What: A dive deep into the new fast fashion darling Shein and its business model

Why it is important: Shein is so attractive as a brand that it pushes tweens to forget their commitments to sustainability and massively buy fast fashion items coming from the other side of the planet in the blink of an eye.

The Economist reviews the mechanisms and key success factors of Shein, the new fast fashion darling and “a new style of Chinese multinational”.

Contrary to the founders of Zara or H&M, Mr Xu, Shein’s founder, does not come from the clothing industry, but from search-engine optimisation.

This is the reason why this model is so different, as Shein is fully about social commerce when it comes to design and production:

• The product catalogue is rich and somehow overwhelming: while Zara launches 10,000 new products a year, Shein launches 6,000 skus every day, based on the algorithmic analysis of trends appearing across Internet.
• A real-time tracking system allows to kill the worst performers and capitalize on the best ones, relaunching production whenever needed. The catalogue has a permanent database of 600,000 references, each retailing between USD 8 and USD 30.
• Products are manufactured with a privileged group of Chinese manufacturers, who are overall better paid and faster than with other brands, allowing Shein to enjoy a higher level of commitment and loyalty. Also, a dedicated system allows to automatize the production launches in real time based on the market trends.

Shein is estimated to have reached a total gross merchandise value of USD 2,3 billion in 2019 and is expected to reach USD 20 billion in 2021. 40% of its sales are performed in the US, and another 35% in Europe.

Products are sold through a strong Instagram and other social media strategy, through the now familiar influencers’ strategy but not only: third party designers are also associated to the design process, allowing Shein to tap up their own communities as well. As a consequence, Shein has 250 million followers across Instagram, Tiktok and other social media platforms, and 70% of them shop through Shain’s mobile app (24% daily active users).

The Economist points out that Shein is a very specific Chinese multinational: the turnover is mostly achieved outside China, and is constantly trying to avoid any reference to its Chinese origins, in order not to be trapped into geopolitical controversy. Also, at home, by keeping under the radar (and also due to the fact that clothing is way less strategical than IT or electronic components), Shein is not under the same scrutiny than Alibaba and other internet groups with a large domestic business.

However, Shein’s strategy is not risk-free:

• Like other fast-fashion brands, Shein is increasingly criticized for its CSR impact.
• Product quality is not constant, affecting its reputation.
• Shein is amassing a considerable amount of data from American customers, which might, in the mid-term, be an issue just like it was for Tiktok recently.

Shein exemplifies a new style of Chinese multinational