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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
20-F
 
 
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                
to
                
OR
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
                    
Commission File Number:
001-35454
 
 
Vipshop Holdings Limited
(Exact Name of Registrant as Specified in Its Charter)
 
 
N/A
(Translation of Registrant’s Name into English)
Cayman Islands
(Jurisdiction of Incorporation or Organization)
128 Dingxin Road
Haizhu District, Guangzhou 510220
People’s Republic of China
(Address of Principal Executive Offices)
David Cui, Chief Financial Officer
Vipshop Holdings Limited
128 Dingxin Road
Haizhu District, Guangzhou 510220
People’s Republic of China
Telephone: +86 (20) 2233-0025
Facsimile: +86 (20) 2233-0111
(Name, Telephone, Email and/or Facsimile Number and Address of Company Contact Person)
 
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
  
Trading Symbol
  
Name of Each Exchange on Which Registered
American depositary shares, each representing 0.2
Class A ordinary shares, par value US$0.0001 per share
  
VIPS
  
New York Stock Exchange
Class A ordinary shares, par value US$0.0001 per share*
         
 
*
Not for trading, but only in connection with the listing of American depositary shares on the New York Stock Exchange.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
 
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 120,232,895 Class A ordinary shares, par value US$0.0001 per share, and 15,560,358 Class B ordinary shares, par value US$0.0001 per share, as of December 31, 2021.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☒  Yes    ☐  No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ☐  Yes    ☒  No
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large Accelerated Filer      Accelerated Filer    
Non-Accelerated
Filer
 
           
                 Emerging Growth Company  
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐
 
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP  ☒  
International Financial Reporting Standards as issued by the
International Accounting Standards Board  ☐
   Other  ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ☐  Item 17    ☐  Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    ☐  Yes       No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    ☐  Yes    ☐  No
 
 
 

TABLE OF CONTENTS
 
 
  
Page
 
  
 
1
 
  
 
3
 
  
 
4
 
 
ITEM 1.
 
  
 
4
 
 
ITEM 2.
 
  
 
4
 
 
ITEM 3.
 
  
 
4
 
 
ITEM 4.
 
  
 
62
 
 
ITEM 4A.
 
  
 
104
 
 
ITEM 5.
 
  
 
104
 
 
ITEM 6.
 
  
 
124
 
 
ITEM 7.
 
  
 
138
 
 
ITEM 8.
 
  
 
139
 
 
ITEM 9.
 
  
 
140
 
 
ITEM 10.
 
  
 
141
 
 
ITEM 11.
 
  
 
157
 
 
ITEM 12.
 
  
 
158
 
  
 
160
 
 
ITEM 13.
 
  
 
160
 
 
ITEM 14.
 
  
 
160
 
 
ITEM 15.
 
  
 
160
 
 
ITEM 16.
 
  
 
161
 
 
ITEM 16A.
 
  
 
161
 
 
ITEM 16B.
 
  
 
161
 
 
ITEM 16C.
 
  
 
161
 
 
ITEM 16D.
 
  
 
162
 
 
ITEM 16E.
 
  
 
162
 
 
ITEM 16F.
 
  
 
162
 
 
ITEM 16G.
 
  
 
162
 
 
ITEM 16H.
 
  
 
162
 
 
ITEM 16I.
 
  
 
162
 
  
 
163
 
 
ITEM 17.
 
  
 
163
 
 
ITEM 18.
 
  
 
163
 
 
ITEM 19.
 
  
 
163
 
  
 
166
 
 
i

INTRODUCTION
In this annual report, unless otherwise indicated or unless the context otherwise requires:
 
   
“active customers” refers to registered members who have purchased from our online sales business or our online marketplace platforms at least once during the relevant period;
 
   
“ADSs” refers to the American depositary shares, each of which represents 0.2 Class A ordinary shares of our company, par value US$0.0001 per share;
 
   
“China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only, Taiwan, Hong Kong, and Macau;
 
   
“cumulative customers” refers to all customers who had purchased products from our Vipshop Online Platform at least once during the period from our inception on August 22, 2008 to a specified date;
 
   
“daily unique visitors” or “monthly unique visitors” refers to the number of different IP addresses from which our Vipshop Online Platform is visited during a given day or a given month, respectively;
 
   
“discount retailers” refers to retailers that primarily offer branded merchandise systematically at lower-than regular prices through both online and offline channels on a permanent basis;
 
   
“discount retail market” includes discount retailers that primarily offer brand-named merchandise systematically at lower-than regular prices branded through both online and offline channels on a permanent basis. Regular retailers that may employ special discount events from time to time are excluded from this market;
 
   
“GMV” refers to gross merchandise value, the total Renminbi value of all products and services sold through our online sales business, online marketplace platform, offline stores, Shan Shan Outlets, and city outlets during the relevant period, including our websites and mobile apps, third-party websites and mobile apps, Vipshop offline stores, Vipmaxx offline stores (since 2019), Shan Shan Outlets (since we acquired it in July 2019), and the city outlet in Hefei, Anhui province that is operated by us (since 2020), which were fulfilled by either our company or our third-party merchants, regardless of whether or not the goods were delivered or returned. GMV includes shipping charges paid by buyers to sellers. For prudent considerations, we do not consider products or services to be sold if the relevant orders were placed and canceled
pre-shipment
and only included orders that left our or other third-party vendors’ warehouses;
 
   
a “registered member” refers to any consumer who has registered and created an account with us;
 
   
“Renminbi” or “RMB” refers to the legal currency of China, and “US$” or “U.S. dollars” refers to the legal currency of the United States;
 
   
“repeat customers” refers to, for a given period, any customer who (i) is an active customer during such period, and (ii) had purchased products from us or our online marketplace platforms at least twice during the period from our inception on August 22, 2008 to the end of such period. Orders placed by a repeat customer during a given period include all orders placed by the customer during such period even if the customer made the first purchase from us in the same period;
 
   
“shares” or “ordinary shares” refers to our ordinary shares, which include both Class A ordinary shares and Class B ordinary shares, par value US$0.0001 per share;
 
   
“total orders” refers to the total number of orders placed during the relevant period, including the orders for products and services sold through our online sales business and on our online marketplace platforms (excluding, for the avoidance of doubt, orders from our offline stores and outlets), net of orders returned;
 
   
“Vipshop Online Platform” refers to our Vipshop App mobile application, Vipshop WeChat Mini-Program, and our
vip.com
website; and
 
1

   
“we,” “us,” or “our company” refers to Vipshop Holdings Limited and its subsidiaries and consolidated affiliated entities.
Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
Our reporting currency is Renminbi. This annual report contains translations from Renminbi to U.S. dollars solely for the convenience of the reader. Unless otherwise stated, all translations from Renminbi to U.S. dollars were made at a rate of RMB6.3726 to US$1.00, which was the exchange rate in effect as of December 30, 2021 as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. We make no representation that any Renminbi amounts referred to in this annual report could have been, or could be, converted to U.S. dollars at any particular rate, or at all.
 
2

FORWARD-LOOKING INFORMATION
This annual report contains forward-looking statements that reflect our current expectations and views of future events. These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. Known and unknown risks, uncertainties and other factors, including those included in “Item 3. Key Information—D. Risk Factors,” may cause our actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify some of these forward-looking statements by words or phrases such as “may,” “might,” “will,” “would,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue,” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy, and financial needs. These forward-looking statements include without limitation statements relating to:
 
   
our goals and strategies,
 
   
our future business development, financial condition, and results of operations,
 
   
the expected growth of the online discount retail market in China,
 
   
our ability to attract customers and brand partners and further enhance our brand recognition,
 
   
our expectations regarding demand for and market acceptance of our products and services,
 
   
competition in our industry,
 
   
relevant government policies and regulations relating to our industry,
 
   
fluctuations in general economic and business conditions in China and globally, and
 
   
assumptions underlying or related to any of the foregoing.
These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview,” “Item 5. Operating and Financial Review and Prospects,” and other sections in this annual report. You should read thoroughly this annual report and the documents that we refer to in this annual report with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements.
We operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
 
3

PART I
 
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
 
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
 
ITEM 3.
KEY INFORMATION
Our Holding Company Structure and Contractual Arrangements with Our Consolidated Affiliated Entities
Vipshop Holdings Limited is not a Chinese operating company but a Cayman Islands holding company with no equity ownership in its consolidated affiliated entities and their subsidiaries. We conduct our operations in China through (i) our PRC subsidiaries, and (ii) our consolidated affiliated entities and their subsidiaries. PRC laws and regulations restrict and impose conditions on foreign investment in internet content, value-added telecommunication-based online marketing and mobile application distribution businesses, and internet-based audio and video services. Accordingly, we operate these businesses in China through our consolidated affiliated entities and their subsidiaries, and rely on contractual arrangements among our PRC subsidiaries, our consolidated affiliated entities and their nominee shareholders to control the business operations of our consolidated affiliated entities and their subsidiaries. Revenues contributed by our consolidated affiliated entities accounted for 3.9%, 2.3%, and 2.6% of our total net revenues in 2019, 2020, and 2021, respectively. As used in this annual report, “we,” “us,” “our company,” or “our” refers to Vipshop Holdings Limited, its subsidiaries, and, in the context of describing our operations and consolidated financial information, our consolidated affiliated entities in China, including but not limited to (i) Guangzhou Vipshop
E-Commerce
Co., Ltd., or Vipshop
E-Commerce,
which currently holds the primary licenses necessary to conduct the internet-related operations of our Vipshop Online Platform in China, (ii) Guangzhou Vipshop Information Technology Co., Ltd., or Vipshop Information, and (iii) Pin Jun Tong Enterprise Management & Consulting Co., Ltd., or Pin Jun Tong. Investors in our ADSs are not purchasing equity interest in our consolidated affiliated entities in China but instead are purchasing equity interest in a holding company incorporated in the Cayman Islands.
 
4

The following diagram illustrates our corporate structure, including our principal subsidiaries and consolidated affiliated entity as of the date of this annual report:
 
 
 
Notes:
(1)
Shareholders of Vipshop
E-Commerce
include our
co-founders
and shareholders Eric Ya Shen and Arthur Xiaobo Hong, holding 66.7% and 33.3% of the total equity interests in Vipshop
E-Commerce,
respectively.
(2)
A consolidated affiliated entity primarily engaged in operating
e-commerce
platform.
(3)
A subsidiary primarily engaged in warehousing, logistics, product procurement, research and development, technology development, and consulting businesses.
(4)
A subsidiary primarily engaged in product procurement business.
(5)
Subsidiaries primarily engaged in retail businesses and warehousing services in the cities of Jianyang, and Zhaoqing, and the regions around them.
(6)
A subsidiary primarily engaged in software development and information technology support.
(7)
A subsidiary primarily engaged in supplier chain services.
A series of contractual agreements, including equity interest pledge agreements, exclusive option agreements, powers of attorney, exclusive business cooperation agreements, and loan agreements, have been entered into by and among our PRC subsidiaries, our consolidated affiliated entities, and their respective shareholders. Terms contained in each set of contractual arrangements with our consolidated affiliated entities and their respective shareholders are substantially similar. As a result of these contractual arrangements, we have effective control over and are considered the primary beneficiary of our consolidated affiliated entities, and we have consolidated the financial results of these companies in our consolidated financial statements. For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements Relating to Our Consolidated Affiliated Entities.”
However, contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated affiliated entities and their subsidiaries and we may incur substantial costs in enforcing the terms of the arrangements. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate
 
