year-on-year. Can you maybe give us some color on what’s happening there, as you know that’s the most profitable category that you have in terms of revenue lines?

Peggy Yu Yu

Yes, media business performed very well this quarter, I think, because we did a very, very large seasonal promotion, actually three of them last quarter. In April, we had a waiting season [Foreign Language].

In May, we had the Students Day and [Foreign Language] and in June, we had the mid-year anniversary sale. So, very large promotions or activities pushed the sales of media business this quarter very strong. I think it has a very strong quarterly flavor to it.

Chi Tsang – HSBC

Is that, are you expecting to do more sort of these monthly special activities in the coming quarters or is it more of a 2Q-specific situation?

Peggy Yu Yu

I think it’s quarter-specific thing, yes.

Chi Tsang – HSBC

Okay, and secondly, my second question is regarding the marketplace, can you give us an idea of what the – what your expectation is on take rate and also your expansion plans? And how you expect to reach the 80% growth rate in the marketplace? AS I know you guys are talking about expanding into different categories that sort of things? Thank you very much.

Peggy Yu Yu

The other revenue of Dangdang this quarter is about RMB 80 million which grow 26% year-over-year and that already reflect the fact that the shipping revenue we used to get from third-parties, we no longer get it. So, the commissions and advertising we are getting from merchants are growing very decent.

So, 80% increase from market rates, we intent to have our vendors to help them with more sales per vendor. As I noted in my remarks Dangdang is very selective about adding merchants because we want to stand behind our commitment to price our commitment to brands and our commitment quality.

By taking this very selective approach, we want to make sure the merchants would pick up and the products they sell and the service and delivery speed we can guarantee to our customer are all guaranteed. So by helping vendors to sell more to our media customers to sell more to our principal business customers is a primary growth factor for marketplace to go up. And we are also very selectively will be adding more merchants in our destination categories mostly.

Chi Tsang – HSBC

Okay. Thank you.

Operator

Thank you for your question. Your next question comes from the line of Ella Ji from Oppenheimer. Please ask your question.

Ella Ji – Oppenheimer

Good evening, management and congratulations on a strong quarter. My first question is relating to the number of active customers. I see that it has been trending down moderately for two quarters, quarter-over-quarter, could you give us some color as to what happened there?

Peggy Yu Yu

Yes, the active customers went down as you noticed in the quarter and I think it has something to do with the fact that – a lot of – some of our old customers are not quite familiar with the new categories, apparel and the general merchandize we are adding on.

And we would like to look for better methods of getting those customers to be more active with more categories. And I think that’s an area we can improve going forward. But I am very glad at the same time the average spending among existing customers went up and this helps us to achieve top-line growth and also GMV growth.

Ella Ji – Oppenheimer

Okay, got it. And then my second question is relating to your general merchandize product sales. In that category, we are seeing some volatility in the year-over-year growth.

For example, this quarter’s number is a little bit lower than last quarter. So could you also give us some color there and also I wondered, with your GMV product sales, how much of the sales or customers are currently from your book sales customers and how much is quite independent sales?

Peggy Yu Yu

When we look at the general merchandize sales, we should look at 54%, I think that’s a very respective growth number. I am not hitting to a comp of both principal business as well as marketplace business. And you had a second part of your question, can you repeat that again?

Ella Ji – Oppenheimer

Sure.

Peggy Yu Yu

New volatility refers to either market – refers to the principal part of general merchandize, what I am saying is, the general merchandize growth is sharp from both principal and third-parties has been going up above – has been growing at more than 50% very consistently. Yes, now I remember, your question about the customers by independently about general merchandize.

Ella Ji – Oppenheimer

Yes, I just wanted to know, yes, how many of your GMV products customers are just going there and buy the GMV products alone versus how many are – maybe buying books and then successfully cross-sell the GMV products to them?

Peggy Yu Yu

Most of the customers come to Dangdang to buy general merchandize. A lot of them are from media, book customers and some of them develop through our marketing and advertising efforts. I would categorize that most of our customers from Dangdang general merchandize cross-selling customers.

