Why China's Shein is beating ASOS, H&M and Zara at fast fashion

Summary

The fashion industry underwent a major transformation in the 1990s with the rise of fast fashion brands like Zara, H&M, and Topshop. This evolved further with online-only brands like Asos and Boohoo, leading to the ultra-fast fashion era. Today, Shein, a Chinese company, dominates real-time retail by launching thousands of new products daily and leveraging big data. Despite its success, Shein faces controversies over alleged design theft and labor practices. Its ability to quickly adapt to market trends and its mysterious operations have kept it ahead in the global fashion market.

Takeaways

• 👗 The 1990s marked a significant shift in the fashion industry with the rise of fast fashion brands like Zara, H&M, and Topshop, which mass-produced catwalk-inspired clothes in just three weeks.
• 📈 The turn of the century saw the emergence of ultra-fast fashion with online-only brands like Asos and Boohoo, which reduced production times to a week.
• 🌐 Real-time retail is the latest era in fashion, with companies like Shein producing clothes in as little as three days, disrupting the industry status quo.
• 💰 Shein's rapid growth is attributed to its ability to launch thousands of new products daily at low prices, ranging from $2 to $30 USD.
• 🏆 In April 2022, Shein was reportedly valued at $100 billion, making it more valuable than H&M and Zara combined.
• 🤫 Shein is a secretive company with a mysterious CEO, Chris Xu, who has a background in digital marketing and SEO.
• 📈 Shein's origins trace back to 2008 with the founding of Dianwei, an e-commerce business that laid the groundwork for Shein's success.
• 📲 The rise of smartphones in China, especially between 2009 and 2012, played a significant role in Shein's growth, as it capitalized on the mobile-first market.
• 📊 Shein's data-driven approach allowed it to develop algorithms that identified fashion trends early, giving it a competitive edge.
• 👚 Shein's supply chain operations in Guangzhou, close to factories, enabled faster communication and production, supporting its lean model of small orders and quick responses.
• 🌍 The pandemic benefited Shein, with sales reaching an estimated $9.8 billion in 2020 and $15.7 billion in 2021, and it became the most downloaded shopping app in the U.S. in 2021.
• 🚫 Controversies surround Shein, including allegations of design theft from smaller designers and lawsuits from brands like Doc Martens and Levi Strauss for copyright infringement.
• 🛠️ Questions about working conditions in Shein's production lines have been raised, although the company claims to have a strict supplier code of conduct.

Q & A

How did fast fashion change the fashion industry in the 1990s?

Fast fashion, led by brands like Zara, H&M, and Topshop, revolutionized the industry by quickly mass-producing trendy clothes from the catwalk at affordable prices, making fashion more accessible and inexpensive than ever before.

What distinguishes ultra fast fashion from traditional fast fashion?

Ultra fast fashion, exemplified by online-only giants like Asos and Boohoo, shortened production times to as little as a week, further accelerating the fashion cycle compared to traditional fast fashion.

Who is the leader in the new era of real-time retail, and what is unique about their production process?

Shein is the leader in real-time retail, known for producing clothes in as little as three days and launching around three to four thousand new female apparel products daily at very low prices.

What role did smartphones play in Shein's rise to success?

The widespread adoption of smartphones, especially in China, facilitated the growth of e-commerce platforms like Shein. The smartphone revolution allowed Shein to reach a large audience and collect significant user data, which they used to drive their business model.

How does Shein use data to gain a competitive advantage?

Shein collects extensive data through its shopping app and uses sophisticated algorithms to analyze fashion trends from various sources like Etsy, Instagram, and Google. This early identification of trends allows Shein to react quickly and stay ahead of the competition.

What is the 'small order, quick response' model, and how does it benefit Shein?

The 'small order, quick response' model involves placing smaller initial orders (100-500 items) and quickly adjusting based on market performance. This approach allows Shein to react rapidly to sales trends and avoid the risks associated with large inventory orders.

How did the COVID-19 pandemic impact Shein's business?

The pandemic positively impacted Shein's business, with its sales increasing significantly. In 2020, Shein generated an estimated $9.8 billion, and in 2021, $15.7 billion. Shein also became the most downloaded shopping app in the U.S. in 2021.

What controversies has Shein faced regarding its business practices?

Shein has been accused of copying designs from smaller designers and established brands like Doc Martens and Levi Strauss. Additionally, there are concerns about the working conditions in its production lines and a lack of transparency in its manufacturing process.

