SHEIN Invests in Forever 21’s Parent Company, Expands Offline Presence

According to LatePost, SHEIN has acquired a 1/3 stake in SPARC Group, an American clothing brand operator. SPARC Group owns multiple clothing brands, including fast fashion women’s wear Forever 21, outdoor brand Nautica, and mid-range men’s wear brand Brook Brothers.

This is SHEIN’s first investment in an established brand since its establishment. The specific investment amount has not been disclosed by both parties, but this investment is not entirely a cash transaction. After the completion of the transaction, SPARC Group will hold a minority stake in SHEIN.

The SHEIN website and mobile app will feature Forever 21 products, bringing a major retailer to its North American platform. Forever 21, which primarily operates offline retail stores, will also gain significant online traffic. SHEIN has 150 million users worldwide.

SHEIN will also open ‘shop-in-shops’ in Forever 21 stores in the United States to test product displays, and consumer experiences, and provide more convenient return and exchange services. In recent years, SHEIN has opened pop-up stores in various locations in Europe and America, exploring offline operations and marketing.

SPARC Group is a joint venture established by the American brand management company ABG (Authentic Brands Group) and the American real estate company Simon Property. This company specializes in acquiring struggling brands and undertaking restructuring to improve their business performance.

This company was established in 2016, just as the trend of online migration of clothing consumption in the United States was taking place, resulting in a large number of offline stores closing and brands going bankrupt. SPARC Group has successively acquired fast fashion brands Aéropostale (2017), Lucky Brand (2020), Forever 21 (2020); outdoor brands Nautica (2020) and Eddie Bauer (2021); mid-range men’s clothing brand Brook Brothers(2020); and sports brand Reebok(2021). Some acquisitions were jointly completed by SPARC Group and ABG.

In 2020, SPARC Group acquired bankruptcy and reorganized Forever 21 for a price of $81 million. By 2022, the sales of Forever 21 had almost returned to its peak in 2015, exceeding $4 billion.

SPARC Group CEO Mac Miller said in a media interview that the company sets product direction, handles marketing and sales, and is responsible for wholesale and retail operations for the acquired brands. ABG, on the other hand, is responsible for overseas brand licensing, while Simon Property provides mall stores for the brands and collects rent.

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Simon Property specializes in investing in large shopping centers and Outlets and is the largest shopping mall owner in the United States. The offline stores and warehouses of brands under SPARC Group cover the entire United States. Forever 21 has over 400 stores in the United States, while Brook Brothers has approximately 170.

Forever 21 and SHEIN both have the labels of ‘cost-effectiveness’ and ‘fast fashion’, but they failed to establish a strong online retail channel. Instead, they aggressively expanded their offline presence when facing a decline in the American market, eventually filing for bankruptcy restructuring in 2019. Even after undergoing transformation, over seventy percent of Forever’s sales still come from offline channels.

Joining SHEIN will help boost Forever 21’s online sales. Meanwhile, SHEIN will also utilize Forever 21’s retail and warehousing facilities in the United States to increase offline product exposure and improve the return and exchange experience.

After stabilizing its sales in the self-operated “fast fashion” sector, seeking new growth breakthroughs has become a challenge for SHEIN. In the second half of last year, consumer spending in Europe and America returned to offline channels, leading to a recovery in growth for offline fast fashion giants like Zara. PDD also launched its cross-border e-commerce platform TEMU in September last year and rapidly expanded into over 20 countries and regions this year. SHEIN now needs to be more responsive and consider long-term growth more carefully than ever before.

Capital cooperation, platformization, and offline retail layout are all corresponding answers.

As mentioned in May this year, SHEIN has completed the delivery of a $2 billion financing. This round of financing provides SHEIN with sufficient funds to build infrastructure for the global market and respond to future competition. The new financing introduces capital from several important markets for SHEIN, including the United States, South America, and the Middle East, establishing connections with investors from different backgrounds in an increasingly complex environment.

This transaction with SPARC is also the result of SHEIN’s capital cooperation to expand international resources.

Since March last year, SHEIN has initiated the process of platformization acceleration and took the lead in testing the local platform model in Brazil. Brazilian merchants can open stores directly on SHEIN, taking charge of operations and logistics, just like opening a store on Taobao. Previously, SHEIN mostly designed and ordered products from factories by themselves, integrating resources and work across the entire chain including product design and development, production manufacturing, logistics after-sales service, and marketing at the forefront. After 13 months, SHEIN officially launched its platform e-commerce in Brazil under the name Marketplace and quickly expanded to cover the United States and Mexico. Next, its platform e-commerce will enter more regions.

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In order to quickly introduce more merchants, SHEIN has expanded its coverage to a wider range of product categories, including large home furnishings with high cross-border shipping costs. Merchants who join the SHEIN platform are also exempt from commissions for the first three months, attracting many Chinese brands expanding overseas. The sales volume of Miracle Miles Group Inc., an overseas sports shoe brand, on SHEIN, has already exceeded that of its own independent website.

After this transaction, Forever 21 will enter SHEIN’s e-commerce platform, bringing a relatively well-known new brand to it. ABG CEO Jamie Salter also stated that as SHEIN further expands its platform, other brands under the SPARC Group will also gradually join.

From developing our own brand to expanding into a dual-line platform, SHEIN faces some new challenges. For example, how to balance the display and search traffic of self-operated and platform products; building a more convenient logistics distribution system in the global market; adjust the fast fashion channel image established over the past decade to a new comprehensive category perception, cultivating consumer habits of buying other products on this platform.

Since the beginning of this year, SHEIN has also been making some bolder attempts to adjust its once-distant and low-key image as a cross-border seller and get closer to consumers in different regions. In May, SHEIN launched its Europe, Middle East, and Africa (EMEA) headquarters located in the city center of Dublin, Ireland, serving as the operational and IT center for that region. In countries like Turkey and Brazil with certain clothing and small commodity manufacturing foundations, hundreds of local factories have already started producing SHEIN-branded products.

SHEIN plans to open approximately 30 pop-up stores in the EMEA region by 2023. Currently, pop-up stores in Paris, Madrid, and Barcelona are already open for business. At the same time, there are also pop-up stores operating simultaneously in Japan, North America, and Latin America.

In 2011, Chris Xu, the founder of SHEIN, made the most important decision since starting his business. He stopped several cross-border independent e-commerce websites in different categories and focused on fast fashion women’s clothing. In 2014, he was determined to establish his own supply chain in Guangdong.

After ten years, SHEIN has grown into a fast fashion unicorn valued at 66 billion US dollars, following the trend of e-commerce and globalization. In this new environment, it faces many choices once again, from capital, brand, and traffic distribution to business scope and supply chain distribution. SHEIN is exploring new possibilities in all these aspects. These attempts will ultimately determine whether SHEIN can further advance.