About a year ago, 20 brave Indian soldiers died in friction with Chinese troops on the Tibetan plateau. As part of its response, India blocked hundreds of China-based apps, including an online fast-fashion retailer, Shein.
While the ban caught the company and its biggest Asian market by surprise, Shien didn’t shift from its ambition and continues to blister its rise to prominence.
It has now overtaken Amazon to be the most downloaded shopping app in the United States and over 50 other countries.
The Chinese online fashion platform often dubbed as “TikTok of ecommerce” is reportedly the fastest growing firm globally, expanding over 100% annually for the past eight years.
Shien has about 20.5 million followers on Instagram as of June 2021, beating household fast fashion brands like Forever21 (14.7 million) and ASOS (11.7 million).
While Shein, being a private entity, doesn’t disclose its revenue, Chinese media outlets have put its valuation at 15 billion USD (1), more than the other two brands combined. Which makes us wonder, how does it happen? What did Shein do?
Shein ads are hyper-targeted to women aged between 16 to 35; it shows them trends and fashion at much lower prices than it is hard to say no. Shein has been in the game of influencer marketing pretty early, and we wouldn’t be wrong to say it has won over it. It is how Shein has dethroned Amazon to become the most installed shopping app.
The Rise of Shein
While Amazon sells everything for everyone, Shein mainly caters to young women, and yet, it has managed to be the most installed app on both iOS and Android in the US and ranked second worldwide. It is proving yet another example for our story on The She Economy: The New Mantra for Business Success.
Founded in 2008 by Chris Xu, the Nanjing Province-headquartered firm was called Sheinside until it changed its name in 2015, finally settling with Shein in 2018.
Despite being China-based, Shien is mainly focused outside the country.
It primarily targets the US, Europe, Australia, and the Middle East with other consumer markets. It covers 220 nations.
The uniqueness of Shien as fashion e-commerce is that it exerts tight controls on its commerce process, with every element of its production chain – from design to manufacturing – under its direct supervision, highly digitized and meticulously integrated. Consequently, Shein can push out hundreds of new products tailored to customers’ needs in near-real-time.
While brands like H&M and Zara take about three to four weeks to bring clothing from the ramp to the store (2), Shien uses a combination of predictive and real-time consumer analytics, hyperaware fashion designers, and an extremely agile and quick supply chain based in China to bring the latest fashion trends from social media to its consumers within a matter of 10 days.
Undoubtedly, Shien quickly became an online retailer of choice for several US shoppers, particularly young females.
In mid-May, Shein surpassed Amazon as the most downloaded iOS shopping app in the US, something it had already done in Google Play Store downloads a week prior, as per analytics firm App Annie.
Over the past few months, the retailer has driven large site traffic numbers, greatly outpacing other fashion brands. Consumers and researchers are citing its innovative digital strategies, trendy and low-priced products that appeal to Gen Zers as key to its success.
The self-described B2C fast-fashion online platform offers cheap products – consumers can fill their carts with $2 tops or $5 handbags. Shein has trend-focused category pages on its platform for its “cottagecore” or “Y2K” products, emphasizing its ability to fulfill customers’ of-the-moment style desires instead of pushing a unified aesthetic.
While Shein has been around for quite some time, it has witnessed much of its massive growth over the past two years, said SensorTower’s Stephanie Chan.
Shein: Popular Yet Mysterious
While the app draws a lot of buzz from Gen Z and millennial users (3), who praise its wide variety of products and low prices, much about Shein remains a mystery. For example, its financial information and investors list are not public. Though Chinese media reports have named Greenwoods Asset Management, AFCO Asia, Sequoia Capital China, IDG Capital, Shunwei Capital, and Tiger Global among its backers, it is unconfirmed by the entity.
The company’s main focus is to offer products that are easy on the pocket. Its clothes are cheap. Plus, it spoils users with a choice of an average of 500 new styles added every day to its catalog.