Ella Ji – Oppenheimer

Got it. Thank you very much Peggy.

Operator

Thank you for your question. Your next question comes from the line of George Chang from Macquarie. Please ask your question.

George Chang – Macquarie

Thank you for taking my questions. Firstly, I want to follow-up on Ji’s question early on take rates for your marketplace, yes, take rates for marketplace last couple quarters has been around 5.7%, 5.6%. I was wondering is that’s sort of the level you see, should be going forward or about that how should we think about take rates going forward? That’s the first question.

Peggy Yu Yu

Okay, the take rate going forward should fluctuate around 5.5%. I think for the whole year, internally when we discuss it, we think around 5% for several reasons, why, a year ago, a very large part of our other revenue comes from the shipping revenue which we received from customer which we paid to the shipping vendors and we don’t make any profit.

And now as we are having vendors to go directly with our core network and the shipping revenue we’ve got, which we’ve got a very large portion of take rate a year ago, no longer contribute to the take rate. So that explains why the other revenue growth is slower than the GMV growth.

And in the longer term, we are also adding new features and so the core network will – that pricing and then their shipping part and then shipping service and other things will be revoke into Dangdang’s shipping network at the end. And that longer-term it will go up. And so, that’s the structure of the take rate.

Take rates also get affected by different product mix. In certain quarters when we added more lower margin products such as electronics or food and beverage which is only 0.5% of GMV. That can drag down the take rate somewhat. The near and mid-term fee, I think 5%, 5.4%, 5.6% is all possible.

George Chang – Macquarie

Okay, thanks for that Peggy. My second question also relates to the market rate. You highlighted earlier that apparels and jogging apparels is a big part of the marketplace, GMV. I was wondering number one, do you have a rough percentage that you can share with us or the GMV from this particular vertical?

And number two, I think, management may have managing it before that you are considering getting into the principal model of the apparel sales and I was wondering do you have any update for us?

Peggy Yu Yu

The rough percentage of apparel in marketplace is more than 50%. And that is split. And for the apparels sales, using our principal business, we look into it and we don’t have immediate churn of doing it yet. And we will keep you well informed if we do that.

George Chang – Macquarie

Okay, thanks you Peggy.

Operator

Thank you for your question. The next question comes from the line of Xin Wang from BOCI. Please ask your question.

Xin Wang – BOCI

Thank you very much for taking my question. I have a follow-up on the active customer number this quarter. So it seems the total order number was stable Q-on-Q. And mobile orders accounted for 17% compared to 7% in Q1 if I remember correctly.

So, what should we expect from mobile contribution regarding attracting new customers, because it seems PC orders like shrunk 10% Q-on-Q. So, I was wondering if you are comfortable with this change and if this is a sustainable trend and I have a follow-up. Thanks

Peggy Yu Yu

Well, I am comfortable with the rise of mobile orders. For the whole second quarter, mobile orders were 17% and throughout the quarter, it went up. In June, we saw the mobile orders on Dangdang going up to 22% and during peak promotional period, with the mobile orders to be around even – 30% to 35%. So I think the fact, mobile is playing enormously, enormously an important role in online shopping and it’s occupying overpowering PC, it’s a trend that is going to save go forward. So, we are very happy that our mobile orders to consistently go up during the quarter and we think that our mobile order as a percentage will continue to increase throughout the year.

Xin Wang – BOCI

Thank you. My second question is that, the fulfillment cost for other interest this quarter, so is it sustainable as it kind of recover a little bit from Q1?

Peggy Yu Yu

The fulfillment orders, the fulfillment cost went up slightly this quarter and as we invested in packaging material and some other features, and in the choice begun bidding down fulfillment popular, or getting customers better experience, and the better packaging which will have to give them better fulfillment and delivery experience.

Since our overall operating expense as a whole went down to 17.5 from 22.4 a year ago, we are comfortable by giving customers better parcels and better services rather than, pushing their fulfillment expense to the rock-bottom low. So it’s very dependent to this of better service level and lower expense, we call better customer experience.

Xin Wang – BOCI

Thank you very much.