What measures has Shein taken in response to copyright infringement allegations?

Shein has reportedly removed some of the allegedly offending designs from sale and paid settlements to certain designers in relation to copyright infringement claims. The company claims to take copyright infringement seriously.

Why is transparency important for Shein's future growth and investment?

Transparency is crucial for Shein to gain investor confidence and ensure ethical business practices. Potential investors and the public need assurance about Shein's operations and adherence to ethical standards, particularly concerning working conditions and intellectual property rights.

Outlines

00:00

👗 The Evolution of Fast Fashion

The fashion industry has evolved significantly, with a major shift occurring in the 1990s when brands like Zara, H&M, and Topshop introduced fast fashion, making stylish clothes quickly and affordably. This trend continued with online giants like Asos and Boohoo, leading to ultra fast fashion. Currently, real-time retail is the trend, led by the Chinese company Shein, which can produce clothes in as little as three days and offers a vast array of products daily at very low prices. In April 2022, Shein's value surpassed that of H&M and Zara combined, largely due to its efficient and secretive operations led by CEO Chris Xu, a former digital marketer.

05:09

📈 Shein's Data-Driven Strategy

Shein's success is heavily attributed to its use of big data analytics. By 2015, the company had rebranded and collected extensive data through its shopping app, enabling it to identify fashion trends early. This data-driven approach gave Shein a competitive edge. The company's supply chain operations were also strategically shifted to Guangzhou, facilitating close communication with factories and enabling timely payments, which attracted suppliers. Shein's lean model of small order, quick response allows rapid adaptation based on market performance, setting it apart from traditional fast fashion brands.

Keywords

💡Fast Fashion

Fast fashion refers to the rapid production of inexpensive clothing to keep up with the latest fashion trends. It revolutionized the fashion industry in the 1990s with brands like Zara, H&M, and Topshop. The video highlights how fast fashion made trendy clothing affordable and accessible to the masses, with production times as short as three weeks.

💡Ultra Fast Fashion

Ultra fast fashion is a more accelerated form of fast fashion, with production times reduced to as little as a week. This concept was popularized by online-only brands like Asos and Boohoo. The video describes ultra fast fashion as the next evolution in the industry, setting the stage for even faster production and distribution models.

💡Real-time Retail

Real-time retail represents the latest phase in the fashion industry, where clothes are produced in as little as three days. Shein is identified as the leader in this era, launching thousands of new products daily. This model emphasizes the speed and volume of new product introductions, pushing the boundaries of traditional fashion cycles.

💡Shein

Shein is a Chinese company that leads the real-time retail era with its rapid production and high volume of new products. The video discusses how Shein manages to launch around three to four thousand new apparel items daily and highlights its valuation surpassing that of H&M and Zara combined. Shein's business model and competitive advantages are explored in detail.

💡Data Analytics

Data analytics involves analyzing large sets of data to identify patterns and trends. Shein uses advanced data analytics to monitor fashion trends on platforms like Etsy, Instagram, and Google. This enables the company to quickly identify and respond to emerging trends, giving it a competitive edge in the fast-paced fashion market.

💡Small Order, Quick Response

This supply chain strategy involves placing small initial orders and rapidly adjusting production based on market response. Shein's use of this model allows for quick adaptation to consumer preferences and reduces the risk of overproduction. The video contrasts this approach with traditional fast fashion brands, which produce larger quantities upfront.

💡Intellectual Property Issues

Intellectual property issues in the fashion industry refer to the unauthorized copying of designs. Shein has faced multiple allegations and lawsuits from smaller designers and major brands like Doc Martens and Levi Strauss for copying their designs. The video addresses the impact of these practices on smaller designers and the broader fashion industry.

💡Supply Chain Transparency

Supply chain transparency refers to the openness and accountability of a company's production processes. The video highlights concerns about Shein's lack of transparency and the mystery surrounding its manufacturing practices. This lack of transparency raises questions about working conditions and ethical practices within the company's supply chain.

💡E-commerce

E-commerce is the buying and selling of goods and services over the internet. Shein's success is closely tied to the rise of e-commerce platforms, particularly in China, where the smartphone revolution boosted online shopping. The video discusses how Shein capitalized on this trend to target international markets, rather than competing in the saturated Chinese market.

