Explaining the Meteoric Rise of Fast Fashion Giant Shein
Shein, a China-based clothing company founded in 2008, has taken the global fast fashion industry by storm in recent years, having recently completed a funding round that gave it a whopping $100 billion valuation. It is now worth more than industry heavyweights Zara and H&M put together, as well one of the most valuable private companies in the world.
The rapidly developing firm has received significant attention so far this year, after it reportedly revived plans to complete an IPO in New York sometime this year – these intentions were later shelved when Russia’s invasion of Ukraine spooked global capital markets. It was also reported to be shifting major operations to Singapore as part of broader international expansion efforts. The company has also become a hot-button topic this week, after it was accused of stealing Zara’s designs.
Nanjing-based Shein has found striking success with its business-to-consumer (B2C) model that focuses on intelligent digital marketing geared towards Gen Z consumers, low prices, and rapid new product design. Shein has now grown to oversee a massive global operation, with the U.S. representing its largest market.
James Liang, founding partner of Skyline Ventures and former employee of Shein investor Sequoia China, argued in an article published recently by Pandaily that Shein’s key competitive edge in global fast fashion e-commerce “lies in its digitalization capability instead of its labor costs.”
“The main reason for Shein’s success is that relying on the advantages of China’s clothing supply chain, it seized the traffic dividend at a stage a few years ago when the cost of overseas traffic was not high, while sacrificing gross profit and conducting quality control,” said Liang in further comments to Pandaily.
Bloomberg has reported (paywall) that the skyrocketing international sales achieved by Shein in the past several years is due in large part to the knock-on effects of the trade war unleashed against China by former U.S. President Donald Trump. Under these conditions, the company reportedly avoids paying both export and import taxes in the case of the U.S. This has made it one of many Chinese retailers to have benefited indirectly from heightening economic pressure between the two countries.
Shein has become highly adept at seeking out the latest trending fashions in various local markets around the world, using algorithms to scour social media feeds and content published by internet influencers.
The low cost of its products – most women’s shirts sell for between between $5 and $15 – makes the brand particularly appealing to younger consumers, who tend to purchase many items of clothing at once. Each week, Shein uploads hundreds of new products, encouraging its devoted customers to frequently check back in on the site.
Although Shein is a clothing company, its success is a product of the internet age. The firm’s founder and CEO, Chris Xu, has instilled in the company the drive and ambition of a tech startup, harnessing digital tools to give it a leg up over its competition. Its story resembles that of Genki Forest, a Chinese beverage company that has pursued a digitally-driven, consumer-oriented strategy to become an industry giant.
Xu, who specializes in digital marketing and search engine optimization (SEO), has helped the company hone its products for a consumer base increasingly familiar with the online environment.
Much of the firm’s marketing is being carried out for free by young social media users. The hashtag #sheinhaul on TikTok, which has garnered over 5 billion views on the platform, has been used by young influencers to show off their latest fashion purchases to their followers, helping to explain why the company has found so much success in various international markets in recent years.
SEE MORE: SHEIN Seeks $10B in Financing for $100 Billion Valuation
Fast fashion had become a controversial industry long before Shein came onto the scene, and the firm has received its fair share of criticism, including allegations of excessive overtime working conditions at warehouses in China’s southern province of Guangdong.
The design of original products has represented a key factor in Shein’s success, as it allows the company to consistently churn out countless new and trendy products. But it has also served as a source of consternation, as indie designers have frequently called Shein out for copying their products and selling them at bottom prices.
Despite such concerns, investors and market analysts remain bullish about the future prospects of this un-listed, rapidly expanding company. “The global layout of its supply chains and markets gives Shein the opportunity to become a truly global company,” said Liang. “Personally, I am still very optimistic about Shein – it still has room.”