Chinese Fashion E-Commerce Brand SHEIN - a Hidden Dragon Aims to Take Out ZARA

Relying on supply chain integration capability and pioneering marketing strategies, SHEIN has conquered Gen Z with affordable prices and massive daily new arrivals.

A report from Latepost in August 2020 brought Chinese e-commerce brand SHEIN under the spotlight. Since then, the company has frequently made top stories in domestic media, despite their intention to keep a low profile. At the same time accordingly, SHEIN is preparing for a US IPO.

What is SHEIN? 

As a direct-to-consumer (DTC) retailer specializing in women’s fashion, the company SHEIN owns the fast-fashion brands SHEIN and Romwe, which are available on two global sites, 16 subsites in different languages, and mobile App SHEIN. It has 120 million registered users from 220 countries and regions. 

According to App Annie, SHEIN is the most downloaded shopping app on iOS and Android in the United States and 12 other counties and the second in 54 countries. In the Top 50 Kantar BrandZ ™ Chinese Global Brand builders 2021 released by Google and Kantar on May 10, SHEIN ranks No.11, higher than Tencent.

SHEIN’s sales reached $10 billion in 2020 and have grown by more than 100% each year for the past eight years, while ZARA owner closes 1,200 worldwide stores.

The Rise of SHEIN 

Founded in 2008 by SEO expert Xu Yangtian, the company sold wedding dresses, one of the most popular e-commerce products from China to the world back then. After Xu realized that the competition in the wedding dress race was getting fiercer, he made a bold move to enter the fast-fashion sector, trying to take a slice of the pie with ZARA, H&M and Forever 21.

In the early days when they did not have their supply chain, SHEIN first put up the pictures on the website and placed the order at the suppliers after receiving orders from the customer. In this way, the sampling process was shortened to as fast as seven days, while the best ZARA could do was 14 days. The speed helped SHEIN win the first battle. They decided to build their supply chain in 2014, which gradually developed into an industrial cluster in Panyu District, Guangzhou, with hundreds of suppliers, like the ZARA production headquarters in La Coruna, Spain. 

By subsidizing the suppliers, SHEIN managed to place 100-unit small orders, while ZARA’s suppliers have a MOQ of 500. This model of small orders and quick feedback, in which they produced small batches, tested the market and mass-produced the popular ones, helped SHEIN maximize sales and profits and reduce inventory risk.

During these years, SHEIN also raised a lot of money. In 2013, the company received a US$5 million investment from JAFCO. In 2015, it raised US$46 million from Greenwoods and IDG. Sequoia China invested in 2018 at a valuation of US$2.5 billion. Accordingly, SHEIN’s value is now US$15 billion with a Series E funding.

Gen Z’s Fave

While it kept a low profile in China throughout the years, SHEIN is very popular on social media platforms abroad. “#Addicted to SHEIN” made Twitter trending topics. With affordable prices, massive daily new arrivals, and its mysterious origin, SHEIN have conquered Gen Z customers.

  • The Price

SHEIN’s average unit price is about half of ZARA’s, while they provide the same quality. Their Gen Z fans loved 6-dollar shirts and 12-dollar dresses.  

  • Massive Daily New Arrivals

SHEIN puts on thousands of new arrivals daily, which means they can achieve ZARA’s annual goal in just one or two months. Speed is the key to win the fashion-seeking young customers.

  • Mysterious Origin

SHEIN has no physical store as of July 2021 except for temporary pop-up stores in Paris, Lyon, London, Las Vegas, and other cities. These events are always irregular and short notice, which serves young people’s desire for mystery and excitement. The fans have to follow closely on their updates to get notified.

Critical Factors of SHEIN’s Success

Fashion and affordable, this winning combo of fast-fashion brands may not be easy to achieve as it might sound. SHEIN’s superb supply chain integration capability and pioneering marketing strategies contributed the most to their success.

  • Supply Chain Integration 

1. Design

SHEIN developed a trend-tracking system that grabs product data from various websites to analyze colours, prices, and patterns in real-time. After finding out the potential trend, a team of nearly 400 designers and buyers start to design or source for samples.

2. Production

SHEIN adopted the customer to manufacturer (C2M) model of “small orders and quick feedback” in production. They produce 100 units for each product to test the market and start mass-producing the popular ones, while the unpopular ones go back to the design department for modification. This model allows SHEIN to produce more hit products and reduce inventory pressure.

