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Vipshop Holdings Limited (VIPS) Q4 2018 Earnings Conference Call Transcript

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Vipshop Holdings Limited (NYSE: VIPS)

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Image source: The Motley Fool.

Q4 2018 Earnings Conference Call

Feb. 21, 2019 , 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good day everyone, and welcome to Vipshop Holdings Limited's Fourth Quarter and Full Year 2018 Earnings Conference Call.

At this point, I'd like to turn the call to Ms. Jessie Fan, Vipshop's Head of Investor Relations. Please proceed.

Jessie Fan -- Head of Investor Relations

Thank you, operator. Hello everyone and thank you for joining Vipshop's fourth quarter and full-year 2018 earnings conference call . Before we begin, I will read the Safe Harbor statements.

During this conference call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations, assumptions, estimates and projections about Vipshop Holdings Limited and its industry. All statements, other than statements of historical facts we may make during this call are forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases, such as anticipate, believe, continue, estimate, expect, intend, is or are likely to, may, plan, should, will, aim, potential or other similar expressions. These forward-looking statements speak only as of the date hereof and are subject to change at any time, and we have no obligation to update these forward-looking statements.

Joining us on today's call are Eric Shen, our Co-founder, Chairman and CEO; and Donghao Yang, our CFO.

At this time, I would like to turn the call over to Mr. Eric Shen.

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

Good morning, and good evening, everyone. Welcome and thank you for joining our fourth quarter and full year 2018 earnings conference call. We delivered solid operating results in the fourth quarter of 2018, with total active customer growing by 13% year-over-year. Our collaboration with Tencent and JD continued to bring us high quality new customers.

In the fourth quarter, new customers from WeChat and JD accounted for 23% of our total new customer. Our existing customers are also becoming more loyal to our platform. As of the end of 2018, around 3.2 million customers joined our Super VIP Paid Membership, which is a 38% increase quarter-over-quarter. The initial renewal reach for customers who joined the program before 2018, was over 70%. We are glad that our customers realize the value of this membership. All this success is a result of our folks on merchandising and the shift back to deep discount products.

In the fourth quarter, we also delivered good results during the two promotion events. The number of active customers who participated during the year's Single Days increased by 23% year-over-year. In addition, our suppliers are now even more willing to partner with us as a result of the change to folks on discount retailing. More than 5,500 brands joined the December 8th anniversary sale, representing of 14% year-over-year increase.

Looking ahead, we will continue to focus on this discount retailing and our merchandising strategy, which has already shown some qualitative results in the fourth quarter. We are committed to getting the best products that's meeting to our customer needs, by becoming the dominant player in the apparel discount retail segment. We aim to further drive our profitability and deliver robust shareholder return in the long run.

At this point, let me hand over the call to our CFO, Donghao Yang, so that he may discuss our strategy in more detail and go over our operational and financial results.

Donghao Yang -- Chief Financial Officer

Thanks Eric and hello everyone. In the fourth quarter of 2018, we saw a healthy sequential recovery of our net margins, which is a reversal from the previous trend of declining year-over-year net income profile. Additionally, we generated robust free cash flow of RMB6 billion during the quarter, as compared with RMB2.1 billion in the prior year period. The positive changes in gross margin and net margin trends resulted from our focus on the highly profitable apparel category.

During the fourth quarter of 2018, we began to shift some low margin categories from our first-party business into the marketplace platform, which reduced their drag on our profitability. Further, GMV contribution from the apparel category, which has a relatively high return rate, but is more profitable as compared to other categories, increased from the prior year period. As a result, we delivered improved profitability, while still achieving a solid 15% year-over-year growth in GMV.

We began to disclose GMV as an additional operational metric this quarter, primarily due to a few considerations. First of all, as compared to total net revenue, we believe GMV serves as a better metric for industry comparison. Furthermore, GMV provides an additional perspective, understanding the scale of our business, in light of the recent development in our revenue mix. We record product revenue for our first party business and other revenue for our marketplace business. As we currently expect contribution from other revenue to increase, we believe the additional disclosure of GMV could help investors understand the scale of our business in a more consistent fashion.

In the fourth quarter of 2018, while our total net revenue grew by 8% year-over-year, our GMV grew by 15% year-over-year. This recent development in revenue mix will have a rather significant impact on our reported total net revenue in the coming quarters, making it less meaningful to compare future total net revenue numbers with historical figures. Therefore, we encourage investors to use GMV as an additional metric to measure the scale of our business and also focus on our profitability trends going forward. Please note that we continue to be committed to doing business on the first party model for our core categories, which is a key competitive advantage for Vipshop.

