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The Mysterious $15 Billion Brand Taking on Boohoo and Fashion Nova

Shein did not manage to acquire Topshop, but it could now be looking for other struggling retailers to cement its position as China’s leading exporter of ultra-fast fashion with global ambitions.
#SHEINgals are the lifeblood of Shein's social media marketing strategy
#SHEINgals are the lifeblood of Shein's social media marketing strategy. (L-R): @bramty, @scheana, @hannahg11, @desariana, @justinejoy312, @nazaninkavari.

Their ads have become so ubiquitous on Facebook that you may have seen them without realising it. They often feature white-background product shots of shiny velvet minidresses hugging the curves of a headless model for only $18 or snuggly hoodies emblazoned with irreverent, clichéd slogans like “Fun Fact: I don’t care!” for just $11.

Like many who stumble across the low-cost, trend-driven, constant newness of the Shein brand universe, Lancashire, UK native Demi Harvey, 27, found it irresistible. After clicking through a Facebook ad and visiting Shein’s website, Harvey said she was “amazed at the variety of clothes, accessories and everything else they do, also the pricing is just too good not to take advantage of.”

To characterise Shein’s merchandise mix as having a lot of “variety” is something of an understatement. As many as 4,000 items debut on the brand’s online channels per day, it has claimed on social media, and its app was downloaded more than 100 million times in 2019. On Instagram, Shein’s main account has more than 17 million followers at the time of writing, with millions more following individual country accounts, such as Shein US, Shein UK and Shein Mexico.

Like other players in the highly competitive space, such as Fashion Nova and Boohoo, Shein taps its community of young female users and thousands of micro-influencers (with followings of between 1,000 and 100,000) to post images of themselves wearing Shein outfits with hashtags such as #SheinGal with the hope of being promoted via repost by the company’s account.

Erika Stagliano, 24, says she discovered Shein several years ago when she was a “broke teenager” and has been collaborating with the brand for the past year. In exchange for free clothes, she posts selfies of herself wearing Shein clothing and offers a discount code to her 36,000 followers on Instagram. “I like how they give everyone a chance to dress with the latest trends for affordable prices.”

It’s a virtuous cycle of social media marketing that creates a steady current of buzz, while costing less than working with major celebrities (though Shein does this too, joining forces with Katy Perry and Little Nas last May for a digital benefit concert dubbed ‘Shein Together’ that raised money for World Health Organization’s Covid-19 Solidarity Response Fund).

A Tribe Dynamics 2020 top ten list of apparel brands by earned media value (EMV) has US-based Fashion Nova well ahead of its competition, with $2.28 billion in EMV over the course of the year, though its year-on-year value slipped 17 percent. In seventh place on the list, Shein boasted 2020 EMV of $280 million, rising 37 percent on the year.

In a mark of just how popular Shein has become with American teens, in particular, investment bank Piper Sandler’s semi-annual Gen Z survey found Shein was the cohort’s second-favourite e-commerce retailer, behind only Amazon.

However, not everyone has a uniformly positive experience with Shein. With nearly every post on the company’s official Instagram littered with comments complaining about delayed shipping and lost orders. A quick Google search also quickly reveals customer reviews with common refrains including: “rip-off”, “poor quality” and “rubbish”. Increasing frustration among dissatisfied customers is the apparent difficulty of reaching anyone at the company, with contact emails and phone numbers non-existent on its own channels.

Meanwhile, sustainability advocates lament the disposable nature and environmental cost of the ultra-fast fashion sector that Shein and its competitors represent.

But beyond the shiny surface portrayed on social media, there are few people who know much about Shein at all. Even with its growing profile abroad, thanks to a growing social media presence on platforms like Facebook, Tiktok and Instagram, there are many fans and customers of Shein that don’t realise it’s a Chinese company.

Shein’s Road to Success

Shein was founded by Chris Xu (though some reports claim he goes by the alias Sky Xu; others use the Chinese name Yangtian Xu) 12 years ago when the brand was still known as SheInside. Xu used China’s highly-developed manufacturing capabilities and speed-to-market to tempt European and American consumers away from cheap and cheerful digital-first brands like Boohoo, Fashion Nova and PrettyLittleThing.

They saw an opportunity, and they jumped on it.

—  Aneesha Sherman

The privately-held enterprise, which has its headquarters in the eastern city of Nanjing and reportedly also has operations in Shenzhen, Guangzhou and Hong Kong, doesn’t primarily sell its wares in China, so it is even more elusive to Chinese shoppers who are much more likely to head to Alibaba marketplace, Taobao, for their cheap and trendy fashion needs.

According to Maureen Hinton, group global retail director for research and analysis at GlobalData, the opaque nature of Shein’s operations and management “makes it very difficult [for industry analysts] to cover” though something everyone seems to agree on is that “it obviously has a lot of traction online with young fashion consumers.”

Early in 2020, market intelligence platform CB Insights valued Shein at $15.8 billion. But this was before the company, which sells online through its own website, app and through Instagram, ran headlong into a pandemic that has propelled the growth of ultra-fast fashion e-commerce to new heights, as it simultaneously piles pressure on traditional mass-market fashion competitors operating brick and mortar operations.

