What happens when you combine China’s love of digitalisation with the country’s cheap clothing factories? Shein is the answer. The newcomer has overtaken Amazon as the most downloaded shopping app in the US, even though you may not have heard of them.
Everywhere but China
The name Shein – pronounced She In – is unfamiliar to you? Chances are your teenage daughter will know it. Shein is what Zara was 15 years ago, but tailored to the new Generation Z who prefers to spend their time online on TikTok. Just like TikTok, the company is Chinese and can quite rightfully be called mysterious. Nevertheless, this did not stop the trendy fashion retailer from becoming the most downloaded shopping app in the United States in mid-May, which, up until then, has always been Amazon’s spot.
The company is reportedly worth more than 15 billion dollars and had sales of almost 10 billion dollars in 2020, a doubling it has maintained for eight years in a row. The website is said to be the most visited fashion site in the world. Shein would rather you did not know it was founded in China around 2008 by CEO Chris Xu. On the contrary, on its website, it said, for a long time, that the clothing retailer originated in New Jersey. The purely online player is active in almost all countries, except China itself. Why? It’s simple: tops and shirts costing 5 euros are not nearly as unique there as they are elsewhere in the world.
A thousand new designs a day
Shein is indeed an “international B2C fast fashion e-commerce platform”, as it defines itself. Outside China, the company allegedly has offices in the US, United Arab Emirates – the Middle East is an important market for the brand – and a European office in Belgium. However, a Belgian address couldn’t be found, even though there is an opening for an ‘office assistant’ in Wallonia, where one of the tasks is to find a suitable office location. Possibly it concerns the airport of Liège as a logistic hub, where Alibaba is flying in its parcels.
Fast fashion is an understatement in the case of Shein. Matthew Brennan, also the author of the book ‘Attention Factory’ about TikTok, prefers the term “real-time retail”. It happens so fast that every day thousands of new items are added to the assortment. A new design can go from the drawing board to production in three days, after which it goes on sale even before the first items have rolled off the production line.
Google demands, we create
The strength lies in the complete vertical integration of the value chain and unique data management. Shein has no style, nor does it have a brand image, other than unlimited choice at often unprecedented prices. The company literally makes the pieces that are in demand. As one of Google’s largest Chinese customers, it continuously tracks every movement with Google Trend Finder. It also closely follows the offerings of competitors and all the buzz on social media. Add to that all the in-app and on-site user behaviour, and the hyper-fast fashion manufacturer can automatically forecast demand and adjust inventory in real-time.
As expected, this does lead to occasional difficulties. For example, just this week, the e-commerce player caused a stir with a smartphone case that it cleverly hoped would capitalise on the Black Lives Matter movement. The cover featuring a black man held up by the collar by a policeman was considered highly racist. The Chinese also took a hit for a necklace with a swastika symbol. That is what happens when you give algorithms free rein.
Besides, that data goes straight to the factories. Shein makes use of the C2M (Consumer to Manufacturer) model that is currently emerging in China: Chris Xu has managed to bind an extensive network of textile factories exclusively to him, promising quick payments and high volumes. The only condition: they have to use the retailer’s ICT system. Why? Through that system, supply and demand get matched in real-time. Customer feedback and behaviour on the app is converted live into additional production orders or adjustments. Shein can continuously conduct split-run tests for thousands of new items every day.
Shoppers get turned into micro-influencers
Even without the pieces even being in production, the aggressive marketing machine is already in action: Shein’s advertising posts are a staple in the social media feeds of young Gen Z shoppers. In addition to a massive online advertising budget, the company uses a Chinese-based “best in class” marketing model: consumers in China are guided by other shoppers who are seen as “opinion leaders” in a particular field. They make a distinction between celebrities and genuine influencers, such as Katy Perry and Lil Nas X, who promote the retailer, and micro-influencers or KOC (Key Opinion Consumers).
Every Shein customer becomes a micro-influencer, as they receive a public profile in the app. By recommending their favourite items to friends, posting photos of outfits and showing other shoppers how a size fits using selfies, they can earn discounts. After all, for the image-oriented Generation Z, a picture says more than a thousand reviews. On TikTok, videos in which girls have ordered a pile of clothes – free shipping over 40 euros, means easily ten pieces – and show them off in front of the camera are a hit. Most of that content gets posted for free since affiliate fees can be as high as 20 per cent of the sales made.
Where will the flywheel stop?
The flywheel of the Chinese newcomer is gaining momentum, resulting in record-breaking downloads and sales. Where will it stop? Expansion is the logical next step: what they are doing for women’s clothing could be done for other categories. Apparently, the company is planning to take over a Chinese garden furniture distributor. Ironically, Shein was also one of the bidders for the bankrupt TopShop, for whose downfall it was partly responsible. At the moment, the app is already evolving into a platform that includes other brands and products. The most crucial step in that direction is Shein X, where young designers create clothes for the retailer.
However, Shein must be all about the price and the endless range of products. Forget fast deliveries – delivery time is about two weeks – and easy, free returns. Packages often arrive not in one go, but item by item and returns cost 4.5 euros. Customer reviews complain about the poor quality, bad fit and discrepancies compared to the pictures. The hyper-cheap, hyper-fast disposable fashion does not fit in with the sustainability trend at all. Moreover, a major data breach in 2018 threw the data of more than 6 million customers out in the open, and in India, last year, the app got banned along with 57 other Chinese apps for being unsafe. But will that stop the flywheel?
