How does Shein, the world’s fastest growing fast fashion seller, make money?

Shein

Company introduction

The most mysterious company

Fast fashion cross-border e-commerce brand Shein is the most mysterious cross-border e-commerce giant in China. Although most Chinese people are unaware of this company, it is considered the fastest-growing future star in the industry.

Founding history

In 2008, Shein was founded in Nanjing by Xu Yangtian, who had just graduated from university. In 2012, Shein gave up the cross-border e-commerce wedding dress business, acquired a website with the domain name SHEINside.com, and began to focus on the overseas fashion single product market, thus starting Shein’s crazy and legendary road to growth.

How hot is Shein?

Shein ranks first in shopping app downloads in more than 20 countries and regions; it ranks in the top five in shopping app downloads in more than 60 countries and regions. This data has surpassed Amazon and has become the most popular online shopping app in the world. Go to the shopping app.

Positioning successful

The corporate name of Shein is composed of “she” and “in”, which is highly consistent with the company’s business characteristics. As a cross-border private brand fast fashion e-commerce platform whose main audience is young women, Shein’s main users are women aged 18 to 35.

This group has high requirements for the design and style of clothing, and at the same time hopes to keep the price as low as possible. Discounts, therefore, cost-effectiveness is often a key factor for audiences on this platform to purchase products.

Purely Chinese company

Shein is headquartered in Singapore, but in fact, from the founder and funding, the company is an out-and-out Chinese company from top to bottom. Because it wants to downplay its Chinese character to avoid being suppressed by the United States, it deliberately set its headquarters in Singapore.

In a similar situation, TikTok, the overseas arm of Douyin, also deliberately moved its headquarters to Singapore. Even Sea (ticker:SE), which is famous for its Shopee e-commerce, has a very similar strategy. The difference is that the founder of Sea moved to Singapore after high school.

According to information from Earnest Analytics, Shein has developed into the largest fast fashion seller in the United States. Shein launches new products at a fast pace and is known for always staying on top of fashion trends. And the company has recently sought to expand its merchandise offerings beyond fashion.

In August 2023, Shein, a Singapore-based online fashion retailer, reached an agreement with American fast fashion company Forever 21, under which Shein will be able to sell Forever 21’s products on its website and app.

Valuation and IPO

Top valuable unicorn

After the latest round of financing recently, according to data from CB Insights in June 2022, Shein’s valuation may reach as high as 100 billion U.S. dollars. With ByteDance having 2 billion users holding Douyin and TikTok, It is on par with SpaceX and is expected to rank among the top three unicorns in the world.

In the 2023 Hurun Global Unicorn Rankings, Shein ranked fourth with a valuation of 462 billion RMB, second only to ByteDance, Space X and Ant Group.

Astonishing performance

The king of fast fashion market

In the fast fashion apparel industry, Shein’s revenue has climbed from US$600 million in 2016 to US$15.7 billion in 2021. It will have global revenue of about $23 billion in 2022, according to Coresight research firm. This figure is close to ZARA (approximately US$28.2 billion), the dominant player in the global fashion apparel industry. Shein’s growth rate is faster. From 2015 to 2020, China’s export cross-border e-commerce compound annual growth rate was 15.6%, while Shein’s was as high as 189%.

In 2022, Shein will occupy nearly one-fifth of the global fast fashion market, surpassing Zara and H&M.

IPO

In November 2023, Shein has filed confidentially with US regulators for an initial public offering that could take place in 2024.

The company has been hoping for a valuation of as much as $90 billion in a US IPO.

US market performance

According to Sheng Lu, a professor of fashion and apparel studies at the University of Delaware, Zara and H&M will launch 40,000 and 23,000 new products respectively in the U.S. market from November 2022 to November 2023. The data analyzes each retailer’s SKUs and is used to identify a single product, including different sizes of the same style. During the same period, Shein launched 1.5 million products – 37 times that of Zara and 65 times that of H&M.

Since August 2021, Shein’s U.S. monthly unique visitors have almost doubled, reaching approximately 41 million in March.

According to Comscore estimates, Amazon’s monthly unique visitors dropped to about 211 million in March from about 217.5 million in September 2022. Data companies Similarweb and Sensor Tower have tracked and measured Temu, Shein and Amazon in recent months and found similar website and application traffic trends.

Operating figures

  • Shein’s annual sales exceed US$29 billion.
  • GMV in 2023 is estimated to be US$400, less than 10% of Amazon’s.
  • Shein has been profitable for four consecutive years. In 2022, Shein’s revenue reached US$22.7 billion, with a profit of approximately US$700 million. As early as 2020, Shein’s revenue exceeded US$10 billion, a growth of over 200%.
  • Shein once occupied 75% of the U.S. fast fashion apparel market. After Temu’s rise, it directly grabbed 20% of the market share at lower prices.