“They saw an opportunity, and they jumped on it. They saw the opportunity to do more marketing and get more investment to access customers that may never have tried them,” explained European general retail vice president at Bernstein, Aneesha Sherman.

Without physical stores that added to overheads and could be shut down, and with its products largely manufactured and exported to the rest of the world from the Chinese manufacturing hub in the Pearl River Delta (which largely escaped the kind of serious outbreak of Covid-19 that caused factories and warehouses to close elsewhere), Shein was particularly well-placed to ride out the pandemic.

In the 2020 edition of The State of Fashion, published prior to the pandemic, BoF had predicted the rise of Chinese cross-border sellers as a significant future competitor to established fashion brands and retailers, as manufacturers here step out of their traditional supply chain roles working for major international brands and instead pivot to making trendy fashion for cross-border e-commerce platforms (like Shein) that sell directly to foreign consumers at low prices.

Companies like Shein are basking in the online boom accelerated by the Covid pandemic.

—  Kayla Marci

With this trend already bubbling, combined with its target audience in Europe and the US largely stuck at home, bored and more tempted than ever to shop on Instagram, especially for low-cost items not likely to break even a depleted, pandemic-era bank account, Shein saw sales skyrocket.

According to figures cited by Chinese news reports attributed to the company, Shein’s estimated revenue for 2020 topped 63.5 billion yuan (close to $10 billion). It was, reportedly, the eighth year in a row that Shein has seen revenue growth of more than 100 percent.

“Companies like Shein are basking in the online boom accelerated by the Covid pandemic, proving the limitless opportunity through e-commerce to thrive in this challenging new era of retail,” Edited market analyst, Kayla Marci, said.

A Play for Expansion

With money in its war chest and deals being offered up in the form of established fashion retailers felled by the pandemic, Shein’s name was floated as a possible buyer of Arcadia Group’s legacy brands, including Topshop.

According to a Sky News report, Shein made a bid of 300 million pounds (approximately $412 million at current exchange) for Arcadia Group brands, which, if accurate, is more than the eventual price of 295 pounds ($405 million) Asos eventually paid for the Topshop, Topman, Miss Selfridge and HIIT brands in a deal announced February 1.

By inheriting each brand’s identity, Shein can [widen] its reach outside the traditional Gen-Z fast-fashion consumer.

—  Kayla Marci

BoF reached out to Shein to confirm the accuracy of these details and other financial reports, but the company declined to comment for this story.

“Shein is already a major competitor and [acquiring a brand like Topshop] would [have strengthened] its position,” Hinton said.

Edited’s Marci says a similar acquisition would make sense for Shein, bolstering its portfolio with a ready-made roster of brands that already has name recognition, and a following.

“By inheriting each brand’s identity, Shein can serve a greater audience with a pre-built loyalty base, widening its reach outside the traditional Gen-Z fast-fashion consumer,” she explained.

Other online-only players are also following the same logic, snapping up traditional retailers in a bid to widen their post-pandemic consumer base. Crucially, a hallmark of these new retail deals seems to be the purchase of a brand, rather than the weight of hundreds of brick and mortar stores, or the expense of the thousands-strong workforce that comes with such a physical network.

Last month, Boohoo struck a deal to buy Britain’s 242-year-old Debenhams chain, but made explicit that the 55 million-pound ($75 million) price tag was paid for the brand name and website, not its 118 remaining stores or workforce. Likewise, the Asos deal to buy Topshop, Topman, Miss Selfridge and HIIT brands excludes associated stores.

Shein may have missed out on Topshop, but it seems likely that new opportunities of fallen retailers with strong brand identities will present themselves as appealing acquisition targets in the near future, setting up a race for portfolio building between the likes of Shein, Boohoo and Asos, who are all looking to take their winning mass-market fashion e-commerce model to a new level.

Managing Future Risks

Shein’s bumper year in 2020 has elevated it into this mix of new generation online retail success stories, but future risks remain. The added attention that comes with success also means added scrutiny, and the company has already been added to a list of Chinese apps banned in India in 2020. Its status as a Chinese tech company could lead to unwanted scrutiny in other markets also, though the election of Joe Biden as US President may offer something of a reprieve for Chinese tech companies from the threat of blanket bans that were a hallmark of President Trump’s time in office.

At the same time as it exponentially grows its customer base, Shein needs to improve its offering and service to convert one-time customers into returning buyers.

In response, Shein has built a competitive element into its supply chain, ranking its network of OEM manufacturers (original equipment manufacturers that make and sell onto another company, that then sells it under its own branding to consumers) in China according to speed of delivery and customer feedback, with those slipping towards the bottom of the rankings ladder cut to make way for new suppliers, while those at the top are rewarded and incentivised, according to current and former supply chain partners interviewed by Chinese news media.

This year, the company also launched Shein X, a channel for collaborating with up-and-coming designers to have their products made available via Shein’s channels.

These moves show that Shein understands, in the cutthroat world of low margins and short social media attention spans, quality and design, along with a diversification of brands are vital to its future success, especially as it goes head-to-head with similarly deep-pocketed rivals with their eyes on the same prize.

Related Articles:

Asos Buys Topshop, Sister Brands in £295 Million Deal

Boohoo Shoppers Undeterred by Scandal

China’s Fashion Giants Get Sophisticated

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