eCommerce: Company Insight

Shein Business Strategy: Key Insights

• Shein's Rapid Emergence: Shein underwent extraordinary growth within a brief period, rising from online net sales of US$2.5 billion in 2019 to a projected figure of US$48 billion by 2024.

• Catering to a Younger Audience: Shein is most popular among Gen Z and Gen Y users, and it aligns its business practices and promotional efforts with the preferences of these younger demographics.

• Innovation and Marketing: Shein employs advanced technology for efficient style production and testing. It also utilizes influencer marketing, especially nano- and micro-influencers, to connect with its target audience.

Shein has already been a recurring topic here at ECDB, as Shein serves as an illustrative example of an online store that is taking over global fashion. But Shein's noteworthiness extends beyond its international recognition. The brand's remarkable characteristic includes its business model and marketing methods, which effectively engage and retain consumer interest. 

To provide a comprehensive insight into Shein's success, this article begins by analyzing the online store's performance in recent years and its relative standing among other fashion industry online retailers. In the end, we'll discuss the lessons that Shein's rapid rise in online fashion can impart to other companies, highlighting successful practices to emulate and pitfalls to avoid.

Shein Is Forecast to Generate US$48 Billion in Online Revenue by 2024

Shein’s online net sales over the past few years are interesting in and of themselves, but when compared to competing platforms, the disparity becomes even more pronounced:

Shein.com has made its first leap during the pandemic, jumping from online net sales of US$2.5 billion in 2019 to US$8.4 billion in 2020. That’s a 236% year-over-year increase. While the following year saw a slower, but still significant, growth of 64% from US$8.4 billion in 2020 to US$13.8 billion in 2021, revenues surged from 2021 to 2022, indicating about 90% growth. 

According to forecasts, Shein will likely make continuous leaps in online revenue in the years to come. With projected online net sales of US$48 billion by 2024, Shein is expected to dwarf its competitors in the online fashion market. 

In contrast, Shein’s rivals cannot keep up with the company’s explosive growth. As seen in the chart above, Zalando’s online net sales in 2022 did not even reach half Shein’s online revenues, while H&M’s and Zara’s online platforms lurk at around a quarter of what Shein generated that year.

Plotting Shein's online revenue growth on an isolated graph including the CAGR (2019-2022) shows a compound annual growth rate of about 81%:

Considering the staggering growth that shein.com is expected to maintain, it is no wonder that the distance to its competitors is becoming even more pronounced. But what makes Shein so different from other online fashion stores? An age-based representation of the company’s primary consumer base can help answer this question.

U.S.: Shein Best Known Among Gen Z and Gen Y Users

When Statista asked U.S. consumers if they were aware of or used Shein, a clear tendency towards a younger user base emerged:

As Gen Z and Gen Y consumers are the most aware of the brand at 83% and 77% respectively, they are also the most likely to use the site, at respective rates of 41% and 29%. Gen X and baby boomer respondents are less aware and less likely to have ordered products from Shein. 

The demographic discussion leads us to the core point of this insight, which is Shein’s business strategy. The way the company creates and promotes its products is directly related to its popularity among younger users. This knowledge has also reached established retailers in the fashion industry, who are struggling to attract a younger audience despite emulating some of the techniques Shein has perfected.

What that looks like:

Automated Reordering Model to Produce a Vast Number of Styles

A key aspect of Shein’s success is its use of technology to speed up production cycles and provide instant feedback to manufacturing facilities on which items are generating the most consumer response. Shein calls it a ‘large-scale-automated test and re-order' (LATR) model, which relies on producing small batches in a first step, and then building up the order volume later, after seeing which pieces are worth distributing on a larger scale.

It is the use of big data that helps Shein assess which styles are popular with users and which can be discontinued. While this practice can increase manufacturing efficiency by ceasing production of styles that do not resonate over time, it is the sheer number of new styles and items uploaded to the site that has drawn the brand’s primary criticism. According to Rest of the World, between 2,000 and 10,000 new looks are uploaded to the platform every day.

ECDB already covered the criticism of Shein’s practices at length, which you can read here. At this point, we would rather focus on another major success factor that has propelled the brand to the top ranks of online fashion: Its extensive use of influencer marketing to promote its products.

Influencer Marketing: Working With Many Small Fish in the Sea

Meeting consumers where they are and working with trusted personalities who vouch for the products you want to promote is essential to success. In a digitally connected world, influencer marketing is the perfect solution to combine both accessibility and personalization to introduce users to a brand’s merchandise. 

See below the percentage of TikTok accounts that fall into specific subscription categories and the engagement rates of those accounts:

Similar to emerging marketplaces like Temu, Shein relies heavily on distributing free samples to nano- and micro-influencers, who together account for about 90% of TikTok accounts. The chart above shows that engagement rates do not vary significantly by follower size. In fact, Hypeauditor’s projections suggest that smaller influencers attract slightly higher engagement rates, which may be due to their approachability, as opposed to mega-influencers or celebrities who may not even manage their own accounts, let alone read or reply to comments. 

There are other aspects that contribute to the success of Shein’s influencer marketing strategy: The relatability of nano- to mid-tier influencers, which encourages audiences to emulate them more easily. It is also more affordable for brands to reach out to smaller influencers, as opposed to larger ones who may demand a hefty check to promote products. 

Shein's vast network of influencer collaborations has recently been used to counter some of the criticism the company has faced. Let's discuss Shein's responses.

Shein Takes Action Against Accusations

While Shein has countered allegations of design copying with extensive social media campaigns and marketing moves such as investing in design scholarship programs, critics have questioned the credibility of these actions. This applies in particular to the real-world application of Shein’s marketing gimmicks, such as the recently announced influencer visit to the company's manufacturing facilities to disprove human rights violations.  

Another recent issue has been the company’s strategy of shipping large quantities of small items directly across the border to U.S. consumers in order to comply with the de minimis rule and circumvent higher bulk tariffs as well as more comprehensive product declarations.   

It seems that Shein can’t do anything right to counter the criticism directed at them, right? Not quite.

Wall Street analysts are emphasizing the company’s high potential to change the direction of the global online fashion market.

This is especially true now that Shein is venturing into omnichannel retailing, having acquired minority stakes in the fashion brand Forever 21, which filed for bankruptcy in 2020, and buying British fast fashion rival Missguided. 

Shein’s Success: An Outlook

Shein is generally believed to have taken the fast fashion model to a new level. And indeed, by accelerating the product cycle through technological innovation, the company is uploading more styles to its platform than any major fashion company before it. 

While this model is designed to be very efficient, avoiding excess inventory in warehouses, the speed of production comes at the expense of design originality and workers’ rights. The same goes for the very low cost of the products, which is achieved by denying manufacturers basic wages and using cheap, health-damaging materials. 

What fashion companies can learn from Shein is that big data optimization is indeed an efficient way to assess which styles work for consumers. Social media therefore plays an important role not only in informing consumers about new products, but also in seeing which products generate attention/likes and which styles can work on a commercial basis. 

Companies can do even better than Shein by adopting its highly efficient technology, while shedding its disregard of workers’ rights, the use of harmful materials, and disposable products. The future of fashion retail is likely to become a big data playground, while highly artistic designers may be relegated to the high-end niche.

Sources: Guardian – Rest of the World – TIME