How Shein Built a $66B Fast-Fashion Empire | WSJ The Economics Of

Summary

Shein, a Chinese online fast fashion giant, has surged to a $66 billion valuation and dominates 40% of the U.S. market with its ultra-low prices. The company's success hinges on an on-demand model that produces small batches, rapid inventory turnover, and real-time order adjustments, significantly reducing costs. However, this model's sustainability is questioned as critics highlight environmental concerns, allegations of worker abuse, and the exploitation of tax exemptions. Shein's efforts to improve its image and diversify its supply chain, including a recent partnership with Forever 21, are part of its strategy to address these criticisms and expand globally.

Takeaways

• 🚀 Shein, a Chinese online fast fashion company, reached a valuation of $66 billion in 2023 and controls 40% of the U.S. market.
• 💲 Known for extremely low prices, Shein's products like $2 T-shirts and $7 pants have attracted a large customer base.
• 📈 Shein's sales grew sixfold during the pandemic, generating an estimated $23 billion in revenue in 2022.
• 🔍 The company's low prices are attributed to a tax exemption and reported cases of involuntary labor in its supply chain.
• 📊 Shein operates on an on-demand model, producing only 100 to 200 units of each new product initially, based on customer engagement data.
• 🔄 Shein's inventory turnover rate is 40 days, twice as fast as competitors like H&M and Zara, reducing the risk of excess inventory.
• 🏭 The company hires thousands of smaller manufacturers to support its on-demand model and keep prices low.
• 🌍 Shein's supply chain transparency has been criticized, with reports of worker abuse and potential forced labor in China's Xinjiang region.
• 💸 Shein benefits from the U.S. de minimis tax rule, allowing low-valued packages to enter the U.S. tariff-free.
• 🌐 In response to criticism, Shein has moved its headquarters to Singapore, diversified its supply chain, and invested in training manufacturers.

Q & A

What is Shein's market valuation in 2023?

Shein's market valuation in 2023 is 66 billion dollars.

What percentage of the U.S. market does Shein control?

Shein controls 40% of the U.S. market.

How did Shein's sales perform during the pandemic?

Shein's sales exploded during the pandemic, growing sixfold in two years.

What was Shein's estimated revenue in 2022?

Shein's estimated revenue in 2022 was 23 billion dollars.

How does Shein's on-demand model differ from traditional retail practices?

Shein's on-demand model involves initially producing only 100 to 200 units of each new product and then monitoring user engagement to decide on further production, as opposed to traditional retail which often places large orders months in advance.

What is Shein's inventory turnover rate according to a Boston Consulting Group report?

Shein's inventory turnover rate is 40 days, which is twice as fast as competitors like H&M and Zara.

How does Shein reduce the risk of excess unsold inventory?

Shein reduces the risk of excess unsold inventory by ordering in smaller batches and adjusting production based on real-time demand data.

What environmental concern does Shein face regarding its business model?

Environmental activists argue that despite less inventory waste, Shein's cheap clothing may lead to higher overall waste levels due to increased consumption and quicker disposal of garments.

What labor-related issue has Shein faced?

Shein has faced accusations of worker abuse and has been criticized for not being transparent about its supply chains, with reports of involuntary labor in its supply chain.

How does Shein benefit from the U.S. tax exemption known as the de minimis rule?

Shein benefits from the de minimis tax rule by shipping low-valued packages to individual buyers in the U.S. tariff-free, as shipments worth less than $800 are not subject to tariffs.

What steps has Shein taken to improve its image amidst criticisms?

Shein has tried to improve its image by bringing influencers to tour factories in China, moving its headquarters to Singapore, diversifying its supply chain outside of China, and investing in training Brazilian manufacturers.