With the increase in globalisation, the last few decades have seen fashion trends changing more and more quickly. Pressures on fashion companies to produce more items at lower prices continue to grow. Consumers also face pressures to wear the trendiest designs. This lead to the rise of the ‘Fast Fashion Business Model’. Brands with this business model attract consumers by offering cheap garments and novel styles. Conventional brands typically take months or even years to plan new ranges, but fast fashion brands like Boohoo, Forever 21 and In the Style take much less time. However, one fast-fashion brand, Shein, stands out from its competitors.
Founded in 2008, by Xu Yantian, a specialist in search engine optimisation, Shein has since grown in popularity on social media and amongst the Generation Z population. Although starting with a relatively low profile, Shein has grown in popularity by luring young shoppers via Instagram and Tik-Tok influencers together with discount codes for low-cost styles. Its dresses also cost just as low as half of the rival companies like Zara. With the U.S. being its largest market, Shein ships to over 220 countries as well. Furthermore, Shein attributes its success to three threads. The first is a turbocharged version of the fast-fashion formula of offering a constantly updated range of garments at bargain-basement prices. Whereas Zara launches about 10,000 new products a year, Shein releases 6,000 new items (including old designs in new colours) every day. Although some of these are quickly discontinued, its permanent virtual wardrobe now numbers 600,000 individual items. With a typical price range of 8-30 USD, Shein’s clothes also cost 30-50% less than similar ones from Zara or H&M, states Douglas Kim of Smartkarma, an independent research network. This means that Shein, despite being an online retailer, can compete against international brands that spend more time on quality and have traditional brick and mortar shops.
Next, learning from Alibaba, Shein tests the new designs on its app. With all sales occurring digitally, managers have a real-time view of the performance of each item and can accordingly manage the supply. By centralising inventory in a small number of large warehouses and then shipping directly to customers, Shein has pushed inventory turnover down to just 30 days, compared with an industry average of 150 days, according to a consultant who works with the company. In addition, to streamline the entire process, Shein has moved from the eastern Chinese city of Nanjing to Guangzhou, a huge southern manufacturing hub. It has also been offering factory bosses better terms than most fast-fashion rivals. The firm guarantees it will purchase the entire batch and pay within 14 days rather than the 90 days average in the industry, in exchange for guaranteed supply. Around 400 of Shein’s approximate 3,000 suppliers in China have signed up to this deal, says Chen Tengxi of Zheshang Securities, a bespoke software interface that informs them when production needs to be stepped up.
However, without its financials, it is hard to be precise on Shein’s market share. This is because, as noted by a business reporter for BBC News, Lora Jones, the private company does not disclose financial figures, but its sales are thought to have soared during the pandemic with consumers making more of online shopping. According to Victoria Waldersee, a columnist from Reuters, analysts have estimated the company’s valuation to be about 15 billion USD, with annual revenues of at least 5 billion USD. Additionally, Coresight Research, a research and advisory firm specialising in Chinese markets, states that the company pulled an estimated 10 billion USD in revenue in 2020, which represents a 250% year on year increase in revenue. This is especially impressive when compared to its online rivals Asos and Boohoo who only reached revenues of 4.4 billion USD and 2.4 billion USD, respectively, in 2020. Furthermore, “Shein takes up the [market] share with 100-billion-yuan gross merchandise value (GMV), companies in the second echelon are sized at around 1 to 5 billion yuan, and there are many more with a GMV under 1 billion,” Pu Qinglu, a partner at Deloitte and one of the authors of a 2020 report on China Fashion E-Commerce Global Growth, told Sixth Tone. The data from this report, therefore, demonstrates that Shein outperforms its rivals in terms of market share. Nonetheless, there are two sides to every coin.
Although Shein boasts of offering new, trendy designs at low costs, its sustainability and ethical values come into question. Conferring to an article by Alex Crumbie for the Ethical Consumer, the endless creation of new clothes comes at a hefty environmental price. According to Alex, the industry has a heavy carbon footprint, which is responsible for up to 10% of total global carbon emissions and is estimated to increase by 50% by 2030. Moreover, in the same article, an analysis of Shein’s website found its recycled content was even lower, at only 0.5%, despite the brand claiming, “When selecting materials, we do our best to source recycled fabric, such as recycled polyester.”
Shein has come under criticism when it comes to worker exploitation. Fast fashion brands are known for exploiting their workers as this is the means to which they drive their costs down. A Sixth Tone investigation found that many Shein products are made at contract factories that flout labour and fire safety regulations. The Swiss advocacy group Public Eye also recently reported that workers at certain Shein suppliers work up to 75 hours a week in poor conditions, which violate numerous Chinese labour laws.
In conclusion, Shein has surpassed market expectations in many ways. The company, despite not having any physical stores, has been able to capture market share by studying its consumer behaviour and only selling what is demanded using its advanced technology. It has also been able to compete amongst international fashion brands like Zara by selling at relatively cheap prices. However, studies, as noted in the article, have shown that the international Chinese company has failed to meet ethical and environmental policies. Therefore, the question remains as to whether Shein’s business model is the future of fast fashion or a business disaster waiting to occur.
By Jenny Enow-Akpa
Sector Head: Robert Armstrong-Jones