Moving on to logistics, we continue to build -- or we continue to build our warehousing capability, adding around 86,000 square meters of warehouses in the fourth quarter. As of December 31st, 2018, we had approximately 3 million square meters of total warehousing space, of which around 1.9 million square meters is owned by the company.

Turning to our Internet finance business, approximately 6.4 million active customers used our consumer financing service during the quarter, which accounted for around 24% of GMV. As of December 31, 2018, the total balance of credit outstanding, to customers with approximately RMB5.7 billion and the total balance of credit outstanding to suppliers was approximately RMB1.3 billion.

We remain focused on stabilizing our margins, through implementing strict (inaudible) as well as improving our category mix. Our core competency lies in our ability to procure desirable products at low costs. By continuing to execute on our merchandising strategy, we will enhance our profitability and drive improved shareholder return over time.

Now moving onto our quarterly financial highlights; before I get started, I would like to clarify that all the financial numbers presented today are in renminbi amounts, and all the percentage changes refer to year-over-year changes, unless otherwise noted.

Total net revenue for the fourth quarter of 2018 increased by 8.1% to RMB26.1 billion from RMB24.1 billion in the prior year period. Primarily driven by the growth in the number of total active customers. Gross profit for the fourth quarter of 2018 increased by 2.8% to RMB5.4 billion from RMB5.2 billion in the prior year period. Gross margin was 20.6% as compared with 21.7% in the prior year period. Fulfillment expenses for the fourth quarter of 2018 were RMB2.1 billion as compared with RMB2.1 billion in the prior year period. As a percentage of total net revenue, fulfillment expenses decreased to 8% from 8.9% in the prior year period.

Marketing expenses for the fourth quarter of 2018 were RMB1.1 billion as compared with RMB1 billion in the prior year period. As a percentage of total net revenue, marketing expenses were 4.3% as compared with 4.2% in the prior year period.

Technology and content expenses for the fourth quarter of 2018 were RMB533 million, as compared with RMB486 million in the prior year period. As a percentage of total net revenue, technology and content expenses remained stable at 2% year-over-year.

General and administrative expenses for the fourth quarter of 2018 were RMB821 million as compared with RMB780 million in the prior year period. As a percentage of total net revenue, general and administrative expenses decreased to 3.1% from 3.2% in the prior year period. Our income from operations for the fourth quarter of 2018 increased by 13.5% to RMB1 billion from RMB884 million in the prior year period. Operating margin increased to 3.8% from 3.7% in the prior year period.

Non-GAAP income from operations, which excludes share-based compensation expenses and amortization of intangible assets resulting from business acquisitions was RMB1.1 billion as compared with RMB1.1 billion in the prior year period. Non-GAAP operating income margin was 4.3% as compared with 4.6% in the prior year period. Our net income attributable to Vipshop shareholders for the fourth quarter of 2018 increased by 2.3% to RMB689 million from RMB673 million in the prior year period.

Net margin attributable to Vipshop shareholders was 2.6% as compared with 2.8% in the prior year period. Net income attributable to Vipshop shareholders per diluted ADS was RMB1 as compared with RMB1.07 in the prior year period. Non-GAAP net income attributable to Vipshop shareholders, which excludes share-based compensation expenses, impairment loss in investments, amortization of intangible assets, resulting from business acquisitions and equity method investments, tax effect of amortization of intangible assets resulting from business acquisitions, loss or gain on disposal, revaluation and value changes of investments, and share of result in investment of limited partnership that is accounted for as an equity method investee, increased by 2.9% to RMB914 million from RMB888 million in the prior year period.

Non-GAAP net margin attributable to Vipshop shareholders was 3.5% as compared with 3.7% in the prior year period. Non-GAAP net income attributable to Vipshop shareholders per diluted ADS was RMB1.33 as compared with RMB1.41 in the prior year period.

As of December 31, 2018, the company had cash and cash equivalents and restricted cash of RMB10 billion and short term investments of RMB2.3 billion. For the fourth quarter of 2018, net cash from operating activities was RMB5.9 billion.

Looking at our at our business outlook for the first quarter of 2019, we expect our total net revenues to be between RMB19.9 billion and RMB20.9 billion, representing a year-over-year growth rate of approximately 0% to 5%. These forecasts reflect our current and preliminary view on the market and operational conditions, which is subject to change.