You are a new user; you download the app, you get a reward. You post on TikTok or Instagram and tag the product; you get a reward. Did you make a purchase again? You get loyalty benefits. You can even create your profile on Shwin and post pictures of products, and if someone makes a purchase through your post, you get more rewards, which lets you shop more, post more, and earn more.
Yet, why many of you haven’t heard about it except for Gen Z? Well, it is because the brand itself didn’t want the media attention. It has never indulged in any interviews. It has maintained utmost secrecy.
Below is the Wikipedia page of Shein, a company said to be worth over 15 billion USD.
Now, what’s wrong with shopping from Shein? It is like a gamble; if you are lucky, you will get a good product. The online review platform, TrustPilot, 48% of over 20k reviews rank Shein as either poor or bad. It also found that the good reviews are mostly from Shein employees. Most of the orders take forever to come, and there are high chances for those delivered to have size or quality issues. The materials they use are cheap. Moreover, Shein is alleged to have child labor and poor working conditions. Shein has also been accused of plagiarizing the works of independent designers.
And despite its ubiquity, Shein has mostly been under the radar while rising to prominence, shunning conventional media in favor of social media popularity.
TikTok and Instagram stars including Katy Perry, Addison Rae, and Lis Nas X have all worked with the company, driving its popularity among young shoppers.
Unlike several of its fashion rivals, Shein controls its entire production chain, which allows it to launch hundreds of new products according to specific user tastes in different markets worldwide for prices almost always undercutting its fast-fashion competitors.
Anything we want at prices so low we can afford two or even thirty. That is rush freedom for most people, especially financially constrained teenagers. Their enthusiasm has made Shein the big first fashion success from China, although its origins are nowhere to be found on the platform.
According to Euromonitor, after doubling its revenue in 2019, its annual sales skyrocketed during the pandemic, threefolds last year to make Shein the most prominent online-only fashion brand worldwide.
Nonetheless, the stranger will stop being a stranger soon.
Reportedly, Shein achieved 10 billion USD in 2020 in revenue compared to 4.5 billion USD in 2019.
Its numbers are impressive when we compare it with other giant e-commerce platforms and companies in other segments.
In a recent analysis of promising China-based companies (4), Shein managed to position itself ahead of Tencent in 11th place. Its investment rounds are attracting not only Chinese money but also from the US, like Sequoia Capital. They have all seen something special in Shein, or so it appears.
Global investors like Sequoia and IDC have already joined. According to sources, Shein is valued at over 30 billion USD, and last year, it hired Goldman Sachs, JP Morgan, and Bank of America as advisors on a potential IPO (5).
However, reportedly, the company itself is vague, and most reports about it are “often incorrect.” In short, there are no IPO plans, according to Bloomberg (6).
One clear thing is that Shein has ambitions. In January, it was among the bidders for iconic British apparel retailer Topshop. Even though it lost to Asos Plc’s £295 million offer, the move was a “red flag” for existing brands, according to Jonathan Reynolds (7), academic director at Oxford Institute of Retail Management.
The move sparked rumors that Shein may be considering going physical to complement its online offer. Meantime, it has settled for popup stores, the latest in May in Mexico City.
As is the case, Shein is prevailing over a 36 billion USD industry (8) by defeating the likes of Zara and H&M at their own game, supercharging the fast-fashion marvel that they invented ( – and been roundly criticized for). To do that, Shein is using a seemingly ingenious combination of data-driven clothing design, supply-chain savvy, and most intriguingly, tax loopholes in the US and China that came to light during the trade war. The very offensive aimed at curbing Chinese dominance has instead helped create a titan.
China doesn’t have anywhere near the same international fashion cachet as France, Italy, or Japan, which is why Shein divulges almost nothing to customers about its origin. For example, someone interested in learning more, where Shein procures its materials, how to get a job there, etc., always hits one dead-end after another.
Yet, Shein owes its success to China.