5

Structure—We rely on contractual arrangements with our consolidated affiliated entities and their respective shareholders for the operation of our business, which may not be as effective as direct ownership. If our consolidated affiliated entities and their respective shareholders fail to perform their obligations under these contractual arrangements, we may have to resort to arbitration or litigation to enforce our rights, which may be time-consuming, unpredictable, expensive, and damaging to our operations and reputation” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure—The shareholders of our significant consolidated affiliated entity have potential conflict of interest with us, which may adversely affect our business.”
There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with our consolidated affiliated entities and their nominee shareholders. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or, if adopted, what they would provide. If we or any of our consolidated affiliated entities is found to be in violation of any existing or future PRC laws or regulations, or fails to obtain or maintain any of the required licenses, permits, registrations, or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations or failures. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure—Substantial uncertainties and restrictions exist with respect to the interpretation and application of PRC laws and regulations relating to online commerce and provision of internet content in China. If the PRC government finds that the structure we have adopted for our business operations does not comply with PRC laws and regulations, we could be subject to severe penalties, including shut-down of our Vipshop Online Platform” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure—Our business may be significantly affected by the newly enacted PRC Foreign Investment Law.”
Our corporate structure is subject to risks associated with our contractual arrangements with our consolidated affiliated entities. If the PRC government deems these contractual arrangements to be not in compliance with PRC laws or regulations, including those on foreign investment in the relevant industries, or if these laws or regulations or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Our Cayman Islands holding company, our PRC subsidiaries, our consolidated affiliated entities and their subsidiaries, and investors of our company face uncertainty with respect to potential actions that may be taken by the PRC government which could affect the enforceability of the contractual arrangements we have with our consolidated affiliated entities and, consequently, significantly affect the financial performance of our consolidated affiliated entities and our company as a whole. For a detailed description of the risks associated with our corporate structure, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure.”
Our China Operations
We face various risks and uncertainties relating to doing business in China. Our business operations are primarily conducted in China, and we are subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on overseas offerings, anti-monopoly regulatory actions, and oversight on cybersecurity, data security and data privacy, as well as the lack of inspection on our auditors by the Public Company Accounting Oversight Board, or the PCAOB, which may impact our ability to conduct certain businesses, accept foreign investments, or list and conduct offerings on a United States or other foreign exchange. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description of risks relating to doing business in China, see “Item 3.D. Key Information—Risk Factors—Risks Relating to Doing Business in China.”
The PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide
 
6

regulations in this nature, such as data security or anti-monopoly related regulations, may cause the value of such securities to significantly decline. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—The PRC government’s significant oversight and discretion over our business operations could result in a material adverse change in our operations and the value of our ADSs.”
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us” and “—We may be adversely affected by the complexity, uncertainties, and changes in PRC regulation of internet-related businesses and companies, including
e-commerce
business.”
The Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020. The HFCA Act states that if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares or ADSs from being traded on a national securities exchange. Since our auditor is located in a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the local authorities, our auditor is not currently inspected by the PCAOB, which may impact our ability to remain listed on a United States or other foreign exchange. The related risks and uncertainties could cause the value of our ADSs to significantly decline. The PCAOB identified our auditor as one of the registered public accounting firms that the PCAOB is unable to inspect or investigate completely. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives our investors with the benefits of such inspections” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ADSs may be prohibited from trading in the United States under the HFCAA in 2024 if the PCAOB is unable to inspect or fully investigate our auditors, or as early as 2023 if proposed changes to the law are enacted. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
Permissions Required from the PRC Authorities for Our Operations
We conduct our business primarily through our subsidiaries and consolidated affiliated entities in China. Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries and consolidated affiliated entities and their subsidiaries have obtained the requisite licenses and permits from the PRC government authorities that are material for their business operations in China, including, among others, VAT Licenses, Food Operating Permit, Internet Drug Information Service Qualification Certificate, Payment Business License, Network Cultural Business License, and Record-Filing of a Customs Declaration Entity.
Given the uncertainties of interpretation and implementation of the relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, registrations, filings, or approvals for our business operations in the future. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—We may be adversely affected by the complexity, uncertainties, and changes in PRC regulation of internet-related businesses and companies, including
e-commerce
business,” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure—If our PRC subsidiaries and consolidated affiliated entities fail to obtain and maintain the requisite assets, licenses, and approvals required under PRC laws, our business, financial condition, and results of operations may be materially and adversely affected.”
Furthermore, in connection with our issuance of securities to foreign investors in the past, under current PRC laws, regulations, and rules, as of the date of this annual report, we believe that we, our PRC subsidiaries,
 
7

and our consolidated affiliated entities, (i) are not required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, (ii) are not required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, and (iii) have not received or were not denied such requisite permissions by any PRC authority.
However, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas by and foreign investment in China-based issuers. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our overseas offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing.”
Cash and Asset Flows Through Our Organization
Vipshop Holdings Limited is a holding company with no operations of its own. We conduct our operations in China primarily through our subsidiaries and consolidated affiliated entities in China. As a result, although other means are available for us to obtain financing at the holding company level, Vipshop Holdings Limited’s ability to pay dividends to the shareholders and to service any debt it may incur may depend upon dividends paid by our PRC subsidiaries and license and service fees paid by our consolidated affiliated entities. If any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to Vipshop Holdings Limited. In addition, our PRC subsidiaries are permitted to pay dividends to Vipshop Holdings Limited only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Furthermore, our PRC subsidiaries and consolidated affiliated entities are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a solvent liquidation of the companies. For more details, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Holding Company Structure.”
Under PRC laws and regulations, our PRC subsidiaries and consolidated affiliated entities and their subsidiaries are subject to certain restrictions with respect to payment of dividends or otherwise transfers of any of their net assets to us. Remittance of dividends by a wholly foreign-owned enterprise out of China is also subject to examination by the banks designated by the PRC State Administration of Foreign Exchange, or SAFE. These restrictions are benchmarked against the paid-in capital and the statutory reserve funds of our PRC subsidiaries and the net assets of our consolidated affiliated entities in which we have no legal ownership. As of December 31, 2019, 2020, and 2021, the total amount of such restriction to which our PRC subsidiaries and consolidated affiliated entities and their subsidiaries are subject was RMB10.36 billion, RMB11.03 billion, and RMB12.15 billion (US$1.91 billion). For risks relating to the fund flows of our operations in China, see “Item 3. Key Information—Risk Factors—Risks Relating to Doing Business in China—We principally rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund our cash and financing requirements, and any limitation on the ability of our PRC subsidiaries to make payments to us could materially and adversely affect our ability to conduct our business.”
Under PRC laws, Vipshop Holdings Limited may fund our PRC subsidiaries only through capital contributions or loans, and fund our consolidated affiliated entities or their subsidiaries only through loans, subject to satisfaction of applicable government registration and approval requirements. Please see “Item 3. Key Information—Financial Information Relating to Our Consolidated Affiliated Entities” for services provided, cash flows or transfer of other assets between our company, our subsidiaries and our consolidated affiliated entities during the three years ended December 31, 2019, 2020, and 2021.
Vipshop Holdings Limited has not declared or paid any cash dividends, nor does it have any present plan to pay any cash dividends on its ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. See “Item 8. Financial
 
8

Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” For PRC and United States federal income tax considerations of an investment in our ADSs, see “Item 10. Additional Information—E. Taxation.”
Financial Information Relating to Our Consolidated Affiliated Entities
The following tables present the condensed consolidating schedules for our consolidated affiliated entities and other entities for the years and as of the dates indicated.
Condensed Consolidated Statements of Income Information
 
    
For the Year Ended December 31, 2021
 
    
Parent
Company
    
Subsidiaries
    
Consolidated
affiliated
entities
    
Eliminations
(1)
   
Consolidated
Total
 
    
RMB
 
    
(In thousands)
 
Net revenues
     —          114,813,941        7,424,952        (5,179,215     117,059,678  
Share of gain from subsidiaries and consolidated affiliated entities
     4,686,284        —          —          (4,686,284     —    
Net income
     4,681,073        4,307,382        390,703        (4,686,284     4,692,874  
Comprehensive income
     4,651,428        4,307,382        390,703        (4,686,284     4,663,229  
 
    
For the Year Ended December 31, 2020
 
    
Parent
Company
    
Subsidiaries
    
Consolidated
affiliated
entities
   
Eliminations
(1)
   
Consolidated
Total
 
    
RMB
 
    
(In thousands)
 
Net revenues
     —          99,970,674        6,129,008       (4,241,193     101,858,489  
Share of gain from subsidiaries and consolidated affiliated entities
     5,879,908        —          —         (5,879,908     —    
Net income(loss)
     5,906,957        5,923,652        (31,345     (5,879,908     5,919,356  
Comprehensive income(loss)
     5,904,659        5,923,652        (31,345     (5,879,908     5,917,058  
 
    
For the Year Ended December 31, 2019
 
    
Parent
Company
    
Subsidiaries
    
Consolidated
affiliated
entities
   
Eliminations
(1)
   
Consolidated
Total
 
    
RMB
 
    
(In thousands)
 
Net revenues
     —          90,214,137        10,718,848       (7,938,567     92,994,418  
Share of gain from subsidiaries and consolidated affiliated entities
     4,023,912        —          —         (4,023,912     —    
Net income(loss)
     4,016,832        4,052,429        (58,916     (4,023,912     3,986,433  
Comprehensive income(loss)
     3,991,059        4,052,429        (58,916     (4,023,912     3,960,660  
 
Notes:
(1)
The elimination mainly represents the intercompany service fee for technology services provide by our subsidiaries to consolidated affiliated entities and services rendered related to marketing activities provide by consolidated affiliated entities to our subsidiaries.
 
9

Condensed Consolidated Balance Sheets Information
 
    
As of December 31, 2021
 
    
Parent
company
   
Subsidiaries
   
Consolidated
affiliated entities
   
Eliminations
   
Consolidated
Total
 
    
RMB
 
                                
    
(In thousands)
 
Cash and cash equivalents
     337       14,877,689       1,419,384       —         16,297,410  
Restricted cash
     —         29,457       844,402       —         873,859  
Short-term investments
     —         4,589,804       791,814       —         5,381,618  
Amounts due from related parties, net
     —         636,856       969       —         637,825  
Account and other receivables and prepayments, net
     —         2,151,657       634,337       —         2,785,994  
Amount due from group companies
     3,812,267       361,955       2,268,780       (6,443,002     —    
Loan receivables, net
     —         131       —         —         131  
Inventories
     —         6,861,615       3,493       —         6,865,108  
Property and equipment, net
     —         14,310,297       66,415       —         14,376,712  
Deposits for property and equipment
     —         362,889       19,232       —         382,121  
Land use rights, net
     —         6,612,165       —         —         6,612,165  
Intangible assets, net
     —         —         320,943       —         320,943  
Investments in equity method investees
     —         1,657,588       819,280       —         2,476,868  
Other investments
     —         1,980,772       502,139       —         2,482,911  
Investment in subsidiaries and consolidated affiliated entities
     28,904,332       —         —         (28,904,332     —    
Other long-term assets
     —         67,795       228,571       —         296,366  
Goodwill
     —         575,874       13,291       —         589,165  
Deferred tax assets, net
     —         669,727       90,296       —         760,023  
Right-of-use assets, net
     —         1,144,794       3,528       —         1,148,322  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total assets
     32,716,936       56,891,065       8,026,874       (35,347,334     62,287,541  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Amount due to group companies
     —         (6,081,047     (361,955     6,443,002       —    
Other liabilities
     (84,038     (24,977,489     (3,397,698     —         (28,459,225
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total liabilities
     (84,038     (31,058,536     (3,759,653     6,443,002       (28,459,225
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Shareholders’ equity
     (32,632,898     (25,832,529     (4,267,221     28,904,332       (33,828,316
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
    
As of December 31, 2020
 
    
Parent
company
    
Subsidiaries
    
Consolidated
affiliated entities
    
Eliminations
   
Consolidated
Total
 
    
RMB
 
                                   
    
(In thousands)
 
Cash and cash equivalents
     62        11,056,594        938,759        —         11,995,415  
Restricted cash
     —          58,937        756,969        —         815,906  
Short-term investments
     —          6,276,753        1,051,966        —         7,328,719  
Amounts due from related parties, net
     —          327,524        6,015        —         333,539  
Account and other receivables and prepayments, net
     —          2,046,464        574,424        —         2,620,888  
Amount due from group companies
     5,278,056        82,820        2,538,951        (7,899,827     —    
Loan receivables, net
     —          27,258        —          —         27,258  
Inventories
     —          7,642,504        5        —         7,642,509  
 
10

    
As of December 31, 2020
 
    
Parent
company
   
Subsidiaries
   
Consolidated
affiliated entities
   
Eliminations
   
Consolidated
Total
 
    
RMB
 
                                
    
(In thousands)
 
