The Economist April 16th 2022 Business 59TheTikTok of frocks
I
f you fancya look into the razzmatazzfilled future of ecom
merce, type #Sheinhaul into TikTok, suspend your ethical scru
ples, and watch young influencers tear open boxes of garments,
yell things like “My Shein order is here...holy shit!”, and then pour
hundreds of dollarsworth of cheap garments over their heads. It’s
hype, for sure, but not entirely frivolous. Shein, a Chinese online
retailer, is the TikTok of the $1.5trn apparel industry. It is one of
two Chinese firms (ByteDance, TikTok’s owner, is the other) to be
privately valued at $100bn or more. Like TikTok, it is an obsession
of Gen z-ers in their teens to late 20s. And yet it is so opaque that
even the American investment funds that back it, such as Tiger
Global and General Atlantic, won’t divulge a thing about it. Could
it be that it wants to keep its Chinese heritage under wraps?
In America, where it faces an incumbent that is almost impreg
nable, Amazon, its success is extraordinary. In the first three
months of 2022, it accounted for almost a third of fastfashion
sales in the country, more than stalwarts Hennes & Mauritz (17%)
and Inditex’s Zara (10%) combined, according to Earnest Research,
a consultancy (Amazon does not break out its own apparel sales).
Although Shein’s sales growth slowed from triple digits to 35%
yearonyear in the quarter, it still bucked the trend: fastfashion
sales excluding Shein (and Amazon) fell by 12%. Morgan Stanley, a
bank, forecast in October that Shein could become the world’s
largest apparel retailer this year, with annual sales of $20bn. Not
bad for a company that came out of nowhere a decade ago. It pub
lishes no financial data, so profitability is a secret. But a recent re
port said it is closing in on Amazon as America’s secondmost
popular shopping app, leapfrogging Shopify, a platform for indi
vidual brands, and Walmart, a retailing behemoth. For all the air of
mystery, the company is worth examining not just as a harbinger
of the future of fast fashion, but of online shopping in general.
What distinguishes it? In a nutshell, Shein (pronounced Shee
in) looks like a hybrid of two of the most successful forces in on
line retail—customerobsessed Amazon and dataobsessed Chi
na. Like Amazon, it uses low prices to lure customers, and seeks to
keep them constantly engaged—even compulsively so—while op
erating with ruthless efficiency. Yet it is China that provides the al
chemy. Though it is not a big seller there, it has introduced thespeed and effervescence of Chinese ecommerce to the outside
world in three ways: via an integrated supply chain; datadriven
design; and a grasp of the socialmedia hype cycle. These are what
mainly sets it apart from its Western competitors. Even Amazon,
which looks dowdy by comparison, could learn a thing or two.
Start with the supply chain. Based in Guangzhou, Shein taps in
to thousands of suppliers that stitch and sew garments. Standard
stuff in the world’s factory. What makes it different is that it pays
them on time, which foments trust, enabling it to commission
small orders at low prices, bolstering the frequency with which it
can launch new styles. Sheng Lu, of the University of Delaware,
calculates that last year Shein offered 1.3m new styles in America,
versus 35,000 at Zara and 25,000 at h&m. He says typically Shein’s
prices were 4060% cheaper. That combination of limitless vari
ety and skimpy prices is at the heart of its business model.
Second, the suppliers are harnessed together by Shein’s own
software, which provides them with constant updates, measured
by algorithm, of what is hot or not. That enables them to adjust
output constantly to suit the latest tastes, without amassing un
wanted inventory. Shein’s international datagathering, from
scouring socialmedia sites, is crucial. It doesn’t obsess over what
season it is or what’s on the catwalk. Instead, writes Packy McCor
nick, a business blogger, “it’s a mirror that reflects each country’s
current style back to it.” Like TikTok, it doesn’t seek to impose a
cultural stereotype (least of all a Chinese one) on the markets
where it sets foot. Surveys suggest few of its shoppers know—or
even care—where it comes from.
Third, it is a master of what Allison Malmsten of Daxue Con
sulting, a Chinafocused marketresearch firm, calls “gamifica
tion”—another feature of ecommerce in China. She describes
browsing Shein’s app as like walking through a shop, not scrolling
down an Amazon page. Discounts crop up at random, giving a
sense of excitement. Microinfluencers, supported by small in
ducements, promote discounted products. She likens it to the way
that Zara pioneered fast fashion on Western high streets in the
1990s, with short supply chains, high turnover and new designs.
“Shein is the online version of that—on crack,” she says.
For all its strengths, Shein generates a wide variety of ques
tions—mostly because of its lack of transparency at a time when
fastfashion firms are under intense pressure to open up, particu
larly about their supply chains in China. There have been on
again, offagain rumours about an initial public offering. While
Shein remains private, its commitment to sustainability, working
conditions in its factories and sourcing of raw materials is rela
tively unknown. As a Chinese firm, its gathering of data, especial
ly those of young shoppers, may arouse concern in the West. Its
success itself poses a conundrum. Surveys suggest Gen zers are
motivated to reduce their environmental footprint. And yet
Shein’s performance is an indication that bargainbasement pric
es exert as much pull as ever.Rags to riches
As for the future, much depends on how robust its growthfirst,
profitslater financial model is. One message from its jetpro
pelled ascent is that barriers to entry, even in countries dominated
by Amazon, are not prohibitively high, provided you get the tech
nologies right. That works both ways; Shein itself is not impervi
ous to competition. But whilepeople are paying fortunes just to
dump its stuff on the floor, itcanafford itself a smile of satisfac
tion—even if an overly shy one.nSchumpeter
How much of a risk is Shein’s Chinese opacity?