E-commerce firm Shein from Nanjing has been operating much under the radar, until last week it last week came with plans of an IPO in New York with a valuation of US$47 billion. E-commerce expert Matthew Brennan, author of “Attention Factory: The Story of Tiktok and China’s Bytedance” explains at Yahoo Finance what Shein has been doing right.
Matthew Brennan at Yahoo Finance:
This company is a very savvy operator in terms of acquiring users through social media platforms. They were early to Pinterest. They were early to TikTok. They were actually the most talked about brand on TikTok globally the last year. But to be honest, price is a bigger driver. This platform, Shein, the prices on there, it makes Amazon look positively expensive. I don’t know if you have any personal experience of this, but if you talk to anyone on there, the prices are significantly lower than you would expect. And that’s really attractive to their target customer base…
Their model is actually quite innovative. And it’s difficult for their competitors to copy because the thing about fashion is, fashion is very volatile, especially fast fashion. And so if you’re able to operate faster than your competitors in terms of assessing and identifying new trends and getting those garments spinning up, SKUs that are doing well, faster than other people, then you are able to reduce markdowns. And you are able to lower your costs and increase– reach more customers.
That’s what Zara’s done, essentially. From the 1990s, they basically invented fast fashion and created their system, which works for a store network. In the last, say, decade, we’ve seen a new breed of DTC platforms. Brands like Fashion Nova and, in the UK, Boohoo and Asos– which are already publicly listed companies– are doing quite well. Shein, we can view as just taking this up another level. They are faster than the ultra fast item in real-time retail.
In terms of the– they’re taking the data that they’re seeing on their app in, say, America and using that and connecting that directly to the Chinese factory floor. In terms of when people start putting items in a basket in America, they know, OK, we’re going to sell more of this. And they immediately run that through to the factory floor and start ordering more and ordering materials. And the algorithms automate everything. So it’s really quite an innovation that they’ve managed to achieve…
The reason why they’re able to get that price is because the supply chain is unbelievably efficient. They don’t technically own the factories, but they’re so closely linked up with their supply chain management software, that it’s almost– it works effectively as they did, if they did. They’ve been criticized for a variety of things, as you rightly pointed out. There is questions over the sustainability of fast fashion and the environmental impacts. I think those are things that we do need to look at.
But in this context of the target consumer that they’re reaching, obviously, there are people concerned about these things. But it seems that, at least for the people who are buying on Shein, they’re less concerned about the environmental impacts and more concerned about their immediate needs to stay on top of the fashion trends within their social circle.
There’s also been complaints about suspicions of them using things like child labor. I think that those are a little bit hard to believe, given where they’re based in Guangzhou being one of the highest GDPs in China. And so, yes, we do need to look at these issues. But overall, I think these are wider questions about the fast fashion industry that could be applied to many, many companies.
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