Assets held for sale
     —         408,748       —         —         408,748  
Property and equipment, net
     —         13,506,162       78,297       —         13,584,459  
Deposits for property and equipment
     —         73,576       142       —         73,718  
Land use rights, net
     —         6,062,792       —         —         6,062,792  
Intangible assets, net
     —         11,960       321,062       —         333,022  
Investments in equity method investees
     —         1,531,688       418,099       —         1,949,787  
Other investments
     —         2,310,286       550,748       —         2,861,034  
Investment in subsidiaries and consolidated affiliated entities
     23,358,829       —         —         (23,358,829     —    
Other long-term assets
     —         100,328       —         —         100,328  
Goodwill
     —         575,874       17,788       —         593,662  
Deferred tax assets, net
     —         555,813       72,454       —         628,267  
Right-of-use assets, net
     —         1,575,442       5,321       —         1,580,763  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total assets
     28,636,947       54,231,523       7,331,000       (31,258,656     58,940,814  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Amount due to group companies
     —         (7,817,007     (82,820     7,899,827       —    
Other liabilities
     (139,213     (26,044,150     (3,371,662     —         (29,555,025
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total liabilities
     (139,213     (33,861,157     (3,454,482     7,899,827       (29,555,025
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Shareholders’ equity
     (28,497,734     (20,370,366     (3,876,518     23,358,829       (29,385,789
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Condensed Consolidated Cash Flow Information
 
    
For the Year Ended December 31, 2021
 
    
Parent
Company
   
Subsidiaries
   
Consolidated
affiliated entities
   
Eliminations
   
Consolidated
Total
 
    
RMB
 
    
(In thousands)
 
Net cash (used in) provided by operating activities
     (58,465     5,828,476       974,633       —           6,744,644  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Loans to group companies
(1)
     —         —         (3,808,295     3,808,295       —    
Repayments from Group Companies
(1)
     —         1,610       3,740,203       (3,741,813     —    
Change in amount due from group companies
     1,577,719       —         —         (1,577,719     —    
Other investing activities
     —         (1,996,991     (329,498     —         (2,326,489
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net cash provided by (used in) investing activities
     1,577,719       (1,995,381     (397,590     (1,511,237     (2,326,489
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Borrowings under loan from group companies
(1)
     —         3,808,295       —         (3,808,295     —    
Repayment to group companies
(1)
     —         (3,740,203     (1,610     3,741,813       —    
Change in amount due to ultimate holding company
     —         (1,577,719     —         1,577,719       —    
Other financing activities
     (1,518,984     1,467,570       (7,374     —         (58,788
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net cash (used in) provided by financing activities
     (1,518,984     (42,057     (8,984     1,511,237       (58,788
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
11

   
For the Year Ended December 31, 2020
 
   
Parent
Company
   
Subsidiaries
   
Consolidated
affiliated entities
   
Eliminations
   
Consolidated
Total
 
   
RMB
 
   
(In thousands)
 
Net cash provided by operating activities
        207,369       10,705,695       907,380       —         11,820,444  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Loans to group companies
(1)
    —         (1,610     (3,314,960     3,316,570       —    
Repayments from group companies
(1)
    —         —         1,692,521       (1,692,521     —    
Purchases of property and equipment from group companies
(2)
    —         (91,075     —         91,075       —    
Proceeds from disposal of property and equipment to group companies
(2)
    —         —         91,075       (91,075     —    
Change in amount due from group companies
    (208,250     —         —         208,250       —    
Other investing activities
    —         (7,938,657     1,243,614       —         (6,695,043
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net cash used in investing activities
    (208,250     (8,031,342     (287,750     1,832,299       (6,695,043
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Borrowings under loan from group companies
(1)
    —         3,314,960       1,610       (3,316,570     —    
Repayment to group companies
(1)
    —         (1,692,521     —         1,692,521       —    
Change in amount due to ultimate holding company
    —         208,250       —         (208,250     —    
Other financing activities
    895       (21,734     —         —         (20,839
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net cash provided by financing activities
    895       1,808,955       1,610       (1,832,299     (20,839
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
    
For the Year Ended December 31, 2019
 
    
Parent
Company
   
Subsidiaries
   
Consolidated
affiliated entities
   
Eliminations
   
Consolidated
Total
 
    
RMB
 
    
(In thousands)
 
Net cash (used in) provided by operating activities
     (6,802     6,531,775       5,765,210       —         12,290,183  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Loans to group companies
(1)
     —         —         (7,865,818     (7,865,818     —    
Repayments from group companies
(1)
     —         —         17,704,940       (17,704,940     —    
Change in amount due from group companies
     4,227,181       —         —         (4,227,181     —    
Other investing activities
     —         (6,034,439     (2,206,121     —         (8,240,560
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net cash provided by (used in) investing activities
     4,227,181       (6,034,439     7,633,001       (14,066,303     (8,240,560
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Borrowings under loan from group companies
(1)
     —         7,865,818       —         (7,865,818     —    
Repayment to group companies
(1)
     —         (17,704,940     —         17,704,940       —    
Change in amount due to ultimate holding company
     —         (4,227,181     —         4,227,181       —    
Other financing activities
     (4,220,544     (2,023,031     (13,125     —         (6,256,700
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net cash (used in) financing activities
     (4,220,544     (16,089,334     (13,125     14,066,303       (6,256,700
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
12

 
Notes:
(1)
For the years ended December 31, 2019 and 2020, and 2021, an aggregate amount of RMB7.87 billion, RMB3.31 billion and RMB3.81 billion (US$597.6 million) was provided by consolidated affiliated entities to our subsidiaries in the form of intercompany loan, respectively, an aggregate amount of RMB17.70 billion, RMB1.69 billion and RMB3.74 billion (US$586.9 million) was provided by our subsidiaries to consolidated affiliated entities in the form of repayment of intercompany loan, respectively.
(2)
For the year ended December 31, 2019 and 2020, and 2021, nil, RMB91.1 million and nil was provided by our subsidiaries to consolidated affiliated entities for purchase of property and equipment.
 
A.
[Reserved]
Selected Consolidated Financial Data
The following selected consolidated statements of income data for the years ended December 31, 2019, 2020, and 2021 and the selected consolidated balance sheets data as of December 31, 2020 and 2021 have been derived from our audited consolidated financial statements, which are included in this annual report beginning on page
F-1.
Our historical results are not necessarily indicative of results expected for any future periods. The selected consolidated financial data should be read in conjunction with our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” in this annual report. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.
Our selected consolidated statements of income data for the years ended December 31, 2017, and 2018 and our selected consolidated balance sheets data as of December 31, 2017, 2018, and 2019 have been derived from our audited consolidated financial statements not included in this annual report.
 
   
For the Year Ended December 31,
 
   
2017
   
2018
   
2019
   
2020
   
2021
 
   
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
US$
 
                                     
   
(in thousands, except number of shares, and per share and per ADS data)
 
Selected Consolidated Statements of Income Data:
           
Product revenues
    71,171,653       81,510,275       88,721,311       97,449,712       111,256,902       17,458,636  
Other revenues
    1,740,660       3,013,673       4,273,107       4,408,777       5,802,776       910,582  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net revenues
    72,912,313       84,523,948       92,994,418       101,858,489       117,059,678       18,369,218  
Cost of revenues
(1)
    (56,618,471     (67,454,981     (72,314,190     (80,573,181     (93,953,121     (14,743,295
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
    16,293,842       17,068,967       20,680,228       21,285,308       23,106,557       3,625,923  
Operating expenses
(2)
 
—Fulfillment expenses
(3)
    (6,899,654     (7,489,393     (7,317,706     (6,878,991     (7,652,504     (1,200,845
—Marketing expenses
    (2,978,621     (3,240,450     (3,323,927     (4,284,274     (5,089,213     (798,609
—Technology and content expenses
    (1,808,452     (2,000,894     (1,568,107     (1,221,264     (1,517,307     (238,099
—General and administrative expenses
    (2,447,724     (2,674,179     (4,064,264     (3,748,548     (4,189,690     (657,454
—Goodwill impairment loss
    —         —         (278,263     —         —         —    
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
    (14,134,451     (15,404,916     (16,552,267     (16,133,077     (18,448,714     (2,895,007
Other operating income
    531,055       757,062       645,413       707,855       924,579       145,087  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Income from operations
    2,690,446       2,421,113       4,773,374       5,860,086       5,582,422       876,003  
 
13

   
For the Year Ended December 31,
 
   
2017
   
2018
   
2019
   
2020
   
2021
 
   
RMB
   
RMB
   
RMB
   
RMB
   
RMB
   
US$
 
   
(in thousands, except number of shares, and per share and per ADS data)
 
Income before income taxes and share of income of equity method investees
    2,540,853       2,747,075       4,942,805       7,019,357       5,873,275       921,645  
Income tax expenses
    (626,140     (566,604     (983,554     (1,130,016     (1,222,704     (191,869
Share of (loss)/income of equity method investees
    (22,280     (46,999     27,182       30,015       42,303       6,638  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income
    1,892,433       2,133,472       3,986,433       5,919,356       4,692,874       736,414  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net (income)/loss attributable to
non-controlling
interests
    57,222       (4,685     30,399       (12,399     (11,801     (1,852
Net income attributable to our shareholders
    1,949,655       2,128,787       4,016,832       5,906,957       4,681,073       734,562  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Shares used in calculating earnings per share
           
Class A and Class B ordinary shares:
           
—Basic
    117,554,229       132,266,157       133,524,129       135,077,790       136,175,112       136,175,112  
—Diluted
    125,715,833       140,083,610       136,081,415       138,036,010       138,745,022       138,745,022  
Net earnings per Class A and Class B ordinary share
           
Net income attributable to our shareholders—Basic
    16.59       16.09       30.08       43.73       34.38       5.39  
Net income attributable to our shareholders—Diluted
    15.94       15.61       29.58       42.79       33.74       5.29  
Net earnings per ADS (1 Class A ordinary share equals 5 ADSs)
           
—Basic
    3.32       3.22       6.02       8.75       6.88       1.08  
—Diluted
    3.19       3.12       5.92       8.56       6.75       1.06  
 
Notes:
(1)
Excludes shipping and handling expenses, and includes inventory write-down that amounted to RMB206.7 million, RM440.8 million, RMB347.5 million, RMB554.9 million, and RMB35.3 million (US$5.5 million) for the years ended December 31, 2017, 2018, 2019, 2020, and 2021, respectively.
(2)
Include share-based compensation expenses as follows:
 
    
For the Year Ended December 31,
 
    
2017
    
2018
    
2019
    
2020
    
2021
 
    
RMB
    
RMB
    
RMB
    
RMB
    
RMB
    
US$
 
    
(in thousands)
 
Fulfillment expenses
     (73,235      (73,151      (112,683      (100,486      (88,985      (13,964
Marketing expenses
     (40,364      (41,063      (35,038      (16,534      (26,834      (4,211
Technology and content expenses
     (206,073      (203,594      (180,493      (152,234      (252,730      (39,659
General and administrative expenses
     (347,426      (353,402      (359,869      (681,794      (641,464      (100,660
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
     (667,098      (671,210      (688,083      (951,048      (1,010,013      (158,494
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
14

(3)
Include shipping and handling expenses, which amounted to RMB3.83 billion, RMB4.50 billion, RMB4.63 billion, RMB4.51 billion, and RMB5.24 billion (US$822.1 million) for the years ended December 31, 2017, 2018, 2019, 2020, and 2021, respectively.
 
    
For the Year Ended December 31,
 
    
2017
    
2018
    
2019
    
2020
    
2021
 
    
RMB
    
RMB
    
RMB
    
RMB
    
RMB
    
US$
 
    
(in thousands)
 
Selected Consolidated Balance Sheets Data:
                 
Cash, cash equivalents and restricted cash
     10,221,992        10,038,472        7,719,285        12,811,321        17,171,269        2,694,547  
Total current assets
     25,916,138        27,325,637        23,028,041        31,172,982        32,841,945        5,153,618  
Total assets
     37,982,820        43,562,663        48,582,678        58,940,814        62,287,541        9,774,275  
Total liabilities
     23,732,244        26,351,870        26,332,981        29,555,025        28,459,225        4,465,875  
Total shareholders’ equity
     14,250,576        17,1210,793        22,249,697        29,385,789        33,828,316        5,308,400  
 
B.
Capitalization and Indebtedness
Not applicable.
 
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
 
15

D.
Risk Factors
Summary of Risk Factors
An investment in our ADSs involves significant risks. Below is a summary of material risks that we face, organized under relevant headings. These risks are discussed more fully in “Item 3. Key Information—D. Risk Factors.”
Risks Relating to Our Business and Industry
 
   
If we are unable to manage our growth or execute our strategies effectively, our business and prospects may be materially and adversely affected.
 
   
If we are unable to offer branded products at attractive prices to meet customer needs and preferences, or if our reputation for selling authentic, high-quality products suffers, we may lose customers and our business, financial condition, and results of operations may be materially and adversely affected.
 