In particular, a trade-war era changes to the Chinese tax code (9) that drastically reduces costs for the company and its suppliers, letting them undercut their global competition.
Invading Import-Export Tariffs
Aas trade relations between the world’s two largest economies were deteriorating in 2018, China responded to a new round of US taxes by effectively waiving export taxes for D2C companies (10). Since Shein ships most orders from its warehouses in China, it was already in a good position in the US, where packages worth less than 800 USD can enter the country duty-free since 2016 (11). Even when the Trump administration imposed more tariffs to make China-based products more expensive, the small-value shipments were exempt.
For Shein, China’s tariff support on top of the US tax loophole was like adding Mentos to Diet Coke. From 2018 to 2019, its sales nearly doubled, as per the Shein investor presentation reviewed by Bloomberg. In 2020, sales jumped again because of the added lift from shoppers stuck at home. Shein’s sales jumped 250% Y-O-Y to a staggering 10 billion USD, as per sources, well ahead of what Zara made through its online channels last year (12).
Today, Shein pays neither export taxes for most of its products nor import taxes in the case of the US, an advantage that tilts the playing arena heavily against its rivals, particularly as people shift to and stay online.
Notably, it is not the only China-based retailer to benefit from the trade war, and it won’t be the last (13). Thanks to the government’s support, Chinese online retail exports rose 97% in 2018, per China custom data (14). The industry has swelled beyond 265 billion USD, and it’s growing faster than before former US President Donald Trump started his assault.
And according to Michael Horowitz, a partner at Retail ROI Ltd (15), it would be close to impossible for international rivals to compete with Shein.
Technically, any company willing to register a subsidiary in China and ship products directly to the US consumers in small-value packages could get the same tax advantages. However, it is pretty unlikely, if you are Zara, there is no way you can get around the US import duties because you are not shipping to individuals; you are importing in bulk and selling to stores. Zara has too much of a physical presence; it can’t get away, he explained.
Moreover, Shein has a proprietary technology that harvests users’ search data from the app and shares it with its suppliers to assist decisions about design, production, and capacity. It also generates recommendations for raw materials, where to procure them and offers suppliers access to a deep database of designs for inspiration. The company also has a reputation for paying its invoices more promptly and frequently than industry standards, making makers more eager to work with Shein.
If something is working, you know about it quickly, and if anything fails, you only have some hundred units, so how much are you going to lose? Explains Horowitz.
Knocking Down Prices and Bragging About it on Social Media
Shein sends its products from its warehouses in Foshan, Guangdong province, to a warehouse near LA, CA. Meaning, its fulfillment can take over ten days, which is pretty slow compared to Amazon Prime’s next-day delivery standard. However, its affordability has ensured a loyal consumer base, lured by an ever-changing array of women’s apparel added at an average of 2k SKUs every day (18).
The brand has maintained strong relationships with social media, micro-influencers, and celebrities, which recommend it non-stop.
Shwin has become the fashion store among fashion influencers. The clothes it offers are extraordinarily cheap. Let’s say its prices can even make “Amazon look expensive.”
Threat to Amazon and Zara
Shein, who until recently was a stranger, is on the verge of surpassing Zara in Google searches. In some countries like the US, Brazil, or Mexico, it exceeds it.
Shein’s approach is completely online and thus tests the model of groups with a strong physical presence, which due to the pandemic, had to close their stores worldwide.
While conventional brands have “built” fashion themselves, almost guessing what to wear, Zara has followed a philosophy that does not guess what people want to wear. Instead, it studies trends and data from different sources and combines them into its designs.
And as explained in an analysis on the Chinese website, LatePost, Shein refers to that model.
Moreover, it has also taken a step further and made extensive use of Google trends to find out which fabrics, colors, and styles are most popular.
“Shein doesn’t have its style; it doesn’t try to impose its tastes to consumers globally. It doesn’t even have its taste. It is only a reflection of the style of each country, in real-time, based on data solely,”
notes Not Boring.
