Shein was among hundreds of thousands of Chinese startups that tapped into the country’s emerging cross-border e-commerce industry when it was founded in 2008 in the eastern city of Nanjing.
More than a decade later, it’s a Chinese fast fashion decacorn (a private technology company worth more than $10 billion) with a market cap of $100 billion. Only three other tech juggernauts — ByteDance, Alibaba’s Ant Group, and SpaceX — have surpassed that benchmark, according to Crunchbase’s private unicorn list.
Shein is a much lesser-known name than its local peers like Alibaba and JD. Its relative anonymity is largely due to its unusually low profile, typified by the lack of public information on its mysterious founder Xu Yangtian, also known as Chris Xu. However, Shein is a name that is increasingly difficult to ignore, as its extraordinary growth has more people comparing it with big-name rivals like Amazon and Zara.
A list of impressive numbers backs up the hype about Shein. In May 2021, Shein overtook Amazon as the most downloaded shopping app in the US, a position it has largely maintained ever since, according to App Annie. The company’s revenue totaled $16 billion in 2021 after expanding at breakneck three-digit growth rates over the past few years. The rising firm is also a venture capitalist’s darling: Shein has received a combined $2.1 billion in funding from reputable investors, including Tiger Global Management, Sequoia Capital, and IDG Capital, since its establishment.
Such incredible growth (and hype) led internet analyst Matthew Brennan to label Shein the “TikTok for e-commerce.” While the comparison points to how the two Chinese companies are achieving a phenomenal rise globally, it’s also important to understand the underlying lessons of their explosive growth — and how they have combined Chinese and western business models to create a new type of online giant.
Where did Shein come from?
Shein is an online fast-fashion company based in China and sells globally, from clothes to accessories to shoes at super-cheap prices. Started as a platform targeting female shoppers, the site now expanded to offer an increasing selection for kids and men.
Unlike Chinese peers focusing on the domestic market, Shein is engaged only in overseas e-commerce markets, which was a less competitive vertical when it was founded ten years ago.
Its main operation and manufacturing centers are still based out of China, but the company sells to more than 150 countries in nearly every major market in the world, from Europe and North America to Latin America and Southeast Asia. However, its presence in the Chinese market is nearly zero – out of choice.
The company’s success could be attributed to a range of factors, from its affordable fashion positioning to viral online marketing strategies on social platforms like Instagram.
Offering a diversity of products to consumers quickly and affordably is a common playbook for fast fashion brands to achieve success. Shein has taken that practice to a whole new level.
- Huge diversity for ultra-cheap prices: Shein’s products are astonishingly cheap, generally below $20, making products from rivals such as Zara, ASOS, H&M, and Boohoo appear relatively expensive. In addition, the platform offers around 600,000 products for sale at any one time. Another area where it outmaneuvered its rivals is with a shorter lead time, from design to shipping, of a typical five to seven days. The firm actually aims for a much shorter three-day turnaround, from design to production, according to a Reuters report. Compare that with around three weeks for a garment from Zara and Shein’s appeal begins to become clear.
- Flexible production: Shein works with more than 6,000 suppliers, many of whom are small businesses that make Shein-branded products in small batches. The company will increase production if the products become popular and cut short other items if they’re less popular based on real-time consumer feedback. The model is not unlike the consumer to manufacturer (C2M) model that’s been picked up by many Chinese e-commerce giants such as Alibaba, Pinduoduo, and JD. It connects manufacturers and consumers to produce tailored products at lower prices through the application of AI-powered data analytics.
- Platform independence: Shein’s rise comes at a time when many Chinese sellers relied on bigger platforms such as Amazon to sell products to overseas users. Being its own platform, Shein is able to use AI algorithms for supply chain and manufacturing upgrades, rather than relying on platform companies like Amazon for customer acquisition, which also gives away control of user data. Recently, Amazon’s year-long removal of Chinese sellers from its platform since early 2021 has also made Shein’s independent model more appealing.
- KOL marketing: The brand first gained popularity among young customers, especially teenagers, by running online marketing campaigns on social media platforms such as Instagram and TikTok through cooperation with KOLs or influencers. The strategy is similar to TikTok’s approach of matching content creators with users. KOL marketing also lies behind the success of a series of Chinese online-first, or online-only, brands like cosmetics seller Perfect Diary.
- Addictive shopping experience: For Shein consumers, the shopping experience can become super addictive when offered the chance to choose from a vast number of products, especially knowing that one doesn’t have to worry about their budget. The app also boosts engagement with a range of fun features. For example, users who check the Shein app daily receive points, which can be converted into coupons when making purchases.
Shein’s meteoric rise has also attracted scrutiny from the public. Many questioned the ethics of its ultra-low prices, accused the company of lacking transparency, and raised concerns about its treatment of workers, such as low pay, poor safety conditions, and the use of underage workers.
More than 80% of nearly 700 suppliers audited in 2021 had at least one major risk factor, according to a sustainability and social responsibility report the company released in 2021 under public pressure. The report shows that just 12% of the company’s suppliers were able to claim zero violations from a list that included items such as forced labor and serious environmental pollution. The company said that it had threatened violators with closure if the situation was not remedied immediately.
An investigative report conducted by Chinese media outlet Sixth Tone found that staff at one of Shein’s subcontractors often work 15-hour shifts in order to meet deadlines, although the company said it was committed to “upholding high labor standards.”
With deep roots in China, Shein seems to be distancing itself from its home country as geopolitical tensions and regulatory scrutiny over China-related tech companies increase.
The company has made a Singapore entity its parent firm and is aggressively expanding its presence in the city-state, Reuters reported in February. The story added that Chris Xu, Shein’s founder and CEO, has become a permanent resident of Singapore, although the company’s spokesperson later denied this claim.
Xu’s reported application for Singaporean residence comes amid talks that the company is preparing for an IPO. This is reminiscent of a similar move by Haidilao founder Zhang Yong, who gained Singaporean citizenship before the hotpot chain went public in 2018. Zhang topped the city state’s rich list in 2019.
Shein is facing a few headwinds. The firm was among the first batch of 59 tech companies, including TikTok and WeChat, to be banned in India, as the relationship between the world’s fastest-growing economies turned sour in 2020 after a border conflict.
The company also sees intensified competition, even as it continues to grow. At least 10 Chinese fast-fashion companies, such as Cider, Urbanic, and ChicV, are chasing global consumers, while tech giants such as Alibaba and ByteDance are also digging into the sector with Shein-like platforms.
The past decade was certainly Shein’s heyday of development. However, the company’s growth has shown signs of slowing as its sales increased 60% year-on-year in 2021, a much slower rate than its 250% jump in 2020. The company is likely to face more challenges as it attempts to sustain its high-speed growth – and live up to its $100 billion valuation.