Comment: Chinese fashion giant Shein has taken the world by storm. He just met his match
LAUSANNE, Switzerland: If you’re a regular at TikTok, you might be familiar with the cult of Shein, the online fashion retailer.
Under the hashtags #shein and #sheinhaul, users post short clips of themselves showing off their latest Shein purchases, from tight tank tops and checkered skirts to chunky belts and dainty necklaces.
Some of these users spend hundreds of dollars per trip.
Shein emerged in 2008 from China’s former capital, Nanjing. It has since grown into the world’s largest purely online fashion company in terms of selling branded goods, according to Euromonitor.
Shein’s competitive advantage lies in leveraging the hype generated online by Gen Z users on the hottest new fashions, and then delivering those coins to her platform faster than her rivals. . Where Zara and others take weeks to prepare new collections, Shein showcases hundreds of new designs every week at around 50% of Zara’s prices for comparable products.
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SHEIN OVERCOMES ITS COMPETITORS
Having no physical stores, Shein experienced a COVID-19 windfall. In September 2020, Shein’s app recorded 10.3 million downloads worldwide, compared to 2.5 million downloads for the H&M app and 2 million for Zara. In April, Shein became the most downloaded shopping app in the United States.
Today, Shein is valued at US $ 30 billion and is backed by global investors like IDG Capital and Sequoia. While the company said it did not plan to make an initial public offering, an insider said it had employed Goldman Sachs to advise on a possible IPO.
Shein outperforms her fast fashion competitors when their market outlook is bleak. Hit by the closures, UK retailer Primark lost £ 1.1 billion (US $ 1.5 billion) to store closures. It’s a chain of bricks and mortar that refused to go online.
Meanwhile, Forever 21 went bankrupt even before COVID-19 hit.
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The overall long-term future of fast fashion companies is not optimistic. While Fast Retailing, owner of Uniqlo, has almost doubled in value since 2017, Inditex, owner of Zara, has only increased its share price by around 14%, while H&M has lost 17%.
But Shein’s competitors aren’t quite those stalwarts of fast fashion or other ecommerce platforms like Amazon. Its biggest competitor is inattention. Anytime customers shopping for clothes find something that distracts their attention from Shein’s flow of new product launches, Shein’s sales are in jeopardy.
Maybe that makes Shein an entertainment fashion brand that makes money with instant fashion. Where habits and convenience drive users to the big e-commerce giants, surprise and desire draw them to Shein.
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Shein is also positioning itself as a community of fashion enthusiasts by encouraging customers to share their purchases on social media. In July, over 900,000 Instagram posts included the #sheingals tag. By creating a consumer-centric brand, Shein is seen as more than just a cheap online clothing store.
And Shein is also different from other Chinese clothing manufacturers with online stores on Shopee or Alibaba, not least because Shein’s main markets are overseas. Its biggest market is the United States.
Going forward, the coveted overseas brand Shein will easily find its home debut. This will add unprecedented scale to its operations and pricing power.
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TRADITIONAL FAST FASHION IS STARTING TO BE SLOW
Competitive pressures are also clouding the outlook for many fast fashion players. Their business model is based on the high speed replication of new trends.
Traditional players like Zara and Uniqlo are leveraging their local store network to quickly grasp sales trends in different locations through their point-of-sale systems and analysis of offline and online shopping habits. They had established a fashion cycle where new articles are dropped every six to eight weeks.
But the new players beat them at their own game of speed. Shein releases over 5,000 new articles every day.
Online retailers have direct access to customers. The large amount and quality of data on what each customer buys, in combination with their history, provides valuable insight into which items will attract and which will not.
Shein grafts information onto websites and integrates customer profiles with predictions about the materials, styles and colors partners should use.
Such access to data and the ability to fine-tune products is a strong incentive for Shein and other online retailers to avoid a business-to-business model. Shein’s £ 300million offer for Topshop in the UK in January indicates that she is aiming for the top spot between businesses and customers (ASOS ultimately bought Topshop and its subsidiaries for £ 330million).
In the past, doing business with retailers would have been the only way for fashion brands to have a presence around the world. Today, the situation is reversed.
One-to-one online interactions with customers can be less complex, even on a global scale, than having local representations or distributors, which would add regulatory issues of taxation, disclosure, compliance and possibly consignment sales. A third man in the value chain would only slow Shein.
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GROWING CONCERNS ABOUT THE ENVIRONMENTAL IMPACT OF FASHION
As fast fashion companies are under pressure to stay ahead of the fashion cycles and satisfy customers’ desire for the latest styles, there is a growing counter-trend that questions its breakneck speed. .
The global fashion industry generates around 4-10% of total greenhouse gas emissions, more than all international flights and shipping combined.
According to the World Bank, the fashion industry uses 93 billion cubic meters of water each year, an amount that 5 million people could use instead for consumption.
The industry also produces about 20 percent of the world’s wastewater through the dyeing and processing of fabrics. It throws microfibers that make up about 50 billion plastic bottles into the ocean and removes 87 percent of the total fiber intake each year.
These negative effects of fashion are expected to increase by 50% by 2030, as more people embrace the fast fashion ethic: buy fast, buy new and throw away prematurely. According to the Ellen MacArthur Foundation, the average person buys and throws away about 60% more clothes today than in 2000.
Fast fashion leaders have launched initiatives that improve their sustainability record, though they have been met with skepticism. Although H&M already started in 2010 with its Conscious Collection emphasizing organic and sustainable fabrics, the Norwegian Consumer Authority has stated that the information provided on clothing, such as the amount of recycled material in each item , are insufficient.
A rejection of overconsumption in favor of the essentials and basics, defended by brands like Patagonia, is doing better with those concerned about the environmental impact of fashion.
New models are emerging rapidly. Vintage and recycled clothing business models are quickly losing their stigma in the West.
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THE RISE OF AN ALTERNATIVE FASHION INDUSTRY
The fashion industry is now at a crossroads, and the path it takes will determine whether behemoths like Shein find themselves winners or losers.
Will companies manage to adapt to a fashion world that embraces sustainable development while developing new choices for consumers?
In China, the second-hand clothing business is booming, and not just of the cool or high-end vintage boutique type. Boring old clothes become a business. Companies such as Yi Jia Yi Clothing, founded in 2006, focus on the sale of used clothing in bulk.
READ: Comment: Second-hand clothing sales are booming – and could be the answer to the fashion sustainability crisis
This fits with a broader recycling trend in the East that is catching the attention of investors. JD.com’s upcoming IPO backed by Aihuishou, which sells electronics, and the surge of Alibaba’s trillion yuan Xianyu resale market, show confidence in Chinese goods platforms ‘opportunity.
As in other industries and technologies, Asian innovators can provide creative answers to the world’s pressing problems.
IMD professors Patrick Reinmoeller and Mark Greeven lead IMD Asian innovation strategies program. Yunfei Feng is a senior researcher on Asian innovation and co-author of Mark’s book on The Future of Global Retail.