Fast Fashion Upstarts Are Using Shein’s Own Strategies Against It

Beloved by Gen-Z shoppers for its ultra-cheap disposable fashion, and considered an outcast by sustainability experts for exactly the same reason: She inThe impact of on global consumers in the last two years is indisputable.

Behind the scenes, the Chinese retailer’s influence on manufacturing It has been just as seismic. Now, the breakneck supply chain pioneered by Shein is allowing a new swath of brands to make the most of operating in the colossal retailer wake.

At least one, Temu, a new global arm of Chinese e-commerce heavyweight Pinduoduo Inc., may present a real threat. Shein’s management sees Temu as his most serious potential competitor, according to people familiar with the situation, who say the newcomer is actively seeking out his employees and targeting his suppliers.

“Shein has created a new standard for online clothing export business,” said Ye Zhibin, founder of fzthinking.com, an online platform that helps cross-border e-commerce companies find suppliers.

Now that low-cost Chinese brands can sell directly to Western consumers online, “the supply chain and brands planning to go overseas must follow the standard.”

The new crop of opponents is just one of Shein’s many current headaches. Sales growth has slowed as the pandemic recedes and new high-end products aren’t reaching consumers. Worse yet, the super-fast fashion business model that gave the brand its name has led to accusations of environmental damage and worker exploitation that may hamper its IPO ambitions.

But in the heart of Chinese manufacturing in Guangdong, signs of Shein’s current dominance are everywhere.

On a recent night in the town of Nancun, the alleys were quiet except for the sounds of children playing, and the looms in the garment workshops, which operate day and night serving a start-up whose annual sales amounted to $ 16 billion in 2021. Even as growth slows, that number is on track to rise by 50 percent this year, according to people familiar with the situation.

In downtown Guangzhou, Shein is mentioned by logo makers along with Nike and Champion as evidence that they cater to the biggest customers. Industry forums highlight Shein, valued at $100 billion, more than Inditex SA’s Hennes & Mauritz AB and Zara combined, as a model for expansion into foreign markets.

data deluge

Shein’s impact on China’s textile business has been heightened because its rise began at a difficult time for the $700bn sector. Industry profits have fallen in two of the last three years and the drop has deepened to 17 percent in the first half of 2022. Global economic uncertainty, geopolitical tensions and a variety of Covid-related disruptions have weakened demand in the country and abroad. Rising costs for labor and raw materials have also hit factories hard.

“Shein is a lifeline for the apparel supply chain at least in southern China in recent years,” said He Zhikang, deputy director of the Guangdong Apparel & Accessories Association.

“It provides large orders to factories that have been struggling with weak demand and inspires many local brands to look to foreign markets for a new growth engine.”

For decades, China’s textile workforce has provided low-cost, fast-delivery garments to global brands like H&M and Zara. But Shein has found ways to squeeze the system even further, using vast amounts of consumer data to inform every move.

While Zara garments go from drawing board to shipping container in three weeks, the fast-fashion giant demands a delivery time of just 10 days.

It also relies on contractors rather than investing in its own manufacturing facility, ordering batches as small as 50 pieces. It’s an approach that allows the brand to respond quickly to customer interest, or lack thereof, in any item, launching tens of thousands of pieces every day.

However, the company’s data collection goes far beyond sales trends. It monitors social media for viral looks that can be copied quickly, tracks users’ browsing history, and keeps track of reviews and trending events. A customer can see their favorite celebrity on TikTok in a puff-sleeved top or drop-shoulder dress and then, within days, be offered a nearly identical look on Shein’s website, thanks to a powerful matching algorithm. recommendations that analyzes user profiles, online habits and historical information.

“There have always been disruptors in the fast fashion space, but what Shein brings to this is greater scale,” said Caroline Gulliver, an analyst at Stifel Financial Corp. in London.

“They have dominated the digital landscape in the US for the last two years. It’s a reflection of where they’ve most aggressively invested their marketing dollars.”

burning path

Shein’s outsized footprint has democratized supply chains. Few established factories were prepared to work with new brands that didn’t offer profitable bulk orders until Shein led the way, helped by a pandemic-driven drop in orders from older customers. The lockdowns fueled an online shopping boom, with the retailer’s annual revenue tripling and lowering barriers to entry for new clothing businesses.

Now his small-lot strategy is seen as key to his success.

Garment factories in Guangzhou told Bloomberg News they often lose money on small orders from Shein, but the brand’s rich customer data helps improve decision-making on everything from raw materials and design to capacity and production. efficient. In recent months, the brand has also sought to reframe small-batch production as a waste minimization strategy Showcasing your sustainability credentials.

Suppliers have enjoyed explosive growth as a result of working with the brand. Two Guangdong manufacturers working solely with Shein said their output had tripled since 2019, while a trader in Guangzhou’s huge wholesale markets described how his annual sales soared after using Shein’s data to tailor his product range. to western tastes.

Now, other e-commerce companies are looking to take advantage of the clothing retailer’s production model, though its sheer scale limits opportunities for smaller companies.

“We’ve seen a lot of young brands quickly come in and out of the market in the past two years,” said Ye of fzthinking.com. “Imagine if you sell a similar dress to Shein. How to compete with him, if he has reduced costs to a minimum and enjoys economies of scale?

wealthy rivals

The risk to Shein comes from upstarts with deeper pockets.

In September, Pinduoduo launched Temu, a global online shopping platform that is already climbing the ranks in the US Apple Store. Pinduoduo operates one of the biggest players in China’s online shopping sphere, reducing costs by allowing customers to buy directly from manufacturers. The US-listed Shanghai-based company has an annual active user base of 880 million and controls about 13 percent of Chinese online retail.

Still untested on the global stage, Temu is casting a wider net than Shein, stocking everything from groceries to pet supplies. But his range includes clearly Shein-like products, like $7 tunic tops and 99-cent “stylish sunglasses.”

Temu has also been actively targeting the garment giant’s Guangzhou suppliers as potential partners, according to people familiar with the situation, and has tried to entice employees in its supply chain department by offering to triple their compensation packages. Pinduoduo has a lot of resources to draw on, both financially and in terms of skills like supply chain management, which increases the risk it presents to Shein.

“We set out to give consumers access to premium products from around the world from the best manufacturers at wholesale prices,” a Temu spokesperson said. “We believe this shortcut will enhance the online retail experience.”

Another potential threat is Urban Revivo, which overtook Fast Retailing Co.’s Uniqlo to become the No. 1 womenswear brand on shopping platform Taobao in June. Urban Revivo is higher end than Shein. But with hisfast fashion and Affordable Luxury” and target audience of 18-35 year olds in the US, Europe and Southeast Asia, the overlap is clear.

“We still need to take some time to catch up with established online exporters,” the company said in an emailed statement. “But we have 16 years of flexible supply chain and brand management experience behind us.”

For now, there is little sign that Western brands are copying Shein’s production model, which takes advantage of Guangdong’s tight network of wholesalers and workshops. Zara, for example, is focused on “near-shoring” its factories in places like Morocco and Portugal, closer to its customer base. Shein, who declined to comment for this story, is also moving some of its manufacturing to other countries, including Brazil, though China remains its main production hub.

As its universe of competitors expands, Shein’s environmental, social and governance practices present a constant threat to its success. A recent investigation into poor conditions faced by factory employees is just the latest blow to the retailer’s reputation.

For Chinese suppliers, that is less important than the sheer weight of Shein. A manager surnamed Chen, who oversees hundreds of workers, said his factory was too busy to work with anyone else.

“Shein is our only client,” he said. “We’ll just keep pace with her and expand.”

By Katie Linsell

Leave a Comment