Shein only needs seven days to pass from testing to production, whereas it is 14 for Xara, which is already an incredible achievement. Moreover, the absence of physical stores also allows Shein to be more dynamic when putting these garments on sale.
Notably, Shein can try 30 apparel styles for the five or six that Zara can try at most before putting the product on sale.
Thanks to these strategies, as analysts highlight, Shein has managed to be more efficient, correct, and put products on sale faster, hence threatening conventional brands such as Zara and giants like Amazon (19, 20).
Taking Advantage of TikTok and Instagram
Another key to Shein is its interaction with social media. It has made a significant investment in ads on Instagram and Facebook, where their products appear constantly. It also extensively uses influencers’ channels; TikTok is one of its massive promotional channels.
The TikTok influencers often make videos, trying dozens of clothes and other accessories they get from Shein, which ends up being multiple promotions of their products. These influencers post those videos for free because they expect to take advantage of high affiliate commissions, about 10 to 20% of the purchases that others make via their links. It is a truly spectacular percentage compared to about 2 to 4% commissions that they usually make on other platforms like Amazon.
Shein also uses a strategy already known from other Chinese ecommerce platforms; since people see it so cheap, they purchase a lot.
Shein appears to collaborate with nano-influencers as most of its ambassadors have between 10k to 50k subscribers, and they publish about 500 posts about the brand every day.
It has a similar strategy with Instagram as well. According to reports, the largest number of Instagram creators promoted Shein over the past few months compared to its rivals. Its social media marketing strategies are effective, with over 19k creators and influencers mentioning Shein over 53k times, and only about 45k of those were sponsored. It is 1.5x more than the second-place Fashion Nova received, says Alex Frolov, Chief Executive of HypeAuditor (21).
While Shein may not hold the household name in ecommerce that Amazon is in the US, it has managed a feat that only a few other retailers have pulled off.
Shein has managed to dethrone Amazon from the top spot in terms of app downloads.
However, the bigger question is: Will Shein has the staying power to hold its top spot? Especially when Amazon has historically worked hard to reclaim that top spot multiple times when players like Wish have previously managed to make some headlines by bumping Amazon to the second position.
While it is not quite the digital house compared to Amazon, Walmart, currently in the third spot, is well-ensconced in the mix with its plans to take on, and if it succeeds, overthrow Amazon or at least displace it from the top position.
The very industry Shein is seeking to dominate is also in the spotlight, with fast fashion criticized for its labor practices and environmental impact. And judging by Shein’s success and some of the globe’s top VCs, those concerns are yet to undermine the appeal of super-cheap and unending variety. However, as Shein’s biggest fans age into higher price points, it is likely to change eventually, and social, environmental, and corporate governance issues become more difficult for investors to overlook.
Meanwhile, Shein’s focus on algorithm-driven quantity has also led to some high-profile slip-ups. The company, which made statements of corporate solidarity with Black Lives Matter, had to apologize for selling phone cases that depicted a Black person in handcuffs outlined in chalk. Previously, Shein also had to retract a necklace with the Buddist swastika and apologized for marketing Muslim prayer mats as home decor.
On this front, Shein’s status as a Chinese brand can be its Achilles heel, no matter how much it obscures its origin. Relations between the US, the rest of the world, and China are at a new low. People are becoming increasingly aware of the objections to Chinese cotton from its Xinjiang region, which human rights observers and several governments claim relies on forced labor (22).
Nonetheless, Shein has made an impressive move into the market since its foundation in 2008. It doesn’t suffer from a lack of ambition when taking on the international ecommerce stage. However, the competition is fierce, and it will no longer be able to quietly creep up on a market that has not paid it much attention for the past 13 or so years.
And since Shein’s landing of the top spot officially announces its competitive presence (and quite loudly), it would be interesting to see how the ecommerce world responds.