Industry Insights | It's Time for Chinese Brands to Go Global, Unveiling the Success Story of Cross-border E-commerce Giant SHEIN

When it comes to SHEIN, many people may find it unfamiliar. It is a Chinese company whose main business is overseas and also an international B2C fast fashion e-commerce company. According to relevant media reports, SHEIN's revenue in 2021 was nearly $16 billion, which is close to 78% of ZARA's global sales for the year. Meanwhile, SHEIN had an annual revenue of $10 billion in 2020 and maintained a doubling growth in revenue every year for the eight years before 2020. According to the top 50 Chinese outbound brands released by Google and Kantar, SHEIN ranked 21st/13th/11th from 2019 to 2021, surpassing Tencent and Anker. Additionally, Sensor tower data shows that SHEIN's global app downloads have surpassed Amazon.

SHEIN positions itself as a 'cross-border fast fashion internet company', becoming a representative of 'superfast fashion' with efficiency that surpasses that of its peers.

2008 - 2011Enter the cross-border e-commerce market by focusing on women's clothing. The early business model was similar to Lanting Collective, mainly selling low-priced wedding dresses.

2012 - 2014:In its branded transformation, SHEIN has gone through category expansion, brand building, and supply chain improvement. In terms of categories, it has delved into the niche market of women's clothing and expanded its offerings around women's consumer needs; in terms of the brand, it has formed a designer team, built an independent website, and vigorously marketed its brand; in terms of the supply chain, it has built and upgraded the supply chain ecosystem, exploring more efficient supply chain management methods.

2015-present:SHEIN's globalization strategy is accelerating, and it has begun to upgrade its brand. Currently, SHEIN's product categories have expanded to include men's wear, children's wear, home goods, pets, etc. Its independent website covers more than 230 countries and regions including Europe, America, the Middle East, and Southeast Asia.

An online store refers to a business that sells products to overseas customers through its own website or mobile application.Generally speaking, such market participants have sufficient SKUs to meet customer needs and are responsible for the entire transaction process. Their service scope includes product procurement, sales and marketing, online transactions, product delivery, and after-sales service to end customers.

Compared with platform sellers, those who sell products through their own websites in the early stages generally incur higher customer acquisition costs and invest more time and effort in warehousing arrangements, distribution arrangements, and customer data analysis. However, with the development of self-operated websites,Sellers can leverage economies of scale by virtue of their accumulated customer base and enhanced bargaining power, thereby reducing their sales costs.at the same time,Sellers who sell products through their own websites tend to have easier access to end customers, and are able to establish and enhance their brand awareness and influence.This is crucial for its long-term sustainable development.

Secondly, the fast fashion industry where SHEIN operates is a sub-industry within the broader apparel sector, and its growth rate is faster than the overall apparel industry.The main reasons include: 1) As the world economic growth rate slows down, the income growth rate of residents also enters a stable period. For example, Japan has entered the 'Fourth Consumption Era,' where consumers return to rational consumption and design itself. Fast fashion, with its sense of design and a unit price-to-gross sales ratio that is 90% lower than luxury goods, meets consumers' personalized needs; 2) In terms of demographic structure, the main consumer group for fast fashion is the post-90s generation. According to data released by the United Nations Department of Economic and Social Affairs in 2020, the global Generation Z (people born between 1995 and 2010) reached 24 billion in 2019, accounting for 32% of the world's population, becoming the largest demographic group.As the consumption power of Generation Z continues to be unleashed and the consumer base becomes younger, the share of fast fashion will continue to rise.

Although the fast fashion or apparel and footwear market has broad space and great opportunities, it also faces many challenges. For instance: 1) High turnover rates, as products like clothing are highly seasonal and fashion changes are rapid; 2) Regional aesthetics vary greatly, with each region and country having its own unique style preferences, such as elements popular in the Middle Eastern market not being consistent with those in Europe; 3) Product diversity, even for the simplest T-shirt, which can come in 10 colors, 6 sizes, and two different collar designs, resulting in 120 SKUs; 4) High return rates, especially for online clothing products, where consumers may return items if they find the size or color unsuitable.