   
Our business and results of operations may be materially and adversely affected if we are unable to maintain our customer experience or provide high-quality customer service.
 
   
Any harm to our brand or failure to maintain our reputation may materially and adversely affect our business and growth prospects.
 
   
Our business, financial condition, and results of operations have been and may continue to be adversely affected by the
COVID-19
pandemic.
 
   
If we fail to manage our relationships with, or otherwise fail to procure products at favorable terms from, our existing brand partners, or if we fail to attract new brand partners, our business and growth prospects may suffer.
 
   
We primarily rely on third-party delivery companies for our product order fulfillment, and if these third-party delivery companies fail to provide reliable delivery services, our business and reputation may be materially and adversely affected.
 
   
If we do not compete effectively against existing or new competitors, we may lose market share and customers.
 
   
We had incurred net losses and experienced negative cash flow from operating activities in historical periods and may incur net losses in the future.
 
   
We may suffer losses if we are unable to effectively manage our inventory.
 
   
If we are subject to higher than expected product return rates, our business, financial condition, and results of operations may be materially and adversely affected.
 
   
We may incur liability for counterfeit or unauthorized products sold or information posted on our platforms.
 
   
Our business is subject to complex and evolving PRC laws and regulations regarding cybersecurity and data privacy.
Risks Relating to Our Corporate Structure
 
   
Substantial uncertainties and restrictions exist with respect to the interpretation and application of PRC laws and regulations relating to online commerce and provision of internet content in China. If the PRC government finds that the structure we have adopted for our business operations does not comply with PRC laws and regulations, we could be subject to severe penalties, including shut-down of our Vipshop Online Platform.
 
16

   
We rely on contractual arrangements with our consolidated affiliated entities and their respective shareholders for the operation of our business, which may not be as effective as direct ownership. If our consolidated affiliated entities and their respective shareholders fail to perform their obligations under these contractual arrangements, we may have to resort to arbitration or litigation to enforce our rights, which may be time-consuming, unpredictable, expensive, and damaging to our operations and reputation.
 
   
The shareholders of our significant consolidated affiliated entity have potential conflict of interest with us, which may adversely affect our business.
Risks Relating to Doing Business in China
 
   
Changes in China’s economic, political or social conditions, or government policies could materially and adversely affect our business and operations.
 
   
Uncertainties with respect to the PRC legal system could adversely affect us.
 
   
The PRC government’s significant oversight and discretion over our business operations could result in a material adverse change in our operations and the value of our ADSs.
 
   
The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives our investors with the benefits of such inspections.
 
   
Our ADSs will be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, in 2024 if the PCAOB is unable to inspect or fully investigate our auditors, or in 2023 if proposed changes to the law are enacted. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
 
   
The approval of and filing with the CSRC or other PRC government authorities may be required in connection with our overseas offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing.
 
   
We may be adversely affected by the complexity, uncertainties, and changes in PRC regulation of internet-related businesses and companies, including
e-commerce
business.
Risks Relating to Our Ordinary Shares and ADSs
 
   
The market price for our ADSs has fluctuated and may be volatile.
 
   
Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
Risks Relating to Our Business and Industry
If we are unable to manage our growth or execute our strategies effectively, our business and prospects may be materially and adversely affected.
We have experienced a period of growth and expansion that has demanded, and will continue to demand, significant financial and managerial resources. We plan to further increase our sales through enhancing our brand recognition, growing our customer base, and increasing customer spending on our Vipshop Online Platform. However, we cannot assure you that we will be able to execute our expansion plan as expected. Our rapid expansion requires us to continue to effectively manage our relationships with brand partners and third-party delivery companies to ensure efficient and timely delivery of our products. To continue our business growth, we will also need to allocate significant managerial and financial resources in retaining, training, managing, and motivating our workforce.
 
17

We also seek to broaden our product and service offerings through third-party sellers offering their own products and services on our Vipshop Online Platform. The products and services offered by such third-party sellers may differ in category, quality, and value in comparison to those offered directly by us. Such expansion may require us to work with different groups of brand partners and introduce new product and service categories to address the needs of different kinds of customers. We have limited or no experience in some of these newer product and service offerings, and our expansion into these new product and service categories may not achieve broad customer acceptance. These offerings may present new and difficult technological or operational challenges, and we may be subject to claims if customers experience service disruptions or failure or other quality issues with these third-party sellers. In addition, our profitability, if any, in our newer product and service categories may be lower than in our older categories, which may adversely affect our overall profitability and results of operations.
In addition, we seek to expand into the offline retail business to supplement our online business and have for this purpose acquired control in various entities in the past years, including Shan Shan Commercial Group Co., Ltd., or Shan Shan Outlets, a leading player in the offline outlet management industry in China, Shanjing business management Co., Ltd., Harbin Shan Shan Chunxiaqiudong Properties Co., Ltd, Guiyang Shan Shan Guangda Outlets Plaza Co., Ltd., and Xuzhou Shan Shan Outlets Business Management Co., Ltd. We also operate offline retail stores under our own Vipshop brand to expand sales channel and clear our inventories more effectively. As of December 31, 2021, we had 261 Vipshop offline stores, 292 Vipmaxx offline stores, and three city outlets. We cannot assure you that we will be able to compete successfully with existing offline competitors, including, among others, traditional offline malls that have accumulated considerable customer base and offline stores of other reputable online retailers. We may lack sufficient experience in or capabilities for offline operations, including offline store management. We may not be able to locate desirable sites for our stores. Operating offline stores requires considerable capital and personnel, and we may not be able to generate profits from our offline business to cover the relevant cost within a short period of time. The occurrence of any of the above may adversely affect our business, prospects, financial condition, and results of operations.
Furthermore, we have participated in the internet finance sector for a few years. Starting from 2019, we have scaled back our internet finance business, which currently serves as a supporting function for our core online retail business. We primarily cooperate with banks and third-party consumer financing companies to provide consumer loans to our customers, and charge the banks and third-party consumer financing companies channel fees at certain percentages of the loan amounts.
See “—We have limited experience in operating an internet finance business, and exposure to credit risks or significant deterioration in the asset quality of our internet finance business may materially and adversely affect our business, financial condition, and results of operations.” and “Item 4.B. Information on the Company—Business Overview—Our Product and Service Offerings—Other Services.”
All of these endeavors involve risks. We cannot assure you that we will successfully execute these expansion plans and strategies. We may not be able to acquire financial or managerial resources needed for our business growth in a timely and cost-efficient manner, or at all. We cannot assure you that we will be able to manage our growth effectively, and any failure to do so may materially and adversely affect our business and prospects.
If we are unable to offer branded products at attractive prices to meet customer needs and preferences, or if our reputation for selling authentic, high-quality products suffers, we may lose customers and our business, financial condition, and results of operations may be materially and adversely affected.
Our future growth depends on our ability to continue to attract new customers as well as to increase the spending and repeat purchase rate of existing customers. Constantly changing consumer preferences have historically affected, and will continue to affect, the online retail industry. Consequently, we must stay abreast of emerging lifestyle and consumer preferences and anticipate product trends that will appeal to existing and
 
18

potential customers. As we implement our strategy to offer a curated selection of discounted products desired by our customers, we expect to face additional challenges in the selection of products and services. Our ability to offer suitable products catering to consumers’ needs depends on the effectiveness of our merchandising team to secure branded products of high quality and competitive price as well as the capability of our IT system to collect and provide accurate and reliable information on consumer interests.
In addition, we have implemented measures, such as mostly working with brands directly, to ensure that only authentic products are offered on our platform. Any perception by our existing or prospective customers that any of our products are not authentic, or are of inferior quality, could cause our reputation to suffer. This is particularly important for cosmetics and mother and baby care products. While our representatives generally check the products that we sell to confirm their authenticity, quality, and proper labeling,
we cannot assure you that all of our suppliers have provided us with authentic products or that all products that we sell are of the quality satisfactory to our customers. If our customers cannot find desirable products within our product portfolio at attractive prices, or if our reputation for selling authentic, high-quality product suffers, our customers may lose interest in our platform and thus may visit our platform less frequently or even stop visiting our platform, which in turn may materially and adversely affect our business, financial condition, and results of operations.
Our business and results of operations may be materially and adversely affected if we are unable to maintain our customer experience or provide high-quality customer service.
The success of our business largely depends on our ability to provide superior customer experience and high-quality customer service, which in turn depends on a variety of factors, such as our ability to continue to provide reliable and user-friendly Vipshop Online Platform for our customers to browse and purchase our products, reliable and timely delivery of our products by third-party delivery companies, and superior after-sales services. Our sales may decrease if our platform services are severely interrupted or otherwise fail to meet our customer demands. Should third-party delivery companies fail to provide our product delivery and return services in a convenient and reliable manner, or if our customers are not satisfied with our product quality, our reputation and customer loyalty could be adversely affected. In addition, we also depend on our call center and online customer service representatives to provide live assistance to our customers. If our call center or online customer service representatives fail to satisfy the individual needs of customers, our reputation and customer loyalty could be adversely affected and we may lose potential or existing customers and experience a decrease in sales. As a result, if we are unable to continue to maintain our customer experience and provide high-quality customer service, we may not be able to retain existing customers or attract new customers, which could materially and adversely affect our business, financial condition, and results of operations.
Any harm to our brand or failure to maintain our reputation may materially and adversely affect our business and growth prospects.
We believe that the recognition and reputation of our brand among our customers and brand partners have significantly contributed to the growth of our business. Maintaining and enhancing the recognition and reputation of our brand is critical to our business and competitiveness. Many factors, some of which are beyond our control, are important to maintaining and enhancing our brand and, if not properly managed, may negatively impact our brand and reputation. These factors include our ability to:
 
   
provide satisfactory user experience as consumer preferences evolve and as we expand into new product and service categories;
 
   
offer desirable branded merchandises at appealing discounts on a daily basis;
 
   
increase brand awareness among existing and potential customers through various marketing and promotional activities and
word-of-mouth
referrals;
 
   
maintain the popularity, attractiveness, and quality of the products and services that we offer;
 
   
maintain the efficiency, reliability, and quality of our fulfillment services; and
 
19

   
preserve our reputation and goodwill in the event of any negative media publicity on internet security, product quality, or authenticity issues affecting us or other online retail businesses in China.
A public perception that
non-authentic
or counterfeit goods are sold on our Vipshop Online Platform, even if factually incorrect, could damage our reputation, reduce our ability to attract new customers or retain our existing customers, and diminish the value of our brand. If we are unable to maintain our reputation, enhance our brand recognition, or increase positive awareness of our platform, products, and services, it may be difficult to maintain and grow our customer base, and our business and growth prospects may be materially and adversely affected.
Our business, financial condition, and results of operations have been and may continue to be adversely affected by the
COVID-19
pandemic.
The
COVID-19
pandemic has created unique global and industry-wide challenges, including challenges to many aspects of our business. The
COVID-19
pandemic has resulted in quarantines, travel restrictions, and the temporary closure of business venues and facilities in China from time to time since 2020.
Our operations generally normalized in 2021 despite sporadic outbreaks of
COVID-19
infections in China. In the first half of 2021, we saw a rebound in our sales and profits as benchmarked against the same period in 2020 where our sales and profits were severely hit by nationwide measures implemented by the PRC government to contain the spread of the
COVID-19
pandemic. However, the Chinese economy slowed down in the second half of 2021 partially due to the resurgence of
COVID-19
infections in some provinces and the emergence of the new Omicron variant globally, which led to weakened consumer demand and spending, especially in terms of discretionary items. In addition, the global spread of
COVID-19
has also affected our overseas suppliers. The global spread of
COVID-19
in a significant number of countries around the world has resulted in, and may intensify, global economic distress, and the extent to which it may affect our results of operations will depend on future developments, especially the effectiveness of the global containment of the
COVID-19
pandemic, which are highly uncertain and cannot be predicted.
Since March 2022, with the new Omicron variant spreading rapidly in certain parts of China, many of the social restrictions and quarantine measures have been reintroduced and tightened, and some of the warehousing and logistics networks have experienced substantial disruptions or delays. Our results of operations may be adversely affected to the extent that
COVID-19
pandemic continues to affect the Chinese economy in general or the
re-imposition
of regional quarantine measures as a result of newly discovered
COVID-19
cases. We are unable to predict the duration and severity of the
COVID-19
pandemic, the responses thereto, as these depend on rapidly evolving developments, which are highly uncertain and will be a function of factors beyond our control. Such factors include, among others, the continued spread or recurrence of contagion, the implementation of effective preventative and containment measures, the development of effective medical solutions, and the extent to which governmental restrictions on travel, public gatherings, mobility and other activities remain in place or are augmented. We cannot assure you that the
COVID-19
pandemic can be eliminated or contained in the near future, or at all, or a similar outbreak will not occur again. If the
COVID-19
pandemic and the resulting disruption to our business were to extend over a prolonged period, it could materially and adversely affect our business, financial condition, and results of operations.
If we fail to manage our relationships with, or otherwise fail to procure products at favorable terms from, our existing brand partners, or if we fail to attract new brand partners, our business and growth prospects may suffer.
We source our products from both domestic and international brand partners. As of December 31, 2019, 2020, and 2021, we worked with over 18,000, 21,000, and 25,000 brand partners, respectively. We depend significantly on our ability to source products from brand partners on favorable pricing terms, typically at a substantial discount to the original sales price. However, our agreements do not ensure the long-term availability
 