Operator

Thank you for your question. Your next question comes from the line of Tian Hou from T.H. Capital. Please ask your question.

Tian Hou – T.H. Capital

Hi, Peggy. Two questions. One is related to the marketplace and you have assorted marketplace business for a while and also we saw some other e-commerce companies and actually pretty much over e-commerce companies you have starting from self-procured enter into marketplace, like JV.com, like VIP Shop and you may not mentioning the biggest one is, Alibaba.

And I just wonder – and also you gave a high revenue growth, GMV growth guidance. I just wonder, why everybody enter into marketplace and also for Dangdang, what sort of a something you can offer to a merchant that the merchants couldn’t get it from elsewhere in terms of marketplace business? So, what are some differences you have? That is number one question.

Number two is related to a Flash Sales business and did you thought that Flash Sales last year even second quarter and what do you see Flash Sales difference between yours and VIP Shop.

And apparently VIP Shop is the leading vendor in Flash Sales business. So, what’s the difference between you guys? And, going forward, how are you going to equalize the Flash Sales business and develop your other business what’s the synergy there? That’s the two questions.

Peggy Yu Yu

Okay, in terms of marketplace, you are absolutely right in observing that all people see companies are developing a third-party marketplace and Alibaba have a different category. They started by being a market typing expert, more than 10 years ago. And I think the reasons we developed marketplace is, the – to do each category all from scratch by our own, it takes longer.

So having a marketplace is a faster way of being able to offer more categories to customers at relatively short period of time. So I think that’s one reason. And another reason is the regional experience. And, certain vendors they would know consumers say in Guangzhou very well and certain vendors will know consumers and how they dispense other things in another region very well.

And marketplace is a good place that those different merchants in different areas can play this regional difference better than a general large e-commerce player such as Dangdang. And I think the third thing is that economic logic behind market place is a – how do I say, consumer expertise and certain vendors they would just know, young girls in their 20s who are very much into certain type of dresses or shorts better than anybody else, maybe someone just specialized in slim jeans and slim jeans vendors, they know the slim jeans trends and that who buy them and what kind of slim jeans will really be liked by consumers.

But it since they couldn’t satisfy regional demand and knowing consumer needs and then having a particular product expertise, the economic logic behind why people see companies begin to develop marketplace.

And then, we see situation in Dangdang, and then there is the most important reason that e-commerce companies having a marketplace is, no one wants to have a one single category product, like Dangdang started as a book seller and Dangdang wants to go beyond books which we have achieved the goal.

And I think general merchandize sales are more than 60% of Dangdang’s sales. But for a company to have new category development and to reduce dependence on one single product category marketplace is a measure, is a strategy that can be approached. And in terms – and you also ask me what Dangdang offers to merchants.

Tian Hou – T.H. Capital

The difference than others.

Peggy Yu Yu

Oh, difference from others – customers?

Tian Hou – T.H. Capital

Yes, yes.

Peggy Yu Yu

Dangdang’s customers – if I group a bunch of customers in some of these, the customers of Dangdang versus customers of V Shop, I think they are different and Dangdang’s customers tend to be more mature, age 28 to 35 and then some other companies’ consumers are younger.

And Dangdang’s consumers are – a lot of them are white collar office employees and they have other some companies they ask, college or – college students heavy. So, I think, customers are something that Dangdang has different following. And another thing is Dangdang’s ability of handling logistics very well.

From merchants to do their business and the can use Dangdang’s logistic technology platform, they can pre-sort, re-sort, routing and do other things very well with Dangdang logistic network.

And also Dangdang’s technology platform also helps our merchants. We have 100 independent software developers with different packages that merchants can pay and take and keep together for them, rather than having their own packaging or rather than having their own development.

So, I think the customer and the logistic and also tech platform are what we are helping merchants to access customers to sell more. And, yes, your next question is about flash sales.

Tian Hou – T.H. Capital

Flash sales.