With that, I would now like to open the call for Q&A.

Questions and Answers:

Operator

Thank you, ladies and gentlemen we'll now begin the question-and-answer session. (Operator Instructions). Your first question comes from the line of Alicia Yap of Citigroup. Please ask your question.

Alicia Yap -- Citigroup -- Analyst

Hello, hi. Can you hear me OK? Good evening, Eric, Donghao, Jessie, thanks for taking my question. A couple of questions, I think Donghao, you mentioned that GMV is now probably a better metric indication to look at the business. So just wonder, any color that you could share with us, like how fast we should expect the GMV to grow in 2019. Given your ended 2018 results, very strong GMV growth of 21%, how should we reconcile your 1Q net revenue guidance to how fast we could expect for 1Q GMV? And then any color on the full year GMV would be helpful. Thank you.

Donghao Yang -- Chief Financial Officer

I'll take the question. Okay, Alicia thank you very much for your question. Well, again, we do not provide guidance for the full year GMV. But if you look at our earnings release, we actually disclosed our GMV year-over-year growth for Q4 2018 as well as net revenue growth for the same period. The GMV growth for Q4 2018 was 15% compared to roughly 8% of net revenue growth for the same period. There is obviously a gap between the growth rates of these two metrics, which can serve as a very good indication on the gap between these two numbers going forward.

So, back to your question about the GMV growth of Q1, what we can tell you now is, the GMV growth for Q1 2019, we will --

for sure it would be higher than the net revenue guidance that we've provided here.

Operator

Thank you. Our next question is from the line of Wendy Huang of Macquarie. Please go ahead.

Wendy Huang -- Macquarie -- Analyst

Thank you, management. So your revenue guidance is suggesting a deceleration. I just wonder if you can actually quantify the impact from the different sectors, such as the macro impact on the overall consumption demand, the competition from other emerging players, especially those in the lower-tier cities as well as the change of revenue strategies? Thank you.

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language) So Wendy, we are not seeing a lot of negative impact macro wise on the e-commerce industry, particularly given that our ticket size is not too high in the few hundred RMB range. And we are not seeing further intensified competition in a lower tier city, given that we're actually seeing the strongest growth in a lower tier city and we are quite strong in the Tier 2 and Tier 3 cities, so not as much in the Tier 5 and Tier 6 city.

So even though we are seeing revenue deceleration -- accelerating, but that's mostly due to the revenue recognition from shifting some of our products from 1P to the 3P platform. So in terms of GMV, we're still quite pleased with the growth rate, particularly given the improvement in profitability.

Operator

(Operator Instructions). Your next question comes from the line of Alex Yao of JPMorgan. Please go ahead.

Alex Yao -- JPMorgan -- Analyst

Thank you, management for taking my question. I have a question regarding the user growth trends. We understand in second quarter and third quarter, the user growth acceleration was primarily driven by Tencent traffic. But another quarter of further acceleration is quite an achievement in our view, because you guys have been strategically de-emphasizing some of the standardized product categories. Can you elaborate what are driving the user growth in this quarter. How sustainable it is, are there any new traffic collaboration -- we saw the traffic corporation, you will do with Tencent, JD etcetera. How should we think about the user growth outlook for 2019? Thank you.

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language) So Alex, our collaboration with Tencent and JD has been almost a year and the those platforms are very helpful in terms of bringing new customers to our platform. So going forward, we will continue to collaborate with Tencent and JD and acquire new customers passing through these partner channels.

In 4Q we -- in addition to the partnership with Tencent and JD, we also adjusted our product offering. So we offer bigger discounts, we selected better products. In other words, we were more selective in terms of the kind of merchandising we put on the platform. And the good news is, customers are very receptive to this change. Therefore we achieved high new customer growth and the ticket size -- the first ticket that they purchased, is now a lot more toward the apparel category rather than the cosmetics category like it used to be. And we also noticed a very solid retention trend. So all of this proves that our merchandising strategy is in the right direction. And in particular, we launched this platform called (inaudible) on our platforms, which are more flash sales, deep discounts, (inaudible) is single product and (inaudible) is by event. So, both are delivering, very solid results and going forward, we will continue to work on deepening the kind of merchandising capability and the kind of discounts to we offer to our customers.

Operator

Thank you. Our next question is from the line of Joyce Ju of Merrill Lynch. Please go ahead.