To become one of SHEIN’s suppliers, you

  • have to be somewhere within a five-hour drive from SHEIN headquarter
  • better be a small or medium-sized factory with a total capacity of R&D, manufacturing and sales
  • have to ship out ready stock within 40 hours and pre-orders within five days

When working with SHEIN, suppliers face strict KPIs in lead time, on-time delivery rate, defective rate, etc. At this moment, SHEIN’s lead time requirement is 10 to 15 days for new products and seven days for old products, which is far shorter than ZARA’s three weeks and traditional brands’ three to six months. 

In return, SHEIN subsidizes the suppliers, covers the sampling fee, never defaults on the payment, and even leaves inventory pressure to themselves. 

SHEIN uses an ERP to track every order and production status at each supplier. The system starts to capture and analyze user behaviour, such as views on the product details, add-to-cart rate, etc., soon after launching a new product. Then it automatically places orders to the suppliers.

  • Pioneering Marketing Strategies

According to SimilarWeb, in June 2021, SHEIN’s website received 160.8 million visits with a bounce rate of less than 40% and an average visit duration of 10 minutes. SHEIN’s main markets are North America and Europe. 39.6% of the site’s traffic are from the US. Specifically, the primary sources of its traffic are direct traffic 36.88% and search traffic 39.69%. Paid traffic accounts for 27%. 

1. Paid Ads

Being the largest Chinese customer of Google, SHEIN is burning a lot on paid ads at Google, social media platforms, YouTube, and even on TV.

2. Influencer Marketing Pioneer

As early as 2011, SHEIN began cooperating with influencers or Key Opinion Leaders (KOLs) to promote the brand. Almost 100% of SHEIN’s traffic came from influencers’ references with a 300% ROI back then. However, as the influencer community grow, the traffic was also getting expensive, while it used to be free. A YouTuber SHEIN used to work with would charge US$50,000 instead of US$30 when they first began six years ago. So SHEIN started to partner with Key Opinion Consumer (KOC) and launched its affiliate programme. An ordinary customer can get a 10%-20% commission on sales and free products by promoting SHEIN’s products. According to an April article by Jing Daily, #SHEIN has gained 6.2 billion views on TikTok alone.

Now, SHEIN has formed an influencer marketing mode of working with fans and small KOCs to gain traffic to the site, medium KOCs for product sales, and KOLs for branding. 

3. Social Media

SHEIN is all over social media. As the brand grows, contents on their accounts are not just discounts and promotions anymore. They are now trying to sell a lifestyle. Currently, SHEIN has 15 million followers on its main Facebook account and 11 million on Instagram.

4. Focus on mobile App

Powered by tech talents and experience on mobile e-commerce in China, SHEIN has been promoting its App since 2013 and selling through live-streaming since 2017. According to Sensor Tower, SHEIN App has been downloaded eight million times on Google Play and six million times on the iOS App Store as of June 2021. Now traffic from the App accounts for 72% of total traffic, higher than any US competitors.

Besides online marketing, SHEIN has also planned for offline activities, such as pop-up stores, campus ambassador programmes, music festivals, public welfare activities, etc. SHEIN misses no marketing opportunities to reach its customers online and offline. 

There is No Slack in the Future

Valued at US$15 billion, SHEIN is not far from its goal of surpassing ZARA. Yet SHEIN’s future is not a rosy one. There are still many problems to be solved. 

  • Plagiarism accusation

Plagiarism seems to be endemic in the fashion industry. YouTube videos comparing products from ZARA and SHEIN pointing out its plagiarism problem keep coming out, and more and more designers started to speak up, which costs a lot to settle.

  • Quality Issue

To ensure its low cost, SHEIN uses cheaper materials like nylon and polyester to make the clothes.  Some customers complained that the products they received look nothing like the online pictures, and they are almost disposable clothes. On the other hand, with the rising environmental awareness, such materials are bound to attract a lot of criticism. 

  • Logistics

Compared with SHEIN’s high-speed domestic supply chain, its delivery speed abroad has a lot of space to improve. Even if Amazon’s next-day delivery does not exist, SHEIN’s more-than-10-day delivery time still has no advantages on the market.

  • Culture

As a global fashion brand, SHEIN needs to be familiar with different cultures and customs to avoid another incident like the Muslim prayer mats in July 2020.

  • Data Security

SHEIN suffered a massive data breach in September 2018 and exposed the personal information of 6.4 million users. Luckily for SHEIN, the incident did not draw much attention from American politicians or the Western media. If it happens again, no one can guarantee good luck furthermore.