Shein is a somewhat secretive company that prefers to keep a low corporate profile. However, it recently lifted the lid on the scale of its business by disclosing that it notched up sales of RMB65.3 billion (US$10 billion) in 2020. That comfortably makes it the world’s largest online fashion retailer of self-branded products.
Ultimately, Shein aims to become the “largest online wardrobe company around the world”. But what are the secrets behind its success, and why is it so keen to stay out of the limelight?
International focus from day one
Shein was founded by American-born Chinese entrepreneur Chris Xu, who remains as CEO. Xu had been working in a trading company in Nanjing, but was keen to branch out on his own. In 2008, he launched a fashion e-commerce site – She Inside – as a way to target consumers who were tired of waiting in lines in stores or unable to find their specific size.
Thanks to its fashionable designs and low prices, the site quickly gained traction. It achieved sales of US$50 million within four years and also became an early adopter of using influencers on social media to drive sales. In 2015, the Nanjing-based company shortened its brand name to Shein and adopted the slogan “She in, shine out”.
What is really striking about Shein’s growth over the last decade is that it has been largely achieved by focusing on overseas customers. Shein is actually an unfamiliar name in China, where young shoppers prefer to buy low-priced fashion from Alibaba-owned Taobao or, more recently, social buying platform Pinduoduo.
Fast fashion, but slow deliveries
Shein focuses on womenswear, but it also sells menswear, childrenswear and beauty products. The site has resonated particularly well with Gen Z consumers, born in the mid-90s or later, who value its frequent product updates, low prices and discount codes.
The retailer claims that 1,000 new styles are uploaded onto its app each day, with prices generally around half those of Zara. Sourcing costs are kept to a minimum by leveraging China’s manufacturing base.
Any consumer research pointing towards the importance of fulfilment in the online shopping experience should probably ignore the success of Shein and its completely underwhelming delivery service. Shipments to US shoppers typically take 10 to 15 days, as products are first shipped from China to a warehouse in Los Angeles, before being sent out via the regular post. Shipments to Australia take a minimum of two weeks, according to the site.
None of this makes a difference to Shein’s Gen Z target market, who are often dealing with budget constraints and willing to put up with slow deliveries in order to get their hands on the latest fashions. It is therefore not surprising to see that the site is reported to have an industry-leading customer return rate of over 30 per cent.
A large part of what keeps shoppers coming back is Shein’s product designs. What has helped in this area is a designer recruitment program that has been ongoing since 2013. Essentially, this is a competition where designers can pitch their ideas. If their designs are chosen, they will receive a 30 per cent commission on sales revenue and a long-term collaboration contract.
In a way, the frequent changes to Shein’s product catalogue helps to gamify the shopping experience. The daily use of timed discount codes adds an element of FOMO (fear of missing out) to the experience. Something that you find on the app today, might not be there tomorrow.
This merchandising strategy has created the phenomenon of ‘Shein hauls’, whereby young shoppers use platforms such as Instagram and TikTok to show off their latest fashion buys. Sometimes items may not be as described or have the right fit, but this all adds to the thrill of buying through Shein. With the hashtag #Sheinhaul viewed over a billion times on TikTok, it is pretty clear that this is a very effective marketing tactic to drive traffic to its site and app.
Another aspect that cannot be overlooked is Shein’s strong position within plus-sized fashion. The online retailer was actually among the first fast fashion brands to really cater to this segment through its ‘Curve’ range. This collection consists of thousands of items across tops, bottoms, dresses, denim and swimwear.
Shein’s inclusive strategy makes a lot of sense. In the US, plus-sized fashion is said to account for 10 per cent of the overall fashion market — yet younger plus-sized consumers spend 20 per cent less on fashion then their straight size peers. There is therefore a huge opportunity to close that gap, which many traditional fashion brands have not fully grasped.
Shein under fire
Not all of Shein’s designs have been without controversy though. Last year, the retailer came under fire for selling a swastika necklace. It stated that it had made a “gigantic mistake”, but the necklace was meant to represent the Buddhist swastika – a symbol of good fortune. However, it should really have known that such a symbol would not be well-received in markets not familiar with its background.
Around the same time, it was found that Shein had been selling Muslim prayer mats as “decorative and floral tassel trim mats”, as well as necklaces with the word ‘Allah’ in Arabic – of course very disrespectful to the Muslim community. Some improvement on cultural sensitivities is clearly in order.
The secret sauce
The secret sauce behind Shein’s success has undoubtedly been its digital marketing capabilities. It has not followed the traditional mold of recruiting high profile and expensive influencers, but instead recruits #Sheingals to join its fashion blogger programme and share their favourite looks on social media.
The program is open to fashion bloggers with more than 1,000 followers, who are then sent clothing worth US$50-US$250 each month. The huge number of smaller scale influencers involved in the programme means that on any given day, social media will be overrun with glowing reviews of Shein’s fashion. Alongside retargeting tactics, this has proven to be a ruthlessly efficient method of directing a steady stream of Gen Z shoppers towards its site and app.
The darker side of ultra-cheap fast fashion
What is striking about Shein’s rise is that it runs counter to a lot of narratives that have been told about Gen Z in recent years. According to numerous consumer research studies, Gen Z is a generation for which sustainability is a major concern. However, many online reviews on Shein complain about the poor quality of its clothing, which may only be able to be worn a few times. It should be pretty clear for most shoppers then that such disposable fashion is not exactly an eco-friendly option.
If anything, Shein is a brand that does not take a stand on anything. It deliberately keeps a low profile, no doubt as it does not want to draw attention to how it is able to sell fashion at such incredibly low prices. While the online retailer has a section devoted to corporate social responsibility on its website, it does not give much detail beyond its aim to provide a “safe, clean, happy and productive environment” for its workers.
Transparency is also lacking when it comes to the sourcing of its raw materials. China produces 22 per cent of the world’s cotton, but as much as 84 per cent of that comes from the Xinjiang region, where there have been allegations about the use of forced labour in the cotton industry. Just recently, H&M came under fire in China for stating that it deliberately does not source cotton from Xinjiang. It seems very unlikely that we will hear anything about this issue from Shein.
Will its relentless growth continue?
All of this has had little impact on Shein’s ability to attract external investment. It completed a series E financing round in 2020, which values the business at USD$15 billion. Over the years, it has succeeded in bringing on board respected investors and venture capitalists such as IDG Capital, Greenwoods Asset Management and Sequoia Capital.
With the online retailer fast reaching maturity, it seems inevitable that its sales growth rates of 100 per cent will start to tail off. Question marks also remain over whether its Gen Z target market will continue to ignore its lack of transparency about the sourcing and production of its products.
Anti-China sentiment has been on the rise in recent years, having been amplified by the coronavirus as well as political tensions between the US and China. Last year, Shein was one of 59 apps banned by the Indian government, following a border stand-off between India and China. While such action is unlikely to be taken in Western markets, Shein will need to carefully consider how it positions its brand in these sensitive times.