Joyce Ju -- Merrill Lynch -- Analyst

Thanks management for taking my question. I would like to get more color on our marketplace initiatives. Could you please elaborate a bit more in terms of our strategy to grow our marketplace? How should we kind of forecast the breadth of the marketplace? Do we have any new category or like brands we would like to add and how should we understand the future take rate trend as well as our gross profit trend. Thank you very much.

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language) So Joyce, in terms of the marketplace in 4Q as we mentioned earlier, we had some changes, shifting certain standardized products, especially the ones with low gross margin and high fulfillment costs from our principal models to the third party platform. So this, one, improved our margin and also continued to invest in our category mix. The take rate for our marketplace is around 10% to 12% blended and looking toward 2019, we will continue to work with our partners to grow our marketplace steadily, and continuing to enrich the kind of offering we have across the platform, including the marketplace.

Operator

Thank you. Our next question comes from the line of Hans Chung of KeyBanc Capital Markets. Please go ahead.

Hans Chung -- KeyBanc Capital Markets -- Analyst

Good evening, management team. Thank you for taking my questions. So can you elaborate more, the detail about the dynamics in the category change. I mean, when did we start this initiative? I mean, in the fourth quarter, like what category, have we shift to and the marketplace model specifically and in what category have we exit? And then -- and assuming we --

this type of activity will continue into Q1, so should we expect the gap between the revenue and GMV growth become larger in fourth quarter than -- in first quarter than fourth quarter?

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language) So Hans, we actually started this shift in September. The impact of much bigger in 4Q, but we started to move the low ticket size items, including products in the category of Cosmetics and homegoods and food, etcetera from the principal model into the marketplace platform. In the fourth quarter, GMV contribution from the marketplace platform is 6% and we do believe that in Q1 and Q2, that contribution may continue to increase.

Donghao Yang -- Chief Financial Officer

And, well, let me take you -- the other question from Hans. So you were asking about, if the gap between GMV and net revenue in Q1 2019 will be wider than that into Q4 2018. Well that, we can't be very sure about, because there are a number of reasons -- the things that could have impact on the difference between those two numbers. Example seasonality, Q4 was the high -- was the peak season for apparel. Q1 maybe a little bit different. And also in Q1, we have our traditional Chinese Spring Festival. So those things may have an impact on the difference between GMV growth and net revenue growth in Q1 . But one thing that we are quite sure about is, the GMV growth is definitely going to be higher than net revenue growth in Q1.

Operator

Thank you. And next question -- by the way, once again to give chance to others, please limit your questions to one. Our next question comes from the line of Jin Yoon of Newstreet Research. Please go ahead.

Jin Yoon -- Newstreet Research -- Analyst

Hi, can you hear me?

Donghao Yang -- Chief Financial Officer

Yes.

Jin Yoon -- Newstreet Research -- Analyst

Okay, great. Sorry about that. Thanks for taking my question. I think, Jessie, you mentioned that GMV -- did I hear you correctly first of all that GMV 1P-3P split is about 6% 3P right now, is that correct? And then my follow-up to that is, we knew switchover from 1P to 3P mix, are you going to be eventually measuring your business being more of a FBA, Fulfillment by Amazon model, where you're actually doing the logistics and distribution for your 3P partners and your merchants. So hence we are going to be able to see that take rates actually scale. Is that how we should be thinking about the foreseeable future? Thanks.

Jessie Fan -- Head of Investor Relations

To answer your first question, Jin, yes, you're right, the GMV contribution from marketplace is around 6% and the remaining is from our direct model.

(Foreign Language).

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language) Jin, most of our marketplace customers actually use the major warehousing and delivery services in China, and not our own, including (inaudible). So at the majority is actually in that kind of model rather than the Amazon kind of model.

Some customers use our delivery, but not necessarily our warehouses at that the moment.

Operator

Thank you. Our next question comes from the line of Jerry Liu of UBS . Please go ahead.

Jerry Liu -- UBS -- Analyst

Hi, thank you. Yes, I want to ask about the margin profile in 2019, and maybe beyond. If we shift a bit more to the 3P model, could we see gross margin improvement? And if we look at fulfillment, fulfillment expenses were also lower in the last few quarters, but especially in the fourth quarter. So if 3P uses other people's fulfillment, do we also see a bit of a change in our OpEx ratio, especially fulfillment ratio? And again, what is the impact on margin in that case? Thank you.

Donghao Yang -- Chief Financial Officer

Okay. Well, thank you for the question. Let me take your question. Well, for gross margin, if you compare our gross margins for the last few quarters, you can easily see a recovery in our gross margins, for the last few quarters. That was definitely having to do with our category shift in our mix. As well as the marketplace contribution to our business is increasing.