Strength and Weakness

Strength

Strong supply chain

Shein is an out-and-out Chinese company. It has established a complete and amazingly fast and efficient supply chain in China very early that its rivals cannot catch up. From the time the customer places the order to the time the customer receives the product, in extreme cases, even It claims to be able to complete orders within five days.

Please note that this is a customized item and will arrive within five days! Shein’s main product is fast fashion clothing! Time is important.

The main thing is productivity and speed. It usually takes ZARA about 21 to 33 days from design to product delivery. The delivery time for traditional clothing manufacturing is usually 3 to 6 months, while Shein only takes 7 to 14 days.

Ultimate supply chain management is a key factor in Shein’s success. As the ancestor of fast fashion, ZARA is highly praised by the industry for its iteration speed of launching 12,000 new products twice a week.

From April 5 to 7, 2022, on the Shein’s independent website, the number of new women’s clothing categories was 6854, 6850, and 7291 respectively. Shein launches new SKUs (minimum stock keeping units) of up to 40,000 to 50,000 models every week, truly achieving generational transcendence over its predecessors.

The price of goods on Shein generally ranges from a few dollars to more than ten dollars. For many products with similar designs or even the same model, Shein’s prices are several times cheaper than ZARA.

Shein has now developed more than 300 core garment factory suppliers within a two-hour drive from its headquarters in Panyu, with a total supplier base of more than 2,000. Currently, Shein continues to invest 15 billion yuan to build its supply chain headquarters in Guangzhou.

Shein’s hit rate has reached 50%, and its unsaleable rate is only about 10%. It has really pushed the supply chain to the point where it can no longer be squeezed. Because the volume of orders is now very large, OEMs and suppliers are still profitable.

Low Price

The prices of merchants’ products on Amazon are actually low enough, but Shein’s prices can be even lower, not in terms of percentages, but the prices of merchants’ products on Amazon are several times higher than Sheins. Please note that Shein’s main products are fast fashion clothing, and its main customers are teenage women. With limited funds, price is the biggest consideration.

Affordable and low prices are the only way to seize the market, especially for the fast fashion clothing industry. Generally speaking, Shein belongs to the footwear and apparel industry. The basic industrial logic of this industry is: suppliers provide raw materials such as fabrics and accessories, which are turned into finished products through clothing design, manufacturing and processing, and then sold through offline stores or Sold to consumers through e-commerce platforms and other channels.

As a result, there is a fundamental dilemma in the industry: the processing factory has a high opportunity cost every time it is turned on. It is hoped that the brand side can order larger orders; but it is difficult for the brand side to guarantee mass production. The products that come out can be sold quickly, because if they cannot be sold, it is easy to form a backlog of inventory.

In response to this industry pain point, Shein adopts the “quick return for small orders” method instead of traditional order production, thereby changing the industry’s supply chain logic. The so-called “small order quick return” means that the company tests the market with a very small first order.

When there is data on the consumer side showing that the product has the potential to be a “hit”, the company will return the product to the factory to increase production. Order. For example, if you first produce an initial order of 100 pieces, and some even only have pictures, you can start selling at the terminal, test the market reaction, place the order, and then arrange production.

In this way, although the first 100 pieces will suffer a loss due to high production costs, the inventory problem will be solved from the source, and subsequent follow-up of a large number of orders will quickly allow the processing company to turn losses into profits.

Build its own website

Most traditional cross-border e-commerce companies rely on e-commerce platforms and open stores on foreign platforms such as Amazon to promote brands and do business through their huge traffic patterns.

Although it is easy to enjoy the shade under a big tree, and you can quickly divert traffic from the platform and promote products in the early stage, the “water tap” of traffic is still held by the platform. Not only is there the risk of being cut off, but you will also have to spend money to buy traffic in the future.

From the beginning, Shein chose the model of building its own website without relying on the platform, but it required a lot of construction and promotion costs in the early stage. But with the company now so successful, it seems that the original decision was the right one.

Throughout 2021, in the United States, where Amazon is home, Shein App was downloaded 32 million times, second only to Amazon’s 40 million. According to Business Insider, from January to April 2022, Shein’s application downloads were 13.8 million times, while Amazon’s was 13.3 million, surpassing Amazon for the first time in quarterly downloads.

SimilarWeb data shows that at least half of the desktop traffic of the Shein website is organic traffic, with direct access traffic accounting for 37.34%, search traffic accounting for 45.2%, and organic searches for the brand word “Shein”. Accounted for the largest proportion. This also means that at least more than half of the users visit the Shein website directly.

