As Shein predicts its annual revenue will more than double to reach almost $60bn (£49.8bn) by 2025, and forecasts it will overtake the combined annual sales of both Inditex and H&M, it is clear the retailer is making waves within the fashion industry.
The Chinese fast-fashion giant has drawn its fair share of controversy and criticism. A Channel 4 investigation detailed inhumane working conditions in two of its supplier factories in China and the retailer has faced allegations of violating labour laws, as well as criticism for being damaging to the environment.
Despite all of this negative attention, Shein continues to perform. In the weeks following the investigation, Retail Week used search data to find that web traffic to Shein’s UK site actually grew immediately after the revelations.
While Shein is seemingly immune to scandal, both the fashion and technology sectors are leaning into severe headwinds. With the retailer eyeing a potential float later this year, is Shein destined for continued success or will the market ultimately catch up with it?
Success slowdown
The global cost-of-living crisis is not the only battle fashion retailers are currently fighting and Shein is not alone in having to navigate around the headwinds battering its technology platforms.
Tech-led retail giants from Amazon to Zalando and Meta have all announced swingeing job cuts recently. Despite Shein’s apparent insulation on the price of its products from the downturn, could it be the latest tech-led brand to suffer from a slowdown?
Retail Week’s data analyst Hanna Hua said the continued success of Shein relies heavily on its demand for low prices: “Continued price increases and inflation in 2023 are likely to push consumers to seek out cheaper alternatives.
“Shein’s unique agile ‘test and reorder’ operational model is well-suited to a slowed economy, and unless demand diminishes the company is likely to continue to succeed under the current environment.”
Last week, Shein predicted its profits are expected to increase to $7.5bn (£6.2bn) by 2025 and the retailer revealed plans to launch more premium product ranges to target higher-spending shoppers.
Expanding its customer demographics while still holding firm on its value proposition should help Shein through the global tech downturn.
Emerging rivals
The launch of Chinese-owned, Boston-based retailer Temu last year means that Shein now, for the first time, has a direct competitor also targeting customers looking for low prices in the same demographics.
With Shein’s unique selling point being challenged directly for the first time, it seems inevitable that its grip on the market will slip.
Last month Temu said it planned to use its platform to more efficiently channel consumer needs. A spokesperson for the retailer said: “We believe customers deserve the most value-for-money products with the best customer service and transparency.”
As both Temu and Shein prioritise low prices and value for money, customer loyalty will largely depend on the preferences of its largest demographic of Gen Z shoppers and where they choose to shop.
To ensure young customers favour it over the competition, experts say Shein’s points-based rewards system is likely to continue driving repeat visits and purchases.
“Shein’s established popularity with young shoppers, growth in purchasing consideration with Gen Xers and attractive price points amid financial uncertainty mean that Shein still has runway ahead,” says Morning Consult retail and ecommerce analyst Claire Tassin.
“However, according to data from Morning Consult Brand Intelligence, our flagship platform that tracks daily consumer attitudes for more than 4,000 brands in 40-plus countries, a recent dip in popularity among female Gen Zers may indicate their attention may be drifting elsewhere: Gen Zers are notoriously fickle shoppers, which means that rivals like Temu may easily grab their attention, but retaining their loyalty is harder.”
Shein’s continued success on social media and its ability to understand customers will help it to attract and retain customers, but the attraction of competitors to its customers is not something that can be avoided.
Challenges ahead
Despite Shein’s vast revenue projection for 2025, it will have to work harder this year to persuade people to shop.
However, the fashion industry is constantly evolving and relatively unpredictable, and Shein’s triumph despite these factors stems from its use of algorithms to analyse data.
By having visibility of data from across its own website and wider social media activity, Shein is able to adapt rapidly to changes in the market, as well as consumer habits and preferences.
Retail Week’s Hua says: “The retailer heavily relies on its supply chain and logistics, which can become problematic during periods of soaring inflation and fuel prices, as its margins are low.
“Whether Shein can navigate the slowdown in fashion will depend on its ability to remain agile, responsive to market changes and committed to meeting customer expectations.”
Despite the ever-changing fashion market, Shein’s ability to offer a range of on-trend fashion products and reduce waste through its ‘test and order’ strategy will result in its ability to keep up with the market and its competitors.
IPO appetite
Shein is known for its strong competitive advantages of low prices, loyalty from its Gen Z customers and social media success, but will that be enough to sway investors weary of tech-led retail brands promising the world and failing to deliver during the pandemic?
The Chinese fast-fashion retailer recently revealed its intention to float on the New York Stock Exchange this year.
GlobalData head of apparel Chloe Collins says: “Shein has seen tremendous growth in the last few years, so if it IPOs it will definitely attract investors despite other retailers recently struggling to do so.
“However, its valuation is based on continuing to achieve high growth rates, which will be challenging, especially as other fast-fashion players like the Boohoo group and Asos saw sales fall in their last results, with global revenue for the four months to December 2022 down 10.7% and 3% respectively.”
Collins adds that in order for Shein’s growth to continue, it may need to redirect its focus to new segments such as menswear and childrenswear in order to broaden its target audience.
Despite low prices being attractive fast fashion as a whole is declining in popularity. While Shein has so far outperformed its market, a growing desire for quality over quantity could catch up with the retailer before too long.
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