‘As Shein leads global fashion, there’s opportunity to differentiate on what it cannot do’

Shein became the world’s largest fashion retailer in 2023, as revenue soared and profits doubled. Its speed-focused business model, breadth of ambition and designs on IPO look set to continue disrupting the industry. 

As cost-of-living pressures continue to impact discretionary spend, what lessons can others learn from Shein’s rapid success? Is it all about price or is there more at play?

And, just as with any discussion around Amazon, there’s a lot to be gained from leveraging what the online giants cannot do.

Disrupting established fashion players

The rise of Shein is clearly a threat to fashion retailers, not only globally but also in the UK. Retail Week’s Top 30 UK Retailer Ranking positions Shein at number 25 by 2027, with estimated revenue of £2.5bn, ahead of fashion competitors Asos, Inditex and H&M.

This builds on the UK sales of £1.1bn and pre-tax profit of £12.2m reported by Shein UK for the 16 months to December 2022.

While low pricing may be at the heart of its appeal, Shein is also about volume. Average transaction value has reached a surprisingly high £30 in the UK, according to CACI, demonstrating clear disruption to mid-market competitors.

Focus on newness and customer experience

Maintaining relevance as a brand requires newness and buzz – this is where others can learn from Shein and its immersive platform.

There is constant newness, both in the small batches of products that the retailer releases every day, and in its gamified discounts and special offers that encourage customers to spend.

Social media remains critical to success, with influencers and superfans sharing their Shein hauls and driving new customers to the site.

Broad ranges and inclusive sizing also differentiate Shein, which relies on easy navigation, search and relevant recommendations to help customers find their ‘look’.

Machine learning and small-batch manufacturing

Shein is able to disrupt and expand so rapidly owing to its advanced use of technology and new ways of working.

It uses machine learning to reliably understand consumer behaviour, allowing it to forecast demand for products with a strong degree of accuracy. Working with small and medium-sized suppliers on small batch orders of 100 to 200 items gives Shein the ability to identify bestsellers and expand these based on demand. 

Here, there are similarities to Inditex, which also introduces new products in short runs and adapts them to customer demand. By keeping production close to its headquarters in Spain, Inditex can introduce new items within just three weeks.

Shein’s supplier base of small and medium-sized businesses linked by its platform technology gives it a degree of agility as well as a low cost base. This large supplier network has facilitated a quick move into new categories, including beauty and homewares.

Supply chain efficiency

Efficiency goes beyond basic forecasting at Shein to an overall tech-driven cost reduction strategy, an ambition that many are keen to reach.

With small batch production, it is able to maximise opportunities to cheaply purchase materials in small quantities, including deadstock and offstock products, according to Peter Pernod-Day, Shein’s head of strategic and corporate affairs for North America and Europe. 

And the company reduces waste within the production process with digital printing and cutting methods.

Curation, discovery and physical retail

But, just like Amazon, Shein is at a disadvantage when it comes to inspiration. It may have great search capabilities and a degree of personalisation, but customers still need an idea of what they are looking for.

Shein’s costs could also potentially rise in future, if the government was to close the tax loophole on small parcel shipments to the UK, which currently allows the company to keep its costs so low. This is already the case in France, where taxes will be introduced for fast fashion items between now and 2030.

The etailer’s only foray into physical retail so far remains its occasional pop-ups – giving omnichannel retailers an unmatched advantage to champion the store as a place for brand discovery, inspiration and great customer service.

Smaller curated online ranges and editorials are another key tool in omnichannel, particularly where reliable customer data can shape and personalise this content.

Purposeful retail

As customers are placed increasingly at the heart of retail, they also deserve to hear from brands and retailers about purpose and what makes a business special.

Brands already know that they should be looking to establish an emotional connection around this, whether it’s innovative design, brand identity, quality, local provenance, circularity, sustainabilty or something else. Perhaps with the rise of Shein, this will become an even higher priority.

Purpose and sustainability are not areas that Shein is known for and information on the company’s operations is nebulous at best, although likely to improve with any future IPO.

Still, there is a lot to learn from Shein on technology, efficiency and global disruption. Its success highlights that fashion retailers must embrace technology and move faster.

However, beyond this, it will be brand identity, customer experience and purpose that may hold it back and give others the advantage when it comes to inspiration.