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of merchandise or the continuation of any particular pricing practices. We cannot assure you that our current brand partners will continue to sell products to us on commercially acceptable terms, or at all. In the event that we are not able to purchase merchandise on favorable pricing terms, our revenues, profit margin, and earnings may be materially and adversely affected. Our brand partners primarily include brand owners, and to a lesser extent, brand distributors and resellers. If any brand distributor or reseller fails to obtain or maintain appropriate authorization from the relevant brand owner to sell certain products to us, such brand distributor or reseller may cease selling such products to us at any time, which may adversely affect our business and revenues. Furthermore, although we, as an online distributor, are not directly responsible to obtain customs clearance or other relevant permits for the sale of products imported by our brand partners, we are required under the relevant PRC laws to check whether our brand partners who import such products have obtained the requisite import-related permits or filings and whether the products have passed the quality inspection before they are sold and distributed in the China market. If any of our brand partners fails to pay the required import tariffs, fails to obtain clearance from the customs or inspection and quarantine bureaus, or fails to meet the product labeling or other mandatory specification requirements, and sells such imported products to us, we may be subject to fines, suspension of business, and confiscation of unlawfully sold products and the proceeds from such sales, depending on the nature and gravity of such liabilities.
If our brand partners cease to provide us with favorable payment terms or return policies, our working capital needs may increase, resulting in negative impact on our cash flows from operating activities, and our operations may be materially and adversely affected. As part of our growth strategy, we plan to further expand our brand and product offerings and thus need to continue establishing relationships with new brand partners to ensure our access to a steady supply of products on favorable commercial terms. Furthermore, our relationships with some brand partners, particularly international brand partners of apparel products in China, may be adversely affected as a result of our sale of branded products that are directly procured from overseas markets. If we are unable to develop and maintain good relationships with brand partners that would allow us to obtain sufficient amount and variety of quality merchandise on acceptable commercial terms, it may inhibit our ability to offer sufficient products sought by our customers or to offer these products at prices acceptable to them. Negative developments in our relationships with brand partners could materially and adversely affect our business and growth prospects.
We primarily rely on third-party delivery companies for our product order fulfillment, and if these third-party delivery companies fail to provide reliable delivery services, our business and reputation may be materially and adversely affected.
We are committed to providing superior order fulfillment services to our customers. We primarily rely on high-quality third-party delivery companies to fulfill our product delivery demand, and have built our
in-house
warehousing systems with nationwide coverage over the years.
In November 2019, we terminated our own delivery service unit and entered into a strategic cooperation agreement with SF Holding Co., Ltd., or SF Holding, to utilize the delivery services of SF Holding to optimize the efficiency of our logistics operations, decrease our fulfillment expenses, and provide our customers with superior delivery services.
Interruptions to or failures in delivery services could prevent the timely or proper delivery of our products. These interruptions may be due to events that are beyond our control or the control of our third-party delivery partners, such as inclement weather, natural disasters, transportation interruptions, or labor unrest or shortage. Moreover, if these third-party delivery companies fail to comply with applicable rules and regulations in China, reputation of our delivery services may be materially and adversely affected. We may not be able to find alternative delivery companies to provide delivery services in a timely and reliable manner, or at all, to replace such third-party delivery companies to the extent necessary. In anticipation of intensified competition in the future, we may need to require further shortened delivery time at increasing fulfillment expenses. Delivery of our products could also be affected or interrupted by merger, acquisition, insolvency, or government shut-down of the third-party delivery companies we engage to make deliveries. If our products are not delivered in proper condition or on a timely basis, our business and reputation could suffer.
 
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If we do not compete effectively against existing or new competitors, we may lose market share and customers.
The online discount retail market is rapidly evolving and competitive. Our primary competitors include pure-play online discount retailers, other online discount retailers, and new forms of e-commerce such as live streaming platforms in China. We compete with others based on a number of factors, including:
 
   
ability to identify products in demand among consumers and source these products on favorable terms from brand suppliers;
 
   
focus on and expertise in apparel-related categories;
 
   
ability to offer a curated selection of products catering to consumer preferences;
 
   
pricing advantage due to our discount retail model;
 
   
breadth and quality of product and service offerings;
 
   
platform features;
 
   
customer service and fulfillment capabilities; and
 
   
solid reputation among consumers and brands.
Some of our current and potential competitors may have significantly greater resources, longer operating histories, larger customer bases, and greater brand recognition. As the online discount retail market in China is expected to grow, new competitors and some existing B2C
e-commerce
companies may enter into this market. In addition, other online retailers may be acquired by, receive investment from, or enter into strategic relationships with, well-established and well-financed companies or investors, which would help enhance their competitive positions. Some of our competitors may be able to secure more favorable terms from brand partners, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory policies, and devote substantially more resources to their platform and system development than us. In addition, emerging technologies and continuing innovation in mobile internet may increase the competition in the online retail industry. Increasing competition may negatively affect our business development, online retail, and brand recognition, which may in turn affect our market share and operating margins. We cannot assure you that we will be able to compete effectively against our competitors, and competitive pressure may materially and adversely affect our business, prospects, financial condition, and results of operations.
We had incurred net losses and experienced negative cash flow from operating activities in historical periods and may incur net losses in the future.
We had incurred net losses in historical periods. Although we have achieved net profit since the fourth quarter of 2012, we cannot assure you that we can continue to generate net profits or maintain positive cash flow from operating activities in the future. Our ability to be profitable depends on our ability to grow our business and increase our total net revenues, to optimize our product category mix, to negotiate favorable terms with our suppliers, and to control our costs and operating expenses. Although we have experienced significant revenue growth since our inception, such growth may not be sustainable and we may incur net losses in future periods or fail to maintain positive cash flow from operating activities. We have incurred in the past and expect to continue to incur in future periods share-based compensation expenses and we expect our costs and other operating expenses to continue to increase as our business grows, either of which will reduce our net income and may result in future losses. If our costs and operating expenses continue to increase without a commensurate increase in our revenue, our business, financial condition, and results of operations will be adversely affected, and we may need additional capital to fund our ongoing operations.
We may suffer losses if we are unable to effectively manage our inventory.
Due to the nature of the flash sales business and our
non-standardized
product category offerings, we need to manage a large volume of inventory turnover. We depend on our forecasts of demand and popularity for
 
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various kinds of products to make decisions regarding product procurements. Our customers may not order products at our expected levels. In addition, any unfavorable market or industry conditions or change in consumer trends and preferences may limit our ability to accurately forecast the inventory levels to meet customer demand.
We generally have the right to return unsold items for most of our products to our brand partners. In order to secure more favorable commercial terms, we may need to continue to enter into supply arrangements without unconditional return clauses or with more restrictive return policies. We may also need to take inventory in certain key product categories in order to achieve higher gross margin and obtain better commercial terms. Furthermore, because products imported to China for our cross-border business are generally not returnable, our inventory may contain an increasing portion of unreturnable products as our cross-border business continues to grow.
We recorded RMB347.5 million, RMB554.9 million, and RMB35.3 (US$5.5 million) in inventory
write-down
for the years ended December 31, 2019, 2020, and 2021, respectively. Such write-downs primarily reflected the estimated net realizable value of damaged or obsolete inventory.
If we fail to manage our inventory effectively in the future, we may be subject to a heightened risk of inventory obsolescence, a decline in inventory values, and write-down, which could materially and adversely affect our business, financial condition, and results of operations. In addition, if we are unable to sell products or if we are required to lower sale prices in order to reduce inventory level or to pay higher prices to our brand partners in order to secure the right to return products to our brand partners, our profit margins might be negatively affected. High inventory levels may also require us to commit substantial capital resources, preventing us from using that capital for other important purposes. If we do not accurately predict product demand, our business, financial condition, and results of operations may be materially and adversely affected.
If we are subject to higher than expected product return rates, our business, financial condition, and results of operations may be materially and adversely affected.
Purchases of apparel, fashion accessories, and other items over the internet may be subject to higher return rates than merchandise sold at physical stores. In order to accommodate our customers and to overcome any hesitance that they may have in shopping with us, we currently implement a unified
seven-day
product return policy for purchases via our Vipshop Online Platform and refund our customers if they refuse to accept the delivery, which also constitutes a product return. Our product return rates remained stable from 2013 to 2017, and slightly increased from 2018 to 2021
due to the repositioning of our business focus towards the apparel category since 2018 and the implementation of our new Super VIP Membership program in 2018, which offers free shipping and free return for its paid members. If we are unable to efficiently manage our product return rates within an appropriate range relative to our sales volume, or if our product return rates increase or are higher than expected, our revenues and costs can be negatively impacted. In addition, as we cannot return some products to our brand partners pursuant to our contracts with them, if return rates for such products increase significantly, we may experience an increase in our inventory balance, inventory impairment, and fulfillment costs, which may materially and adversely affect our working capital. As a result, our business, financial condition, and results of operations may be materially and adversely affected.
We rely on online retail of apparel products for a significant portion of our total net revenues.
Historically, online retail sales of apparel products accounted for a significant portion of our total net revenues. We expect that sales of these products will continue to grow and represent a significant portion of our total net revenues in the near future. We have increased our offerings to include other product categories, including cosmetics, home goods, mother and baby care products, accessories, wellness products, consumer electronic products, furniture, bed and bath, food and snacks, and other lifestyle products. However, we do not expect the sales of these new products and services to increase to a level that would reduce our dependence on
 
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our current line of products and services. Any failure in maintaining or increasing the number of our online retail customers or our sales volumes could result in our inability to retain or capture a sufficient share of the markets that we are targeting. Any event that results in a reduction in our sales of apparel products could materially and adversely affect our ability to maintain or increase our current level of revenue, our profitability, and business prospects.
If we are not able to manage our logistics network successfully, our growth potential, results of operations and business could be materially and adversely affected.
Our logistics network, currently consisting of both regional logistics hubs and local distribution centers, is essential to our business operations. We plan to complete construction of certain logistics centers, and to maintain our logistics network to accommodate increasing volumes of customer orders, enhance customer experience, and provide sufficient coverage across China. However, we cannot assure you that our plans to maintain the operation of our own logistics centers will be successful. We cannot assure you that we can complete the
on-going
constructions of our logistics centers in a cost-efficient manner. Nor can we assure you that we will be able to recruit and retain qualified managerial and operational personnel to support our logistics network. If we are unable to effectively control expenses related to the maintenance of our logistics network, our business, prospects, financial condition, and results of operations could be materially and adversely affected.
Uncertainties regarding the growth and sustained profitability of the online retail market in China, and in particular, the development of the online flash sales business model, could adversely affect our business, prospects, financial condition, and results of operations.
Substantially all of our total net revenue is generated through an online retail business model, and in particular, an online flash sales business model. While online retail businesses have existed in China since the 1990s, only a limited number of these companies became profitable. The flash sales business model originated in Europe in 2001 and then spread to the United States, and later to China. The long term viability and prospects of the online retail industry, particularly companies utilizing an online flash sales business model, and B2C
e-commerce
business generally in China, remain subject to significant uncertainty. Our business, financial condition, and results of operations will depend on numerous factors affecting the development of the online flash sales business and, more broadly, the online retail and
e-commerce
businesses in China, which may be beyond our control. These factors include the general economic conditions in China, the growth of internet usage, the confidence in and level of
e-commerce
and online spending, the emergence of alternative retail channels or business models, the success of marketing and brand building efforts by
e-commerce
and flash sales companies, and the development of payment, logistics, after-sale, and other services associated with
e-commerce
and flash sales.
The proper functioning of our IT systems is essential to our business. Any failure to maintain the satisfactory performance, security, and integrity of our Vipshop Online Platform and systems will materially and adversely affect our business, reputation, financial condition, and results of operations.
Our IT systems mainly include technology infrastructure supporting the user interface of our Vipshop Online Platform, as well as our customer service, enterprise resource planning, warehouse management, product information management, business intelligence, and administration management systems. The satisfactory performance, reliability, and availability of our IT systems are critical to our success, our ability to attract and retain customers, and our ability to maintain a satisfactory customer experience and level of customer service.
Our servers may be vulnerable to computer viruses, user traffic boom that exceeds the capacity of our servers, physical or electronic
break-ins,
and other disruptions, which could lead to system interruptions, website slowdown or unavailability, delays in transaction processing, loss of data, or the inability to accept and fulfill customer orders. We can provide no assurance that we will not experience such unexpected interruptions. We can provide no assurance that our current security mechanisms will be sufficient to protect our IT systems from any
 
