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The Search for the Next Shein

Investment firms like Andreessen Horowitz are backing start-ups that mimic the Chinese fast-fashion giant’s blueprint, as they look to build the next big Gen Z label.
NEEDS CAPTION. Source.
Chinese fast fashion brand Cider creates product in real time, based on customer orders. Cider

With the recent success of Shein, the Chinese ultra-fast-fashion giant, the hunt for the next big fast-fashion brand is on.

Andreessen Horowitz and DST Global last week invested $22 million in Cider, a Chinese company that like Shein targets Gen-Z consumers with $14 knit crop tops and $22 wide-legged patterned trousers. In February, A.k.a. Brands, the parent company behind Princess Polly, said it was on the hunt to add new labels to its growing portfolio of digital fast fashion brands. In March, Vision Knight Capital, a fund founded by former Alibaba chief executive Wei Zhe, put $15 million into Cupshe, a fast-swimwear label.

All of these start-ups, and many others like them, are built to pump out clothing for Western teens a little faster and cheaper than the reigning fast-fashion giants, just as companies like Fashion Nova and Boohoo did to Zara and H&M in the 2010s. Their standard-bearer is Shein, the Chinese online retailer that developed advanced manufacturing capabilities with local factories to reduce costs and speed the trend cycle even further. It’s grown exponentially since catching on with American teens two years ago, and the brand’s deft use of influencer campaigns stands as one of TikTok’s earliest and biggest success stories.

“Everyone in China has been looking at Shein and trying to dig out things to copy,” said Matthew Brennan, a China-based tech expert who has studied and written about Shein’s business model. “All of the pieces of the puzzle to the business have already been out there, but no one has executed them as well as Shein.”

All of the pieces of the puzzle to the business have already been out there, but no one has executed them as well as Shein.

These investments are typically as much about the business model as the clothes.

Cider, for example, pumps out hundreds of new items on its website weekly in small batches. Styles that fail to catch on quietly disappear within days, while successes are produced in mass quantities. Like Shein, Cider closely tracks its manufacturing partners and constantly tweaks its supply chain in an attempt to operate just a little faster and cheaper than ultra-fast-fashion competitors like Fashion Nova and Boohoo.

“What sets Cider apart is that it looks like a direct-to-consumer brand on the outside but operates like Shein on the inside,” said Connie Chan, a general partner at Andreessen Horowitz, who led the Cider funding round. “It uses software to have a tighter supply chain … its technology is the secret sauce.”

There’s no shortage of demand. Unknown brands can quickly rack up sales by flooding social media with ads and hiring thousands of influencers to create content on Instagram or TikTok. But that can get expensive, fast; brands that are able to use their hyper-efficient supply chains to keep up with the latest trends in near-real-time tend to be the ones that stick around.

What sets Cider apart is that it looks like a direct-to-consumer brand on the outside but operates like Shein on the inside

Competition is intense, and margins are by definition razor-thin. The incumbents are still going strong – both Boohoo and Zara reported surging online sales during the pandemic – and there’s always a cheaper, faster rival in the rearview mirror.

Brennan said plenty of Shein “clones,” such as China’s Zaful and StyleWe, also sell similar fashion at rock-bottom prices and draw customers in with new product drops and frequent discounts. Princess Polly, which was acquired by the private equity firm Summit Partners in 2018, has seen sales soar in the US since launching there in 2019. Its sister brands Petal & Pup and Rebdolls have also built a big customer base on Instagram.

“We can’t assume that any one brand’s reign is going to be unchallenged; in the future, Shein will inevitably have competitors that learned from the platform itself,” said Allison Malmsten, marketing director at China-based research firm Daxue Consulting.

Shein’s Secret Sauce

Fast fashion is all about getting the latest runway or TikTok trends in front of consumers first, and at the lowest possible price. Zara pioneered the concept by releasing products constantly rather than via seasonal collections. The retailer, along with rival H&M, opened thousands of stores worldwide in the 1990s and 2000s.

In the last decade, the model moved online. Brands like Asos, Boohoo and Fashion Nova, unencumbered by stores, shortened the production cycle from weeks to days. Shein represents the next iteration: while many fast-fashion brands rely on Chinese manufacturers, Shein is actually based in the country and is also headquartered in Guangzhou, China’s clothing manufacturing capital, Brennan said, shortening another link in the supply chain.

“Shein is so close to its manufacturers,” said Brennan. “They operate as one entity, and it’s harder to get more direct than that. Boohoo, Asos, FashionNova— no one is linked up in the same way.”

Shein declined to comment.

Shein debuts on Piper Sandler's teen survey. Shutterstock.

Michael Wang, who co-founded Cider with Fenco Lin, said the future of fashion looks like Shein. Other retailers’ bestselling styles can be copied daily, and customer feedback directly translated into new production.

“We place small batches of garments and let our followers vote and do pre-orders, and then it’s very quick for us to get feedback and adjust the product,” he said. “Within a few days, we’re able to update the products with more colours or sizing. We’re making real-time decisions with our customers.”

Wang believes his company can compete with Shein by making clothes with better fabrics and selling them at a higher price point.

“In terms of quality, we are closer to Zara than Shein, so we’re targeting different segments,” he said.

Taking on a Giant

To succeed in fast fashion, the biggest brands introduce hundreds of items daily and constantly blitz social media with ads and content.

“Gen-Z likes to buy and the opinion changes so much, so it’s important that every day is a new drop,” said Andreessen Horowitz’s Chan. “You don’t know what the Gen-Z audience is going to want in five weeks, so you need a shorter time frame to reach them.”

Gen Z likes to buy and the opinion changes so much, so it’s important that every day is a new drop.

Daxue Consulting’s Malmsten said this strategy isn’t just about sales. Fast fashion’s consistent daily drop of cheap, new products help keep shoppers hooked.

“Every time users go on the [Shein] app, or check out what recent hauls influencers are sharing on YouTube, there will be new products to see,” she said. “What Shein offers that other fast-fashion brands and e-commerce apps don’t is entertainment.”

It’s an expensive strategy. Wang, who previously co-founded YCloset, China’s biggest fashion rental platform, said Cider will use its latest funding round to employ a similar influencer strategy.

Brands are looking for ways to differentiate themselves from Shein even as they copy elements of its business model.

Brennan believes brands like Cider can compete by becoming known for a particular niche. By contrast, Shein sells everything from menswear and womenswear to clothes for children and pets, all in a staggering variety of styles.

Brands could also try marketing themselves on quality and customer service – recurring complaints among frequent customers of online fast-fashion. But with many consumers fixated on price, that can backfire, Malmsten said.

Wang said Cider is inking a partnership with FedEx China so packages can ship out faster and more reliably. He said he’ll use some of the new funding to hire engineers to extend Cider’s tech-centric approach to factories in other countries in order to ease shipping pressures.

“Selling online is not enough to be a digital company today,” he said. “To get these factories to work with you, and to put out product at scale on a daily basis, and constantly update in real-time, you need a digitised process from end to end.”

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