SHEIN overcame the above difficulties through the following approaches:

• Maintain an extremely fast pace of new product launches

ZARA launches over 10,000 new SKUs each year, while SHEIN averages 1,500 new custom-designed SKUs daily. The number of new SKUs launched in a week is about equal to ZARA's annual total, and SHEIN's pace of new product launches is also rapidly increasing. Generally, the listing cycle (including design, pattern making, production, and listing) for textile companies is 6 months. ZARA, which specializes in fast fashion, has a preparation period of 2 months for its first order, a cycle of 3 weeks for additional orders for the current season, and can even achieve it in as fast as 2 weeks. SHEIN has compressed the first order cycle to 3 weeks and the follow-up order cycle for the current season to 1 week.

Shein's ability to quickly update its product line relies mainly on the establishment of a data system that tracks global fashion trends in real time. It uses channels such as Google, Facebook, and competitors to scrape data, and modularizes design elements such as fabrics, colors, patterns, prints, embroidery, and silhouettes, thereby industrializing designers' work.At the same time, SHEIN is one of Google's largest customers in China. Through Google's Trend Finder, SHEIN can track search keywords for clothing in different countries in real-time. For example, this tool successfully helped SHEIN predict the trend of lace elements in North America during the summer of 2018. In addition, by analyzing its own independent website and app data, SHEIN can understand consumer needs better than other competitors. SHEIN can feed these third-party or first-hand data back into its internal design and pattern-making teams, and samples can be manufactured within 3 days at the fastest.

Moreover, since SHEIN operates purely online, product testing can be faster and more accurate.According to calculations by relevant institutions, the speed at which SHEIN tests its product market is about five times that of ZARA. For example, when testing the market response to producing 3,000 pieces of clothing, ZARA can only test one to six styles, while SHEIN can test 30 styles. Therefore, SHEIN has a higher probability of hitting a hot product trend. Public data shows that SHEIN can hit 50% of its products as hot sellers, which is higher than ZARA's 20%. After hitting a hot product trend, by adding orders later, the cost per unit can be significantly reduced.

• A truly flexible supply chain has been realized

SHEIN has established highly cohesive and trustworthy partnerships with small and medium-sized suppliers, with all suppliers using the MES supply chain management system uniformly.In 2015, SHEIN's supply chain center moved from Nanjing to Panyu, Guangzhou, mainly due to the concentration of a large number of garment and textile processing enterprises in Guangdong Province, which provides an industrial production advantage.

By analogy to ZARA's headquarters located in a cluster of European factories, SHEIN's headquarters are situated among garment factories, and within an hour's drive, there is the largest garment textile and accessory supplier in China, Zhongda Textile Business District. This is not only convenient for SHEIN to inspect its physical factories but also accelerates the speed of information feedback.

At the same time, SHEIN has strong bargaining power over upstream suppliers, mainly due to: 1) Financial advantage; SHEIN does not default on payments, and the supplier's payment cycle is the shortest in the industry, providing financial security for suppliers. The company settles accounts with S-class and A-class suppliers within half a month, while B/C/D-class suppliers are settled monthly; SHEIN even actively subsidizes factories to ensure that small batch production by factories does not result in losses; 2) Stable and gradually increasing unit volume; through independent websites, SHEIN has stable traffic, coupled with a high rate of popular products, which has gradually increased SHEIN's procurement quota from upstream suppliers.

• Build an independent website

Western consumers' habits still remain on web pages. SHEIN has predicted the behavioral changes of Western consumers based on their development experience in the Chinese internet market: the migration of access habits from web pages to mobile devices is inevitable.Therefore, SHEIN created the App very early on and cultivated consumer behavior habits. According to Sensortower data, SHEIN's global downloads in the first half of 2021 reached 75 million times, ranking second among all shopping apps, surpassing Shopee. The high user downloads have brought SHEIN its own traffic and a foundation for in-site marketing, effectively maintaining the active user base on the site. At the same time, SHEIN focuses on consumer operations, maintaining user stickiness through its own community. It may be influenced by Rednote or Taobao, but SHEIN's own app community encourages users to display their outfits using images, short videos, live broadcasts, etc., and regularly organizes themed activities such as fashion competitions, which has narrowed the gap with consumers and increased user stickiness.