24

third-party intrusions, viruses or hacker attacks, information or data theft, or other similar activities. Any such future occurrences could damage our reputation and result in a material decrease in our revenue. We did not have material system failure in 2021.
Additionally, we intend to continue using our available cash and financing options to upgrade and improve our IT systems and cybersecurity to support our business growth. For the year ended December 31, 2019, 2020, and 2021, we spent RMB126.7 million, RMB37.0 million, and RMB295.6 million (US$46.4 million) to maintain our IT and cybersecurity protections. However, we cannot assure you that we will be successful in executing these system upgrades and improvement strategies. In particular, our systems may experience interruptions during upgrades, and the new technologies or infrastructures may not be fully integrated with the existing systems on a timely basis, or at all. If our existing or future IT systems do not function properly, it could cause system disruptions and slow response times, affecting data transmission, which in turn, could materially and adversely affect our business, financial condition, and results of operations.
If we fail to successfully adopt new technologies or adapt our Vipshop Online Platform and systems to changing customer needs or emerging industry standards, our business, financial condition, and results of operations may be materially and adversely affected.
To remain competitive, we must continue to enhance and improve the responsiveness, functionality, and features of our Vipshop Online Platform. The online retail industry is characterized by rapid technological evolution, changes in end user requirements and preferences, frequent introductions of new products and services embodying new technologies, and the emergence of new industry standards and practices that could render our existing proprietary technologies and systems obsolete. Our success will depend, in part, on our ability to identify, develop, acquire, or license leading technologies useful in our business, enhance our existing services, develop new services and technologies that address the increasingly sophisticated and varied needs of our existing and prospective customers, and respond to technological advances and emerging industry standards and practices, such as mobile internet, on a cost-effective and timely basis. The development of mobile applications, websites, and other proprietary technology entails significant technical and business risks. We can provide no assurance that we will be able to use new technologies effectively or adapt our platform, proprietary technologies, and transaction-processing systems to meet customer requirements or emerging industry standards. If we are unable to accurately project the need for such system expansion or upgrade or to adapt our systems in a cost-effective and timely manner in response to changing market conditions or customer requirements, whether for technical, legal, financial, or other reasons, our business, prospects, financial condition, and results of operations could be materially and adversely affected.
Our wide variety of accepted payment methods subject us to third-party payment processing-related risks.
We accept payments using a variety of methods, including our Vipshop Payment service and payment through third-party online payment services, such as WeChat Pay and Alipay. For certain payment methods, including credit and debit cards processed via our Vipshop Payment service, we pay interchange and other fees, which may increase over time and raise our operating costs and lower our profit margins. We may be subject to fraud, customer data leakage, and other illegal activities in connection with the various payment methods we offer. We may also be subject to various rules, regulations, and requirements, regulatory or otherwise, governing electronic fund transfers and online payment, which could change or be reinterpreted to make it difficult or impossible for us to comply with. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit and debit card payments from our customers, process electronic fund transfers, or facilitate other types of online payments, and our business, financial condition, and results of operations could be materially and adversely affected.
 
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The security of operations of our own and other third-party online payment services may materially and adversely affect our business.
Currently, we accept payments through our own Vipshop Payment service and other third-party online payment service providers, such as WeChat Pay and Alipay. In the year ended December 31, 2019, 2020, and 2021, approximately 97%, 100%, and 100% of our total online orders were collected through online payment services, of which WeChat Pay was used to process a significant portion of our total orders, and our Vipshop Payment service was used to process a meaningful portion of our total orders. In all these online payment transactions, secured transmission of confidential information such as customers’ credit card numbers and personal information over public networks is essential to maintain consumer confidence.
We do not have control over the security measures of our third-party online payment vendors, and security breaches of the online payment services that we use could expose us to litigation and possible liability for failing to secure confidential customer information and could, among other things, damage our reputation and the perceived security of all of the online payment services that we use. If a well-publicized internet or mobile network security breach were to occur, users concerned about the security of their online financial transactions might become reluctant to purchase on our Vipshop Online Platform even if the publicized breach did not involve the online payment services or other methods used by us. In addition, there may be billing software errors that would damage customer confidence in these online payment services. If any of the above with respect to any third-party online payment vendors were to occur and damage our reputation or the perceived security of the online payment services we use, we might lose customers and customers might be discouraged from purchasing on our platform, which may adversely affect our business.
Our growth and profitability depend on the level of consumer confidence and spending in China.
Our business, financial condition, and results of operations are sensitive to changes in overall economic and political conditions that affect consumer spending in China. The retail industry, including the online retail sector, is highly sensitive to general economic changes. Although our discount retail business is typically counter-cyclical, online purchases tend to decline significantly during recessionary periods and approximately 98%, 97%, and 97% of our total net revenue is derived from online retail sales, which is total net revenue exclusive of net revenue from Shan Shan Outlets, offline stores and city outlets in China in 2019, 2020, and 2021. Many factors outside of our control, including inflation and deflation, interest rates, volatility of equity and debt securities markets, taxation rates, employment and other government policies, and global pandemics such as the
COVID-19
can adversely affect consumer confidence and spending. The domestic and international political environments, including military conflicts and political turmoil or social instability, may also adversely affect consumer confidence and reduce spending, which could in turn materially and adversely affect our business, financial condition, and results of operations.
We may incur liability for counterfeit or unauthorized products sold or information posted on our platforms.
We have been and may continue to be subject to allegations that some of the items sold on our platforms are counterfeit or unauthorized from the relevant brand owners. As of December 31, 2019, 2020, and 2021, we worked with over 18,000, 21,000, and 25,000 brand partners, respectively, via our Vipshop Online Platform. We cannot assure you that measures we have adopted in the course of sourcing such products to ensure their authenticity or authorization and to minimize potential liability of infringing third parties’ rights will be effective. Any inadvertent sales of counterfeit,
non-authentic
or unauthorized items, or public perception of such incidents, could harm our reputation, impair our ability to attract and retain customers, and cause us to incur additional costs to respond to any incident of this nature. If counterfeit products, unauthorized products, or products, images, logos, or any other information that otherwise infringe third parties’ rights are sold or posted on our platform, we could also face infringement claims. We have occasionally received claims alleging our infringement of third-party rights and, depending on the circumstances, have incurred significant settlement expenses. We cannot assure you that in the future, we will not be required to allocate significant resources and
 
26

incur material expenses regarding such claims. We may need to pay substantial amount of compensation to settle similar claims without involving in any legal proceedings, and could be required to pay substantial damages or to refrain from the sale of relevant products in the event that a claimant prevails in any proceedings against us. Forms of potential liabilities under PRC law if we negligently participated or assisted in infringing activities associated with counterfeit goods include injunctions to cease infringing activities, rectification, compensation, and administrative penalties. Moreover, our reputation could be negatively affected due to the negative publicity of any infringement claim against us. Any third-party claims may materially and adversely affect our business, prospects, financial condition, and results of operations.
Our business is subject to complex and evolving PRC laws and regulations regarding cybersecurity and data privacy.
Our business generates and processes a large quantity of data. We face risks inherent in handling and protecting large volume of data. In particular, we face a number of challenges relating to data from transactions and other activities on our platforms, including:
 
   
protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior or improper use by our employees;
 
   
addressing concerns related to privacy and sharing, safety, security and other factors; and
 
   
complying with applicable laws, rules and regulations relating to the collection, use, storage, transfer, disclosure and security of personal information, including any requests from regulatory and government authorities relating to this data.
In general, we expect that data security and data protection compliance will receive greater attention and focus from regulators, both domestically and globally, as well as attract continued or greater public scrutiny and attention going forward, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security and protection. If we are unable to manage these risks, we could become subject to penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected.
The PRC regulatory and enforcement regime with regard to data security and data protection is evolving and may be subject to different interpretations or significant changes. Moreover, different PRC regulatory bodies, including the Standing Committee of the NPC, the Ministry of Industry and Information Technology, or the MIIT, the CAC, the Ministry of Public Security and the State Administration for Market Regulation, or the SAMR, have enforced data privacy and protections laws and regulations with varying standards and applications. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations Relating to Internet Privacy” and “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations Relating to Information Security”. The following are examples of certain recent PRC regulatory activities in this area:
Data Security
 
   
In June 2021, the Standing Committee of the NPC promulgated the Data Security Law, which took effect in September 2021. The Data Security Law, among other things, provides that the government will establish a security review procedure for data-related activities that affect or may affect national security. In July 2021, the state council promulgated the Regulations on Protection of Critical Information Infrastructure, which became effective on September 1, 2021. Pursuant to this regulation, critical information infrastructure means key network facilities or information systems of critical industries or sectors, such as public communication and information service, energy, transportation, water conservation, finance, public services,
e-government
affairs and national defense science, the damage, malfunction or data leakage of which may endanger national security, people’s livelihoods
 
27

 
and the public interest. In December 2021, the CAC, together with other authorities, jointly promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022 and replaces its predecessor regulation. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services and network platform operators engaging in data processing activities must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulates that a network platform operator that holds personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any public offering at a foreign stock exchange. As of the date of this annual report, no detailed implementation rules have been issued by any government authorities. While we have not been officially identified as a critical information infrastructure operator by any government authorities as of the date of this annual report, we have been directed by the Office of Cyberspace Affairs Commission of the Guangzhou Municipal Party Committee to conduct cybersecurity self-examinations, including in accordance with the Cybersecurity Examination Guidance for Critical Information Infrastructure Operators in Guangzhou (2020). We have conducted such cybersecurity self-examinations as directed and have submitted the corresponding cybersecurity self-examination reports to the responsible government authority. In other words, we have been subject to requirements imposed under certain PRC laws and regulations that have an apparent application on critical information infrastructure operators and as such it is possible that we may be identified as a critical information infrastructure operator. If we are designated as a critical information infrastructure operator, we will be subject to the requirement of a cybersecurity review and such other requirements and scrutiny from PRC government authorities and under applicable laws and regulations, which may increase our compliance costs and affect our ability to conduct overseas offerings. For example, in relation to our procurement of network products or services, we may be required to assess if there is any national security risk involved when such products or services are used, and if national security will be affected or may be affected. We may be required to apply to the Office of Cybersecurity Review of the CAC for cybersecurity review. We may also be obligated to comply with a hierarchical cybersecurity network security system that has been introduced, and to implement technical measures and to take other necessary actions to address cybersecurity incidents, prevent cyber-attacks, forestall illegal and criminal activities, safeguard the security and stable operation of critical information infrastructure, and maintain data integrity, confidentiality and availability.
 
   
In November 2021, the CAC released the Regulations on the Network Data Security (Draft for Comments), or the Draft Regulations on Network Data Security. The Draft Regulations on Network Data Security provides that data processors refer to individuals or organizations that, during their data processing activities such as data collection, storage, utilization, transmission, publication and deletion, have autonomy over the purpose and the manner of data processing. In accordance with the Draft Regulations on Network Data Security, a data processor shall apply for a cybersecurity review for certain activities, including, among other things, (i) the overseas listing of such data processor if it processes personal information belonging to more than one million users, and (ii) any data processing activity that affects or may affect national security. However, there have been no clarifications from the relevant authorities as of the date of this annual report as to the standards for determining whether an activity is one that “affects or may affect national security.” In addition, the Draft Regulations on Network Data Security stipulates that data processors that process “important data” or are listed overseas must conduct an annual data security assessment, either by itself or through a data security service provider, and must submit the assessment report of a given year to the relevant municipal cybersecurity department by the end of January of the following year. As of the date of this annual report, the Draft Regulations on Network Data Security has been released for public comment only, and its final provisions and adoption are subject to uncertainties.
 