💡Chris Xu

Chris Xu is the mysterious CEO and founder of Shein. The video notes that he has rarely been seen in public and maintains a low profile. His background in digital marketing and SEO is credited with helping to refine Shein's business model and driving the company's success through innovative marketing and data-driven strategies.

Highlights

Fashion radically changed in the 1990s with the rise of fast fashion brands like Zara, H&M, and Topshop.

Online-only giants like Asos and Boohoo introduced ultra-fast fashion, shortening production time to as little as a week.

Shein, a Chinese company, leads the real-time retail era by launching around 3-4 thousand new female apparel products every day.

Shein's products are updated more frequently and at a higher volume than any other fast fashion brand, with prices ranging from $2 to $30.

In April 2022, Shein was reported to be worth $100 billion, making it more valuable than H&M and Zara combined.

Shein's CEO and founder, Chris Xu, remains a mysterious figure, having only been seen a couple of times.

Shein was reportedly founded in 2008 in Eastern China as Dianwei, an e-commerce business selling various products.

In 2011, Xu registered the domain that would become Shein, and investment began pouring in.

China's smartphone revolution from 2009 to 2012, with a 1400% rise in shipments, fueled the rise of e-commerce platforms like Shein.

Shein focuses on international markets, avoiding the saturated Chinese market.

Shein's success is attributed to its advanced data analytics system, allowing early identification of fashion trends.

By 2015, Shein had rebranded and shifted its supply chain operations to Guangzhou, speeding up communication and production.

Shein developed a lean model by placing small orders and quickly adjusting based on market performance.

The pandemic boosted Shein's sales, reaching an estimated $9.8 billion in 2020 and $15.7 billion in 2021.

In 2021, Shein overtook Amazon as the most downloaded shopping app in the U.S.

Shein has faced controversies, including allegations of design theft from smaller designers and major brands.

Shein's rapid production pace has raised concerns about the working conditions in its production lines.

Shein claims to have a strict supplier code of conduct but faces scrutiny over its lack of transparency.

Transcripts

Fashion has had to constantly evolve.

But the industry radically changed in the 1990s

when brands like Zara, H&M and Topshop led the way with what we now know as fast fashion.

They mastered the process of taking expensive clothes that were on the catwalk

and mass producing them in as little as three weeks.

Fashion had never been this cheap and accessible before.

Then, at the turn of the century online-only giants like Asos and Boohoo

took this model to the next level, shortening production time to as little as a week.

Industry experts call these online-only brands, ultra fast fashion.

And now we're in a new era: Real-time retail.

Companies disrupting the status quo produce clothes in as little as three days.

And this era's leader? Well, it's a Chinese company called Shein.

Shein launches around three to four thousand new female apparel products every day so it is

a very huge amount and the product is at pretty low price ranging from two dollars USD to $30.

It is very fast and the products are updated

much more frequently and at a higher volume than any other fast fashion brand.

In April 2022, it was reported that fashion the startup was worth $100 billion,

which would make it more valuable than H&M and Zara combined.

Guys I placed a $500 Shein order and it came in the mail.

Y'all! The Shein package that I was waiting for arrived, so let's open it.

So let's dig, how did Shein beat these fast fashion outlets at their own game?

Shein is a very secretive company and shares little publicly about its origins

and, as I learned through my reporting, it was pretty much impossible to connect with  a spokesperson for the company.

We did find two consultants who had studied the company closely for years. Here's what we learned.

The CEO and founder has only been seen

a couple times and yeah he really it really keeps an air of mystery.

This mysterious CEO is Chris Xu,

a former digital marketer experienced in search engine optimization or SEO.

Even though Shein states it was founded in 2012,

several sources say its origin story actually began  in 2008 in Eastern China.

That's when Xu and his business partners founded Dianwei,

an e-commerce business that reportedly sold everything from knockoff goods to wedding dresses.

It was here that Xu seemingly refined the business model that would eventually launch Shein to success.

In 2011, Xu and his partners parted ways,

and the domain that would  become Shein was registered.

Investment began to pour in and so did sales.

At the same time, the world was being  transformed by a five-ounce device: the iPhone.

Apple's rivals are rushing their own versions of this kind of product out into the stores.

And China's growing middle class played a huge role in the smartphone revolution that followed.

All of a sudden everybody is getting smartphones  and so the majority of Chinese kind of skipped

the computer phase and the introduction to the  digital world was really through the smartphone.

