Fast-fashion ecommerce firm Shein has won over Westerners with social media expertise, shrewd supply chain management and on-demand manufacturing.
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Shein Founder and CEO Xu Yangtian found his way to the fashion industry via a talent for search engine optimisation. His company brings Chinese-style “social commerce” to Westerners, blending ecommerce with social media and gaining a large following with sales to match. Zheshang Securities estimates that Shein’s gross merchandise value (GMV) was over $2 billion in 2019. It is expected to exceed $20 billion in 2021, and analysts say the company will bring in more revenue than fast-fashion rival Zara in 2022.
Shein is a direct-to-consumer business – and it sells directly to more Western consumers than perhaps any other Chinese company. Its biggest market is America, which accounts for 35-40% of the company’s GMV. Wealthy European countries account for another 30-35%. The rapidly growing ecommerce firm has captivated big venture capital firms in both America and China. Its backers include Sequoia Capital and IDG Capital, among others.
Shein’s operating model and marketing approach have set it up for success. It amplifies the proven fast-fashion formula, turning out large volumes of new designs and selling its wares at bargain prices. By comparison Zara launches about 10,000 new products a year, while Shein launches 6,000 every day (including existing designs in new colours). Shein also beats competitors with its prices, which average $8 to $30 per item. This is about 30-50% less than those of Zara or H&M for comparable items, says Douglas Kim of Smartkarma.
What enables this output is Shein’s expertise in fashion supply chains, and its use of on-demand manufacturing. Being literally demand driven, this relatively new production model is well suited to the fickle nature of fashion. Shein starts by using algorithms to find fashion trends online. This generates new design ideas, which are manufactured in small batches. Shein then tests the designs on its app, monitoring digital sales in real time. If an item performs well, the company orders more. Inventory is centralised in only a few large warehouses and shipped to consumers.
Shein also displays digital savvy in its sales and marketing, which largely leverages social media. It gives free products to influencers, like most brands. But is has also recruited a host of local third-party designers in America and elsewhere, who market Shein’s products and backstories on social media in addition to coming up with new designs. This has turned out to be a winning strategy. The Economist reports that about 70% of Shein’s 250 million followers on Instagram, TikTok and other social media platforms shop on its app, which has 24 million daily active users.
There are some risks to Shein’s business, associated both with its industry and with the company itself. The fast-fashion industry faces mounting criticism for harmful impacts on the environment, questionable labour practices along the supply chain, and poor product quality. Shein’s other potential problems relate to its digital business model. The company has gone through several funding rounds and is reportedly preparing for an IPO, yet almost nothing is known about its profitability or margins. Shein may have earned the title “most mysterious unicorn”, but it is clear that investors are undeterred.