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Personal Information and Privacy
 
   
The Anti-monopoly Guidelines for the Platform Economy Sector published by the Anti-monopoly Committee of the State Council, which took effect on February 7, 2021, prohibits online platforms operators from collecting
non-essential
user information through coercive means.
 
   
In August 2021, the Standing Committee of the NPC promulgated the Personal Information Protection Law, which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. The Personal Information Protection Law steps up the protection for personal information and imposes additional requirements in terms of its processing. Nonetheless, many provisions under this law remain to be clarified by the CAC, other regulatory authorities, and courts in practice. We have been updating our privacy policies from time to time to comply with applicable regulatory requirements of PRC government authorities and adopt technical measures to protect data and ensure cybersecurity in a systematic manner. We may be required to make further adjustments to our business practices to comply with the personal information protection laws and regulations.
Many of the data-related legislations are relatively new and certain concepts thereunder remain subject to clarifications and interpretations by the regulators. If any data that we possess belongs to data categories that are subject to heightened scrutiny, we may be required to adopt stricter measures for the protection and management of such data. The Cybersecurity Review Measures and the Draft Regulations on Network Data Security remain unclear on whether the relevant requirements will be applicable to companies that are already listed in the United States, such as us. We cannot predict the impact of the Cybersecurity Review Measures and the Draft Regulations on Network Data Security, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If the Cybersecurity Review Measures and the enacted version of the Draft Regulations on Network Data Security mandate clearance of cybersecurity review and other specific actions to be taken by issuers like us, we face uncertainties as to whether these additional procedures can be completed by us timely, or at all, which may subject us to government enforcement actions and investigations, fines, penalties, suspension of our
non-compliant
operations, or removal of our app from the relevant application stores, and materially and adversely affect our business and results of operations and significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. As of the date of this annual report, we have not been involved in any formal investigations on cybersecurity review made by the CAC on such basis.
In general, compliance with existing PRC laws and regulations, as well as additional laws and regulations that PRC regulatory bodies may enact in the future, related to data security and personal information protection, may be costly and result in additional expenses to us, and subject us to negative publicity, which could harm our reputation and business operations. There are also uncertainties with respect to how such laws and regulations will be implemented and interpreted in practice.
Failure to protect confidential information of our customers and our network against security breaches could damage our reputation and brand and substantially harm our business and results of operations.
A significant challenge to
e-commerce
and communications is the secure transmission of confidential information over public networks. Currently, almost all product orders and, in some cases, payments for products we offer, are made through our Vipshop Online Platform and systems. In such transactions, maintaining security on our platform and systems for the transmission of confidential or private information, such as customers’ personal information, payment-related information, and transaction information, is essential to maintain consumer confidence in our platform and systems.
We have adopted rigorous security policies and measures, including use of encryption technology, to protect our proprietary data and customer information. However, advances in technology and hacker skills, new discoveries in the field of cryptography, or other events or developments could result in a compromise or breach
 
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of the technology that we use to protect confidential information. We may not be able to prevent third parties, especially hackers or other individuals or entities engaging in similar activities, from illegally obtaining such confidential or private information we hold as a result of our customers’ visits on our platform. Such individuals or entities obtaining our customers’ confidential or private information may further engage in various other illegal activities using such information. In addition, we have limited control or influence over the security policies or measures adopted by third-party providers of online payment services through which some of our customers may elect to make payment for purchases on our platform. Furthermore, our third-party delivery partners may also violate their confidentiality obligations and disclose or use information about our customers illegally. Although we do not believe that there would be any material adverse effect on our ability to carry out our current business operations if we were held responsible for any such illegal activities, any negative publicity on our platform’s safety or privacy protection mechanism and policy could materially and adversely affect our public image and reputation.
In addition, the methods used by hackers and others to engage in illegal online activities are increasingly sophisticated and constantly evolving. Significant capital, managerial, and other resources may be required to ensure and enhance information security or to address the issues caused by such security failure. Any perception by the public that
e-commerce
and transactions, or the privacy of user information, are becoming increasingly unsafe or vulnerable to attack could inhibit the growth of online retail and other online services generally, which may also in turn reduce the number of orders we receive and materially and adversely affect our business, financial condition, and results of operations.
We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitive position.
We regard our trademarks, service marks, domain names, trade secrets, proprietary technologies, and other intellectual property as critical to our business. We rely on a combination of intellectual property laws and contractual arrangements, including confidentiality agreements and license agreements with our employees, brand partners, and others, to protect our proprietary rights. As of December 31, 2021, we had 184 patents and 345 pending patent applications in China, owned 1,944 registered trademarks in China and 118 registered trademarks outside China, 213 copyrights (including copyrights to 182 software products developed by us relating to various aspects of our operations), and 332 registered domain names that are material to our business, including
vip.com
and
vipshop.com
. See “Item 4.B. Information on the Company—Business Overview—Intellectual Property.”
It is often difficult to register, maintain, and enforce intellectual property rights in China. Statutory laws and regulations are subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory interpretation. Confidentiality agreements and license agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China. Policing any unauthorized use of our intellectual property is difficult and costly and the steps we have taken may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in protecting or enforcing our intellectual property rights could materially and adversely affect our business, financial condition, and results of operations.
We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.
We cannot be certain that our operations or any aspects of our business do not or will not infringe upon or otherwise violate patents, copyrights, or other intellectual property rights held by third parties. We have been,
 
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and from time to time in the future may be, subject to legal proceedings and claims relating to the intellectual property rights of others. In addition, there may be other third-party intellectual property that is infringed by our products, services or other aspects of our business. There could also be existing patents of which we are not aware that our products may inadvertently infringe. We cannot assure you that holders of patents purportedly relating to some aspect of our technology platform or business, if any such holders exist, would not seek to enforce such patents against us in China, the United States, or any other jurisdictions. Further, the application and interpretation of China’s patent laws and the procedures and standards for granting patents in China are still evolving and are uncertain, and we cannot assure you that PRC courts or regulatory authorities would agree with our analysis. If we are found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. In addition, we may incur significant expenses, and may be forced to divert management’s time and other resources from our business and operations to defend against these infringement claims, regardless of their merits. Successful infringement or licensing claims made against us may result in significant monetary liabilities and may materially disrupt our business and operations by restricting or prohibiting our use of the intellectual property in question. Finally, we use open source codes in self-developed software in connection with our products and services. Companies that incorporate open source software into their products and services have, from time to time, faced claims challenging the ownership of open source software and compliance with open source license terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software and make available any derivative works of the open source code on unfavorable terms or at no cost. Any requirement to disclose our source code or pay damages for breach of contract could be harmful to our business, results of operations, and financial condition.
We may be subject to litigation and regulatory proceedings.
We may be subject to litigation and regulatory proceedings relating to third-party and principal intellectual property infringement claims, contract disputes involving brand partners, consumer protection claims, claims relating to data and privacy protection, employment related cases, and other matters in the ordinary course of our business. There can be no assurance that we will be able to prevail in our defense or reverse any unfavorable judgment, ruling or decision against us. In addition, we may decide to enter into settlements that may adversely affect our results of operations and financial condition. Furthermore, in May 2020, the Hong Kong Independent Commission Against Corruption charged two individuals with commercial bribery offenses in connection with alleged conduct dating back to the period from 2013 to 2016. The two individuals were associated with entities that had business dealings with us during the referenced period. Although neither our company nor any of our employees is a party to the case or has been accused of any wrongdoing, there can be no assurance that the outcome or consequence of such case, if any, will not have any material and adverse effect on our public image, reputation, business prospects, results of our operations, and financial condition.
As a publicly-listed company, we may face additional exposure to claims and lawsuits inside and outside China, including securities law class actions. We will need to defend against these lawsuits, including any appeals should our initial defense be successful. The litigation process may utilize a material portion of our cash resources and divert management’s attention away from the
day-to-day
operations of our company, all of which could harm our business. There can be no assurance that we will prevail in any of these cases, and any adverse outcome of these cases could have a material adverse effect on our reputation, business and results of operations. In addition, although we have obtained directors’ and officers’ liability insurance, the insurance coverage may not be adequate to cover our obligations to indemnify our directors and officers, fund a settlement of litigation in excess of insurance coverage or pay an adverse judgment in litigation. Our directors and executive officers may also face litigation or proceedings unrelated to their respective capacity as a director or executive officer of our company, and such litigation or proceedings may adversely affect our public image and reputation.
 
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The existence of litigation, claims, investigations, and proceedings may harm our reputation, limit our ability to conduct our business in the affected areas and adversely affect the trading price of our ADSs. The outcome of any claims, investigations, and proceedings is inherently uncertain, and in any event defending against these claims could be both costly and time-consuming, and could significantly divert the efforts and resources of our management and other personnel. An adverse determination in any litigation, investigation, or proceeding could cause us to pay damages, incur legal and other costs, limit our ability to conduct business, or require us to change the manner in which we operate.
We may be subject to potential government investigations or enforcement actions under anti-monopoly and anti-competition laws and regulations.
The PRC government, media outlets, and public advocacy groups have been increasingly focused on
anti-monopoly
and anti-unfair competition recently. In October 2020, the SAMR issued the Interim Provisions for Regulating Promotional Activities, which took effect on December 1, 2020. Among other things, these interim provisions are designed to promote consumer protection and prohibit false or misleading commercial information used in promotional activities. Failure to comply with these provisions may subject us to penalties or other administrative actions by regulatory authorities. On February 7, 2021, the Anti-Monopoly Committee of the State Council published the Anti-Monopoly Guidelines for the Platform Economy Sector that aims at enhancing anti-monopoly administration of businesses that operate under the platform model and the overall platform economy. The guidelines specifically prohibit certain acts of the platform economy operators that may have the effect of eliminating or limiting market competition, such as forcing users to choose the products or services of one operator exclusively from the others. In April 2021, the SAMR, together with certain other PRC government authorities, convened an administrative guidance meeting, focusing on unfair competition acts in community group buying, self-inspection and rectification by major internet companies of possible violations of anti- monopoly, anti-unfair competition, tax and other related laws and regulations, and requesting such companies to comply with relevant laws and regulations strictly and be subject to public supervision. In addition, many internet companies, including over 30 companies that attended such administrative guidance meeting, are required to conduct a comprehensive self-inspection and make necessary rectification accordingly. The SAMR stated that it would organize and conduct inspections on the companies’ rectification results. If a company is found to conduct illegal activities, more severe penalties are expected to be imposed in accordance with the laws. Since the Anti-monopoly Guidelines for the Platform Economy Sector are newly enacted, there are substantial uncertainties relating to its interpretation and implementation.
On October 23, 2021, the Standing Committee of the National People’s Congress issued a second draft amendment to the Anti-Monopoly Law for public comments, which proposes to increase the fines on business operators for illegal concentration to no more than ten percent of the preceding year’s sales revenue of the business operators if the concentration of business operators has or may have an effect of excluding or limiting competition, or a fine of up to RMB5 million if the concentration of business operators does not have an effect of excluding or limiting competition. In addition, under the draft amendment, the relevant authority can investigate upon evidence that concentration has or may have the effect of eliminating or restricting competition, even if such concentration does not reach the filing threshold. Due to the enhanced enforcement of the Anti-Monopoly Law, we may receive greater scrutiny and attention from regulators and more frequent and rigid investigation or review by regulators, which will increase our compliance costs and subject us to heightened risks and challenges. There are substantial uncertainties on the evolving legislative activities and varied local implementation practices of anti-monopoly and competition laws and regulations in China, especially with respect to the enactment timetable, final content, interpretation, and implementation of the amended Anti-Monopoly Law. If it is enacted as proposed, it will impose a higher regulatory requirement to complete an acquisition. We may have to spend much more personnel cost and time evaluating and managing these risks and challenges in connection with our products and services as well as our investments in our ordinary business course to avoid any failure to comply with these regulations. Any failure or perceived failure by us to comply with the Anti-Monopoly Guidelines for Platform Economy Sector, the Anti-Monopoly Law, and other anti-monopoly laws and regulations may result in
 