Between 2009 and 2012 the number of smartphones shipped to China grew

from 13 million to nearly 200 million, a more than 1400% rise.

China overtook the U.S. to become the world's largest smartphone market.

This phenomenon fueled the rise of  e-commerce platforms in the country such

as  Alibaba, JD.com and of course Shein.

But unlike most of china's e-commerce giants Shein wasn't interested in Chinese customers.

Shein's focus is entirely on the outside world.

However, a lot of the marketing tactics that  Shein uses are inspired by and very similar to

to Chinese fashion brands that are operating in  the country and also Chinese e-commerce sites

that are operating in the country.

And so, if Shein were to target just the Chinese audience, it is actually a much more saturated market

and wouldn't be able to compete in terms of speed  and price like how it does compete in the West.

Shein's Chinese roots gave it another advantage too: a rich understanding of data and how to use it.

As a mobile-first country with lax privacy laws and the largest population in the world,

collecting user information was easy.

This created the perfect foundation  for developing rigorous algorithms.

By 2015, Sheinside had rebranded to Shein.

It had collected an enormous amount of data through its shopping app

and had developed a system to score websites like Etsy, Instagram and Google for fashion trends.

At this stage I think Shein definitely has the first-move advantage by its big data analytics system,

which enables pretty early identification of some trends emerging from online

so I think that's one of the critical key success factors of Shein and also will keep it ahead of the competition.

In the same year, Shein shifted its supply chain operations center to the Panyu district in Guangzhou,

a major clothing manufacturing hub.

Their office in Guangzhou is in close proximity to their factories and so it really sped up the communication.

Over time the company's reputation for  making timely payments to suppliers,  

a rarity in the industry, meant factories that would  normally accept orders of a minimum quantity

were eager to take on Shein's orders.

And avoiding these minimum orders helped Shein develop  

another competitive advantage: the lean model.

We call it small order, quick response.

So basically that means Shein places orders in a smaller batch and then it is able to quickly

adjust it based on the market performance.

The suppliers will just produce 100-500 items as the first batch which will take around only three to five days to produce.

Where, if we compare that with the traditional fast fashion players like Zara,

usually it will produce over 100, 000 items so, by placing small orders, Shein could react pretty rapidly based on the sales performance.

These products are then shipped directly to consumers from China.

This cuts out middlemen and expensive import tariffs.

Competitors making larger bulk shipments to stores aren't so lucky.

While the pandemic was devastating for most of the clothing industry, it was good for Shein.

Its sales generated an estimated 9.8 billion dollars in 2020,

and 15.7 billion dollars in 2021 and Shein was shipping to most countries in the world.

In 2021, it overtook Amazon to become the most downloaded shopping app in the U.S.,

and these users were spending a lot of time on the app.

But it hasn't been all smooth sailing.

Even though Covid restrictions were being eased abroad,

they only intensified at home and Shein's growth began to slow.

And then there are the controversies.

One of the downsides of using data is that it can

sometimes see that: "Oh, a particular blouse is wildly popular on an e-commerce platform,

what if they just recreate the blouse in a cheaper way?"

Several smaller designers have taken to social media

alleging that Shein had stolen their designs.

This top is a knock off of my silk lace cami to the tee. It's exactly the same and they're selling it for $10.

This is the original design.

But it is hard for like boutique clothing designers when their designs are copied and somebody can just get it from Shein.

That wreaks havoc on the industry because what it does is it allows the large companies

to just really rake in all the profits that could have been  going to small and local boutiques and designers.

And it's not just the independent designers.

Shein has been sued by Doc Martens and Levi Strauss for copying their products

and selling them at a fraction of the price.

It has been reported that Shein removed from sale some of the allegedly offending designs

and it has been reported that they have paid certain designers a settlement

in relation to copyright infringement claims.

Shein did not immediately respond to CNBC for comment but it did release

a statement to the Financial Times in 2021,

saying the company takes copyright infringement seriously.

Shein's ability to produce clothes at a rapid pace has also raised questions from watchdogs

like Switzerland's Public Eye about the working conditions of its production lines.

Its manufacturing process remains shrouded in mystery.

Shein told the BBC it has a strict supplier code of conduct and that it takes

immediate action if non-compliance is identified.

It has a lot of lack of transparency and so this is potentially problematic

for Shein because if it wants  to gather investments then

it really has to come clear and people really need to have

peace of mind about what is  happening at the company.