Fashion is an inherently challenging product category.
Anyone who can predict demand more accurately, test more nimbly, and dial-up production of popular SKUs faster than others, thereby reducing waste, inefficiencies and markdowns, will hold a massive advantage over competitors.
Amancio Ortega, one of the world’s wealthiest men, brought such a revolution in this industry in the ’90s when he founded Inditex, which owns Zara, ‘the pioneer of Fast Fashion’.
At Zara, the focus is on manufacturing up-to-the-minute fashion items internally – using customers’ reactions to inform the latest designs and creating a production line that is constantly moving.
The brand claims to be able to get pieces from the drawing board to the shop floor in just three weeks.
This model forced direct competitors such as Mango, Uniqlo and H&M to change their manufacturing models to keep up eventually.
With time and technological advancement, fast fashion has gotten faster and simpler.
Online stores such as ASOS and Boohoo offer regularly-updated fashion products at a faster pace and deliver them to customers’ doors in less than 24 hours.
But these businesses still rely on personal relationships with their customers and a combination of research and instinct to choose the right product lines for their target audiences.
Today, the leader of fast fashion is Shein, as it has redefined fast fashion by cutting production times to one week and adding, on average, 3,000 new styles to its site every week at significantly lower price points than competitors.
Shein is the fastest-growing e-commerce company in the world. It reportedly did almost $10 billion in revenue in 2020 and has grown over 100% for each of the past eight years.
The company is based in China yet rejects its local market in favour of selling abroad.
Shein describes itself as an “international B2C fast fashion e-commerce platform” with business in more than 220 countries and regions around the world
Despite achieving such scale, there is a lot of secrecy about this centicorn.
Why?
Avoiding aggressive VCs? Hiding its Chinese roots to reduce buyer scepticism about quality? Low requirement for local press coverage as they don’t sell in China?
Whatever may be the allegation, it is hard to deny its current power. Shein is the elephant in the room that can’t be avoided.
Gen-Z is obsessed with it worldwide, and South East Asian consumers are no exception to it.
So how has Shein achieved such massive success?
Shein – Secret recipe to success
Shein combines parts of Apple and Amazon to build its compounding advantage.
Like Apple, it controls its entire value chain, from the factory floor to the Shein app. Building a solid brand and user experience should allow it to charge premium prices, like Apple, but instead, it chooses to delight customers through lower prices, like Amazon consistently.
It’s an incredibly difficult flywheel to pull off, but Shein is, and it’s hard to imagine any other company competing with it now that the flywheel is spinning.
Using predictive analytics and data science, the company designs products that people want to buy.
Its algorithms analyze consumer behaviour patterns on various social media websites, such as Weibo, WeChat and factors in current weather conditions, geographic and cultural preferences, and fashion forecast data.
Shein feeds that data to its massive in-house design and prototyping team who can get a product from drawing board to production and live online in as little as three days.
To accelerate its speed to market, Shein has set up over 30 production bases. These are responsible for collection design, manufacturing, sales, and marketing and have a network of 200 warehouses which act as storage and distribution centres.
Shein has built a magic system which directly connects the factory floor to the consumer, as its suppliers also have to use Shein’s software and they receive updates on new orders instantly based on consumer behaviour and send back real-time inventory and capacity data
All of this — the demand prediction, fast iteration, small batches, and manufacturing relationships — mean that Shein eliminates waste and can deliver low prices on quality, trendy items.
Shein can outmatch other Chinese manufacturers on price, but to compete in the cross-border market, it doesn’t have to.
Prices that seem normal to Chinese consumers seem laughably cheap to European, American, and Middle Eastern customers.
Like TikTok, Shein’s success worldwide is based on serving young consumers’ needs better than their local companies.
Path ahead
In the last five years, Shein’s growth has been nothing short of a miracle.
However, the company has started to face strong headwinds in the recent past.
China’s zero covid policy has made it increasingly difficult for Shein to keep its cross-border e-commerce supply chain intact, with repeated disruptions to its production and logistics operations.
While sales growth remains strong, it has slowed dramatically compared to pre-pandemic levels. Transaction data from the US suggests that sales growth fell to 57%, down from a quarterly high of over 260% in 2021.
Moreover, there have been several allegations about the company’s practices.
Often called “the worst of the worst” when it comes to fast fashion, numerous investigations have found the company lacking in several areas. Lack of compliance with labour laws, making employees work over 75 hours a week, and numerous fire hazards have come up in investigations.
Despite this, Shein continues to persist with its expansion plans.
In Q1 this year, Shein raised 1 billion dollars at a 100 billion valuation, with backing from well-known private equity players like General Atlantic, Tiger Global and Sequoia Capital China.
The eye-popping valuation ranks it among the most valuable private companies in the world, worth more than fast fashion industry stalwarts Zara and H&M combined. Having entered most markets with a focus on women’s clothing, the company is now using its cash balance to expand into more categories, including shoes, accessories, home furnishing and beauty products.
Alongside, the company is looking to expand its user base, with a growing selection of menswear and kidswear on the platform.
To enable user acquisition, Shein is also doubling down on its marketing efforts.
The company launched a series of pop-up stores in several markets to complement its strong online presence. A recent news article highlighted that Shein’s short-term stores are incredibly popular, with reservations booked up within minutes after launch.
To fuel growth, Shein is reportedly considering an IPO in the next two years after riding out the recent lull in public markets.
The company is looking to list on a US bourse and is considering a shift of corporate domicile to Singapore to circumvent China’s tightening grip over offshore listings.
As business growth slows and Shein takes increasingly riskier bets, it remains to be seen if the company will be able to sustain its growth in the coming years.