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governmental investigations or enforcement actions, litigations, or claims against us and could adversely affect our business, financial condition, and results of operations.
We have been subject to administrative proceedings relating to anti-unfair competition laws, and may be subject to administrative proceedings relating to anti-monopoly and anti-unfair competition laws and regulations in the future. For instance, we received an administrative penalty decision issued by the SAMR in December 2020 for certain unfair pricing conduct during the November 11 promotional campaign. On January 14, 2021, we received a notice of investigation from the SAMR, which stated that the SAMR had commenced an investigation against us pursuant to the Anti-Unfair Competition Law. On February 8, 2021, we received the decision from the SAMR regarding the investigation. We are subject to a fine of RMB3 million and we have paid such fine on February 8, 2021. We will rectify the identified issues with respect to our business operations in accordance with the decision issued by the SAMR, and stay compliant with the Anti-Unfair Competition Law. The fine and rectification to our business operations will have limited impact to our operations and financial condition. On August 17, 2021, the SAMR issued the Provisions on Preventing Unfair Online Competition (Draft for Comments), which detailed the implementation of the PRC Anti-Unfair Competition Law, including specifying certain online unfair competition behaviors that should be prohibited. As of the date of this annual report, the provisions have not been formally adopted, and due to the lack of further clarification, there are still uncertainties regarding the interpretation and implementation of the provisions.
Due to the uncertainties associated with the evolving legislative activities and varied local implementation practices of anti-monopoly and competition laws and regulations in China, compliance with these laws, regulations, rules, guidelines, and implementations may be costly, and any incompliance or associated inquiries, investigations, and other governmental actions may divert significant management time and attention and our financial resources, bring negative publicity, subject us to liabilities or administrative penalties, and materially and adversely affect our financial conditions, operations, and business prospects.
We are subject to changing law and regulations regarding regulatory matters, corporate governance, and public disclosure that have increased both our costs and the risk of
non-compliance.
We are subject to rules and regulations by various governing bodies, including, for example, the Securities and Exchange Commission, or SEC, which is charged with the protection of investors and the oversight of companies whose securities are publicly traded, and the various regulatory authorities in China and the Cayman Islands, and to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.
Moreover, because these laws, regulations, and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.
Future strategic alliances or acquisitions may materially and adversely affect our business, financial condition, and results of operations.
We may pursue selected strategic alliances and potential strategic acquisitions that are complementary to our business and operations, including opportunities that can help us promote our brand to new customers and suppliers, expand our product and service offerings, and improve our technology infrastructure. We may also pursue strategic initiatives with brands and platforms in international markets.
Strategic alliances with third parties could subject us to a number of risks, including risks associated with sharing proprietary information,
non-performance
or default by counterparties, and increasing expenses in
 
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establishing these new alliances, any of which may materially and adversely affect our business. We may have little ability to control or monitor the actions of our partners. To the extent a strategic partner suffers any negative publicity as a result of its business operations, our reputation may be negatively affected by virtue of our association with such party.
In addition, although we have no current acquisition plans, we may consider entering into strategic acquisition of or alliance with other companies, businesses, assets, or technologies that are complementary to our business and operations as part of our growth strategy. For example, Sichuan VipFubon Consumer Finance Co., Ltd., a company engaging in consumer finance business, was established in October, 2021 by Fubon Bank (China) Co., Ltd., Xtep (China) Co., Ltd. and us. As of the date of this annual report, Fubon Bank (China) Co., Ltd., Xtep (China) Co., Ltd. and we hold 25%, 25.1%, and 49.9% of the equity interests in Sichuan VipFubon Consumer Finance Co., Ltd., respectively. We have made capital contribution totaling RMB249.5 million (US$39.2 million) in and have significant influence over the company.
Strategic acquisitions and subsequent integrations of newly acquired businesses would require significant managerial and financial resources and could result in a diversion of resources from our existing business, which in turn could adversely affect our growth and business operations. The costs of identifying and consummating acquisitions may be significant. We may also incur significant expenses in obtaining approvals from shareholders and relevant government authorities in China and elsewhere in the world. Our failure to consummate acquisitions could also require us to pay certain
pre-negotiated
fees and expenses. Acquired businesses or assets may not generate expected financial results and may have historically incurred and continue to incur losses. In addition, acquisitions could also require the use of substantial amount of cash, issuance of equity or debt securities, incurrence of significant goodwill and related impairment charges, amortization expenses for intangible assets and exposure to potential unknown liabilities of the acquired businesses or assets, including liabilities as the result of historical actions of the acquired businesses. The cost and duration of integrating newly acquired businesses could also materially exceed our expectations. Any such negative developments could materially and adversely affect our business, financial condition, and results of operations.
Any interruption in the operation of our logistics hubs or data centers for an extended period may materially and adversely affect our business.
Our ability to process and fulfill orders accurately and to provide high-quality customer service depends on the efficient and uninterrupted operation of our logistics hubs and self-owned servers located in data centers operated by major PRC internet datacenter providers. Our logistics hubs and data centers may be vulnerable to damage caused by fire, flood, power loss, telecommunications failure,
break-ins,
earthquake, human errors, and other events. We have developed a disaster tolerant system which includes real-time data mirroring, daily data
back-up
and system redundancy solutions. However, we do not carry business interruption insurance. The occurrence of any of the foregoing risks could materially and adversely affect our business, prospects, financial condition, and results of operations.
Pandemics, epidemics, or fear of spread of contagious diseases could disrupt our operations or Chinese or global economies, which could materially and adversely affect our business, financial condition, and results of operations.
In addition to the impact of
COVID-19,
global pandemics, epidemics in China or elsewhere in the world, or fear of spread of contagious diseases, such as H1N1 flu, H7N9 flu, avian flu, severe acute respiratory syndrome (SARS), Ebola, or other disease could disrupt our business operations in China and elsewhere in the world, reduce or restrict our fulfillment capacity, or result in regional or global economic distress, which may materially and adversely affect our business, financial condition, and results of operations. Any one or more of these events or recurrence may adversely affect our sales results, or even for a prolonged period of time, which could materially and adversely affect our business, financial condition, and results of operations.
 
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We have limited experience in operating an internet finance business, and exposure to credit risks or significant deterioration in the asset quality of our internet finance business may materially and adversely affect our business, financial condition, and results of operation.
Over the past few years, we have participated in the emerging internet finance sector in China, providing both consumer financing and supplier financing services. Starting from 2019, we scaled back our internet finance business, which currently serves as a supporting function for our core online retail business. We primarily cooperate with banks and third-party consumer financing companies to provide consumer loans to our customers, and charge the banks and third-party consumer financing companies a certain percentage of channel fees. Operating in this highly-regulated and fast-changing business sector involves risks and challenges. Our lack of familiarity with the internet finance sector may make it difficult for us to capture the demands and preferences in the market and provide financial service products that meet our customers’ requirements and preferences. We may not be able to achieve customer satisfactory.
Additionally, the risk of nonpayment of loans is inherent in the financing business. Although we have largely terminated providing loans to customers and suppliers by ourselves to reduce the credit risks we bear directly, we are not fully exempt from all the risks associated with potential bad debts. Defaults in payment for loans by our customers and suppliers expose us to bad debts. Furthermore, our ability to manage the quality of our loan portfolio and the associated credit risks will have significant impact on the results of operations of our internet finance business. Any significant deterioration in the asset quality of our internet finance business and significant increase in associated credit risks may materially and adversely affect our business, financial condition, and results of operations.
We may be subject to product liability claims if people or properties are harmed by the products we sell.
We sell products manufactured by third parties, some of which may be defectively designed or manufactured. As a result, sales of such products could expose us to product liability claims in connection with personal injury or property damage and may require product recalls or other actions. Third parties subject to such injury or damage may bring claims or legal proceedings against us as a product retailer or as a marketplace service provider. Currently, we maintain product liability insurance in relation to products we sell for any product liability claims based on property damage or personal injury. We also maintain public liability insurance. However, any material product liability claim beyond our coverage or litigation could materially and adversely affect our business, financial condition, and results of operations. Even unsuccessful claims could result in the use of funds and managerial efforts in defending them and could negatively impact our reputation.
We have limited insurance coverage, which could expose us to significant costs and business disruption.
Risks associated with our business and operations include, but are not limited to, damage to properties due to fire, explosions and other accidents, business interruption due to power shortages or network failure, product liability claims, transportation damages, losses of key personnel, and risks posed by natural disasters including storms, floods, and earthquakes, any of which may result in significant costs or business disruption. We have maintained insurance coverage we consider necessary and sufficient for our business, and customary for the industry in which we operate, including all risk property insurance covering our equipment, facilities, inventories, and other properties and public liability insurance covering certain premises liability. However, insurance companies in China currently offer limited business-related insurance products. We do not maintain business interruption insurance. We cannot assure you that our insurance coverage is sufficient to prevent us from any loss to be sustained or that we will be able to successfully claim our losses under our current insurance policies on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition, and results of operations could be materially and adversely affected.
 
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Our business depends on the continuing efforts of our management. If we lose their services, our business may be severely disrupted.
Our business operations depend on the continuing efforts of our management, particularly the executive officers named in “Item 6.A. Directors, Senior Management and Employees—Directors and Senior Management.” If one or more of our management were unable or unwilling to continue their employment with us, we might not be able to replace them in a timely manner, or at all. We may incur additional expenses to recruit and retain qualified replacements. Our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected. In addition, our management may join a competitor or form a competing company. We can provide no assurance that we will be able to successfully enforce our contractual rights included in the employment agreements we have entered into with our management team, particularly in China, where all these individuals reside.
As a result, our business may be negatively affected due to the loss of one or more members of our management.
If we are unable to attract, train, and retain qualified personnel, our business may be materially and adversely affected.
We intend to hire and retain additional qualified employees to support our business operations and planned expansion. Our future success depends, to a significant extent, on our ability to attract, train, and retain qualified personnel, particularly management, technical, marketing, and other operational personnel with expertise in the online retail industry. Our experienced
mid-level
managers are instrumental in implementing our business strategies, executing our business plans and supporting our business operations and growth. Since our industry is characterized by high demand and intense competition for talent, we cannot assure you that we will be able to attract or retain qualified staff or other highly skilled employees that we will need in order to achieve our strategic objectives. In addition, our ability to train and integrate new employees into our operations may also be limited and may not meet the demand for our business growth on a timely fashion, or at all. If we are unable to attract, train, and retain qualified personnel, our business may be materially and adversely affected.
Failure to renew our current leases or locate desirable alternatives for our facilities could materially and adversely affect our business.
We lease various properties for offices, logistics centers, offline stores, data centers, and customer service centers. We may not be able to successfully extend or renew such leases and may therefore be forced to relocate our affected operations. This could disrupt our operations and result in significant relocation expenses, which could materially and adversely affect our business, financial condition, and results of operations. In addition, we compete with other businesses for premises at certain locations or of desirable sizes. As a result, even though we could extend or renew our leases, rental payments may significantly increase as a result of the high demand for the leased properties. In addition, we may not be able to locate desirable alternative sites for our facilities as our business continues to grow and such failure in relocating our affected operations could affect our business and operations.
Our use of leased properties could be challenged by third parties, which may cause interruptions to our business operations.
Some of our landlords do not have proper ownership certificates or authorization of sublease for the properties we lease, or have other restrictions on their ownership of the properties. In particular, several of our offices in Guangzhou, China are located on land allocated by local government, and the landlord has not obtained the relevant government approvals for leasing the premises. In addition, some of our leased properties were mortgaged by the owners to third parties before we entered into lease agreements with them, and if such owners fail to perform their obligations secured by such properties and the mortgage is enforced by the third parties, we may be unable to continue to lease such properties and may be forced to relocate. Furthermore, a few of our leasehold interests in leased properties have not been registered with relevant PRC government authorities as
 
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required by PRC laws. According to PRC laws, rules, and regulations, failure to register a lease agreement will not affect its effectiveness between the landlord and the tenant.
However, the landlord and the tenant may be subject to administrative fines of up to RMB10,000 each for such failure to register the lease and failure to make corrections within specified time limit. As of the date of this annual report, we are not aware of any material claims or actions being contemplated or initiated by government authorities or any third parties with respect to our leasehold interests in or use of such properties. However, we cannot assure you that our use of the leased properties will not be challenged by the government authorities or third parties alleging ownership of such properties. In the event that our use of properties is successfully challenged, we may be forced to relocate the affected operations. We can provide no assurance that we will be able to find suitable replacement sites o