Peggy Yu Yu

Yes, flash sales was launched in the second quarter 2013. I remember at that time, a year ago, we had a big campaign and advertising for our flash sales and to start with. And Flash sales is a very important part of our third-party market activity and flash sales in Dangdang is made of more category in addition to apparel, we also have other food and clothes and other types of things go into this, go into flash sales. So, that’s one thing. And another thing is, to address the consumer difference.

The Dangdang consumers tend to be savvy and more logic and the core was their spending while we think flash sales apart of our sales. Flash sales used to for those people who are very – I wouldn’t say, actually use that that word, composite, but there are likely, certain customers just like the speed snap up something during a relatively short period of time. But a lot of Dangdang customers, they like to put things in a basket and then, when they have time, then they chat with their friends to get the – they buy it later.

So to cater to our consumers, which savior have more money and then we have both regular sales and flash sales even in the same product category. So flash sales is one type of sales mode that Dangdang uses.

Tian Hou – T.H. Capital

That’s very helpful, Peggy. Thank you. Congratulations on a good quarter again.

Peggy Yu Yu

Thank you.

Operator

Thank you for your question. Your next question comes from the line of Henry Guo from JG Capital. Please ask your question.

Henry Guo – JG Capital

Hey, thanks for taking my question. So a very quick one first. Regarding the CapEx, so like what I expected for Q2, so, could management give some color regarding how should we think about CapEx for the rest of the year? Thank you.

Peggy Yu Yu

I think, CapEx in 2013 was about RMB 94 million, RMB95 million and that with the whole year of 2014 should be 15% above what we spend in 2014. That’s the range we look at.

Henry Guo – JG Capital

Okay. Great, great. And then my second question is again regarding the principal general merchandize segment. So we see significantly decelerating growth there for Q2. So, going forward, how should we think about this principal general merchandize segment. Thank you.

Peggy Yu Yu

Going forward try to reduce the difference between principal and marketplace. As long as it’s general merchandize sales which is from both third-party and the principal growth part, I’ll be very happy.

And, we had mobile Dangdang, we had PC Dangdang and that we need to make a choice between how much resource we allocate to different types of products and principal and third-party. I’ll be very happy if general merchandize as a group to take into both principal and third-party marketplace and grow at certain rate about 50% which I think last quarter was 54%, that’s a very good equation that I want to drive.

Henry Guo – JG Capital

Okay. Thank you.

Operator

Thank you for your question. Your next question comes from the line Binnie Wong from BofA. Please ask your question.

Binnie Wong – BofA Merrill Lynch

Hi, Peggy and Sophia. Thanks for taking my question. I have two questions here. I was wondering that within the marketplace we understand that you said over 50% of that was related to apparel, how much was that related to Flash Sales?

And I guess, second question was that, on the Flash Sales, given the competitive landscape of the apparel Flash Sales market, what is Dangdang’s competitive niche? How we can position differently from the competitors? And my second question is on the fulfillment centers.

So, given your update earlier on, on that, we still have, what is the percentage of orders for marketplace that are handled by Dangdang’s fulfillment center? Or is it that basically, most of them will be going through the Zhongtong Yunda, going on?

And then, so, gradually, there will be not much marketplace order handled by our own fulfillment centers? Thank you.

Peggy Yu Yu

Flash Sales in the marketplace is a significant portion, but it’s less than, how do I say? 50% of the marketplace. And that’s a lot less than that. And the flash sales are particularly tapered to consumers and that they like in certain hours, just snap up, certain feeds. So, for this particular type of consumer’s behavior in consumer like we offer them Flash Sales.

And that’s how I look at it. And for the procurement, by having Zhongtong Yunda in delivery network, it doesn’t mean that the logistics no longer goes through Dangdang. The logistic network do goes through Dangdang because we offer them a lot of fulfillment and the back-end operation.

And historically, we – a lot of the core network, their IT back-end was part of the Dangdang’s back-end logistic network and then with Zhongtong Yunda, those new tech features are being built into this. So, whether the package goes through Zhongtong Yunda or goes through another courier locally, they are handled by Dangdang logistic support and customer support.

Operator

Thank you for your question. Ladies and gentlemen this does conclude our conference for today. Thank you for participating. You may all disconnect.

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