And your other question is related to the fulfillment cost reduction. While we are just starting to experiment with outsourcing some of our last mile delivery operations to third party service providers, and it's going to take a while, and it's going to be depending on a number of things. One, our customer experience. Two, the collaboration with third party service providers. And so it's going to take a while, and which we are not so sure about how long.

So over the long term, the move to outsource some of the fulfillment services to outside -- to third party providers, will definitely help us reduce the costs. But it's just hard at this moment to quantify the impact on our financials, on our net margin, operating margins for this year, 2019.

Operator

Thank you. Our next question is from Monica Chen of Credit Suisse. Please go head.

Monica Chen -- Credit Suisse -- Analyst

Hi, management. Thank you for taking my question. I have a question about our ARPU. We noticed the ARPU trends in this quarter is getting a bit weaker than before. So we want to understand a little bit more of what's the reason behind? Especially, we see a larger decline in the order size, in this quarter, and how to think about the ARPU trend for 2019? Thank you.

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language) So Monica, to answer your question, yes, our ticket size is down by quite a bit 4Q year-over-year, but it's due to a few reasons. The first reason is, due to shifting some of the products from the first party business to the third party business. Order shifts from our third party buyers is up around 15 million orders year-over-year. So that's quite a significant impact terms of average ticket size.

And the second one is in the fourth quarter, during our two major promotional events, Singles Day and Anniversary Sale, we offered prepay, and the prepay amount increased also in terms of the number of orders by a few million. So in the prepay orders, they are also effective ticket size, given that customers don't always come to us using -- given the value that they are getting from the prepayment.

And the third major factor is, the new policy that we wrote out which is called (inaudible) in Chinese, it essentially mean you no longer have to bundle multiple items in order to get a certain discount. In other words, customers can enjoy the deepest offer by Vipshop by buying only one product that they would like to purchase. So in terms of ticket size, that will have some impact, but the shopping experience has improved significantly.

And the fourth and and the rather minor point is our Super VIP, because they enjoy free shipping and free returns, their ticket size tends to be lower than the rest of the customers. Given that our ARPU decreased by 5% year-over-year, we don't think it's too much of drastic change, especially given the robust customer growth. And we're actually quite pleased that we're seeing order frequency improve significantly to actually drive the GMV growth. That means, our customers are more sticky to our platform, they're visiting more frequently, and going into 2019, we are actually OK to see these kind of trends going forward as we -- what we want to do is serve our customers and also improve the number of new customers coming into our platform, as well as their shopping experience and shopping frequency over time.

Operator

Thank you. Our next question is from the line of Jamie Shen of Bank of China International. Please go ahead.

Jamie Shen -- Bank of China International -- Analyst

Hi management, I have a follow-up question on the removal of low margin categories from the first party to the third party platform. I was just wondering if we exclude of the sales of -- these low margin category sales from previous year's number, what would be the revenue growth with fourth quarter on an apple-to-apple basis, and also what would be the revenue guidance for the first quarter of 2019? Thank you.

Donghao Yang -- Chief Financial Officer

(Foreign Language) Well, I think -- I better take that question. I understand where you're coming from, and your question, but we haven't actually done that calculation, but if you need that information, maybe we can talk offline.

Operator

Thank you. Next question is from the line of Nicky Ge of China Renaissance. Please ask your question.

Nicky Ge -- China Renaissance -- Analyst

Hi, Shen (ph), Donghao, Jessie, thank you for taking my questions. I have a question about the impact from our business focus shift from 1P to 3P, to our last mile business in June and our warehouse business. Actually, we have seen that this quarter, we expanded our warehouse in past week. Just want to know what's the impact on those lines of the business here? Thank you.

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language) So Nicky, our shifting from 1P to 3P is not a big impact on Tianjin's business, which Tianjin is our own logistics unit. So given that our warehouses are quite massive, we are utilizing most of it ourselves, but we also plan to continue to lease out the spare capacity to other third-party. So we do not think this will have a major impact on the business on the the warehousing side.

Operator

We got a question from John Choi of Daiwa. Please go ahead.

John Choi -- Daiwa -- Analyst

Thank you for taking my question, I have a question on your gross margins, given that we are changing, we are focusing more on the -- back on the apparel, how should we be thinking on the take rate on this part? Should we be expecting a gradual uptake or do you think it's mainly going to be driven by more 3P, you're kind of offloading the profitability on the 3P business, onto a -- more to the 3P category. And just as a quick follow-up on the new user growth, you mentioned that 23% is from Tencent and JD this quarter, but it has been almost a year. Can you kind of give us kind of the user habit that has changed over the past, I would say, one year that has happened with this collaboration. Thank you.