In May 2021 alone, Shein received more than 150 million visits on mobile and PC, which was 33%, 44%, and 84% more than NIKE, H&M, and ZARA respectively. Among competitors such as ZARA, Nike, and H&M, Shein has the strongest access depth among PC and mobile users, with an average access time of 8 minutes and 37 seconds.

Weakness

Shein only focus on clothing, especially fast fashion.

Unlike Amazon, Shein and Temu cannot quickly deliver household necessities such as toilet paper and cannot replace grocery shopping. Amazon has spent many years building a huge logistics network. In view of this, Shein and Temu are basically unable to compete with the delivery advantages brought by Amazon’s Prime subscription service.

Main competitors

E-commerce competitors

Amazon

Amazon(ticker: AMZN).

Alibaba

Alibaba (ticker: BABA) has many established brands such as Alibaba International Station, AliExpress, and Lazada, and will also launch Allylikes, a cross-border e-commerce platform for women’s clothing, in 2021.

Temu

Temu, a subsidiary of Pinduoduo (ticker: PDD).

Since the service launched in the U.S. in September 2022, the number of U.S. monthly unique visitors to Temu’s website and app, a measure of how often shoppers visit the service, has grown more than ninefold, reaching about about 70.5 million.

TikTok

The world’s most popular Douyin and its overseas version TikTok have entered social e-commerce in the past two years and established TikTok Shop, and they have done well. Since Shein’s main customers are teenage women, this customer group is heavy users of social networks, and fast fashion clothing is especially suitable for sales on Douyin and TikTok.

TikTok opened its e-commerce service TikTok Shop to all 150 million users in the United States in September. Global transaction volume on TikTok has tripled, and the company has set a goal of reaching $20 billion this year from less than $5 billion last year.

Traditional fast fashion competitors

Fast Retailing

UNIQLO, a brand owned by Fast Retailing (ticker: FRCOY), is very popular among young people in East Asia.

Inditex

Zara, a subsidiary of Inditex (ticker: IDEXY).

Hennes & Mauritz AB

Due to the Xinjiang cotton incident in 2022, Hennes & Mauritz AB (H&M, ticker: HNNMY) made a major mistake in its business strategy. It blindly adhered to non-commercial persistence and was overconfident in itself. Businessmen least wanted to get involved.

H&M was also extremely high-profile. In just one or two years, it has almost lost China, the most important market it is optimistic about. Although it recently discovered that it had made serious mistakes in its business strategy, it want to keep a low profile and want to re-enter China. However, time will not come to it, and the prospects should not be too optimistic.

By the way, Adidas (ticker: ADDYY) also made the same mistake as H&M. Recently Adidas’ management team publicly admitted its mistake, saying that the company cannot live without the Chinese market, otherwise it will not be able to continue to grow. It even admitted that it has affected the company’s overall profits, let alone competing with its main competitors.

The opponent Adidas refers to is Nike (ticker: NKE). Compared with Adidas or H&M, Nike is much smarter. Nike’s operation in China is considered successful. China is Nike’s second largest market. The performance of the Chinese market is almost All determine the stock price trend the day after each Nike earnings report is released.

Challenges

Political interference

Of course, a Chinese company that performs so well, even though Shein only sells clothes, like TikTok, the overseas arm of Douyin, will certainly cause uneasiness and intervention from the United States.

Temu, owned by Shein and Pinduoduo (ticker: PDD), is currently facing regulatory scrutiny in the United States. Lawmakers and Republican attorneys general in more than a dozen states have pressed the companies.

Quality and infringement

Of course, Shein, which has grown rapidly, is suffering from design infringement, quality and other issues. In the view of some Western media, Shein’s “design models” are dismantling and reorganizing the creative elements of big-name designers.

Currently, many clothing brands and designers have taken Shein to court. Under the premise of heavy reliance on outsourcing and extremely low prices, Shein’s quality controversy is not unexpected. However, if it is labeled as low-end cost-effective in the minds of consumers, it is actually very difficult to complete a high-end counterattack. , it will require high costs and continuous investment in the later stage.

Competition intensifies

Shein is also facing greater competitive pressure from various giants. When big brands learn from Shein’s model and penetrate into the mid-to-high-end market, it may squeeze Shein’s share. ZARA sales in 2021 Increased by 36%, returning to the rapid growth channel.

ByteDance successively launched cross-border e-commerce TikTok Shopping, Fanno, etc. in 2021. Alibaba holds many established brands including Alibaba International Station, AliExpress, and Lazada, and will also launch Allylikes, a cross-border e-commerce platform for women’s clothing, in 2021. The real test for Shein may have just begun.

Shein
credit: retail-insight-network.com

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