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language) So John, as for your first question regarding gross margins, we do believe that in the future gross margin expansion is going to come from higher contribution from the apparel category, including better terms with our suppliers as well as doing more and doing better in our core apparel category. It's not going to come from continuing to move what we do well, which we consider core into the marketplace. So in terms of the marketplace, we will only be using that to enrich the category offering, and the more standardized categories. And we're quite confident that we have a dominant position in the apparel discounted retail segments, and we can continue to hone our skill-sets, as well as improve our merchandising capability.

As far as the WeChat side collaboration goes, we continue to experiment with both Tencent and JD in terms of how we can collaborate better. Our new customers on the wallets has improved by quite a bit, as well as conversion rates in the WeChat Mini Program. So we do believe there is a lot more to do with two partners, but we're still in the effort of continuing to experiment with them.

Operator

Thank you. Our last question is from the line of Hans Chung of KeyBanc Capital Market. Please go ahead.

Hans Chung -- KeyBanc Capital Markets -- Analyst

Yeah, thank you for taking my question again. So things like the the inventory level in apparel industry getting elevated, given a weak consumer demand environment. So, I would thing the this should be naturally a positive for the company, given the company is doing off-season product sales. So, can management team share with us, so far, how do we see the trend -- how do we benefit from the trend and and then any evidence to support that? For example, like you probably have more interesting for -- to bring customer or you have a new -- more new brands, doing the off-season sales. And finally, so how has been the apparel performance so far, like what's the GMV growth versus the overall GMV growth?

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language) So Hans, we did notice that brand actually always had the need to clear inventory and lately, more brands have had more need and they come to us because we are the biggest channel. So we'll continue to work with our partners to help them clear inventory, whether that's in season or out of season, as long as they can offer a good price. In terms of apparel contribution from 4Q 2017 to 4Q 2018, we saw a 7% to 8% increase, so that's quite positive, given our refocus back into the apparel category.

Operator

Thank you. We're taking our last question from Wendy Huang of Macquarie. Please go ahead.

Wendy Huang -- Macquarie -- Analyst

Thanks for taking my follow up questions. Can you give us some update on the in-season versus off season GMV breakdown? And also I think previously, you had some metrics such as sell-through rate is 50% and the return rate is 20%. So is there any changes with these two metrics? Thank you.

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

(Foreign Language) So Wendy, regarding your three questions, the first one is, we used to say -- have approximately 35% in new in-season apparel, and around 65% in off-season apparel, and now given that we're focused on deeper discount products and inventory clearance, our new inventory apparel is under 30%. And we will continue to focus on deep discounted product.

The second point regarding sell-through rate, that metric is no longer relevant, given that we used to disclose that metric in the logistics model first-in, first-out. And now we have connected our inventories, with our suppliers. So we no longer need to ship everything to our warehouse ahead of time. Therefore, given the JIT model, sell through rate in no longer something we track.

And the third point of return rates, in the fourth quarter, we disclosed that apparel contribution is up 7% to 8%. Given that, the return rate naturally will be slightly higher than before, it's up around 2% year-over-year.

Operator

Thank you. As there are no more questions, I'd now like to hand the conference back to our presenters. Please continue.

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

Thank you for taking the time to join us and we look forward to speaking with you next quarter. Thank you.

Operator

Thank you, ladies and gentlemen. That does conclude the conference for today. Thank you for participating. You may now disconnect.

Duration: 58 minutes

Call participants:

Jessie Fan -- Head of Investor Relations

Eric Ya Shen -- Co-founder, Chairman and Chief Executive Officer

Donghao Yang -- Chief Financial Officer

Alicia Yap -- Citigroup -- Analyst

Wendy Huang -- Macquarie -- Analyst

Alex Yao -- JPMorgan -- Analyst

Joyce Ju -- Merrill Lynch -- Analyst

Hans Chung -- KeyBanc Capital Markets -- Analyst

Jin Yoon -- Newstreet Research -- Analyst

Jerry Liu -- UBS -- Analyst

Monica Chen -- Credit Suisse -- Analyst

Jamie Shen -- Bank of China International -- Analyst

Nicky Ge -- China Renaissance -- Analyst

John Choi -- Daiwa -- Analyst

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