Decoding Shein's Success: 5 Crucial Features of Their Business Model
Inside. Since its inception in 2008, Shein has marked itself distinctively apart by focusing its business strategy not on China but rather on the international market.
Introduction
Within the highly competitive (fast) fashion industry, a formidable game-changer exists: Shein, formerly known as She Inside. Since its inception in 2008, Shein has marked itself distinctively apart by focusing its business strategy not on China but rather on the international market.
This strategic decision to exclusively sell its products outside of China was a break from traditional practice amongst Chinese fashion manufacturers who either sold to brand labels in the West or focused on domestic sales via Chinese platforms.
The outcome of this audacious strategy? Shein's innovative business model has fuelled extraordinary growth and enabled the company to capture the attention of fashion enthusiasts across the globe.
Drawing from insights presented in Ed Sander's Boardroom Session titled “Keeping up with China”, we will delve into the key factors underpinning Shein's business model and explain how they have spurred the company's rapid global ascent in the fashion world.
1. Leveraging influencer collaborations
One of the key factors in Shein's remarkable success lies in their early relationship with online influencers. Back in 2011, even before the term "influencer marketing" was coined, Shein already collaborated with digital creators who made captivating videos showcasing their products. Remarkably, these influencers did so only in exchange for free products and without charging the exorbitant fees that are prevalent today. This smart strategy enabled Shein to rapidly build brand awareness and establish a loyal customer base while minimising costs.
2. Staying ahead of fashion trends
Shein employs a highly efficient process for developing new products to remain competitive.
A. Trend research
A huge team manually combs the internet (TikTok, Instagram, fashion blogs) to identify and highlight emerging trends as they are still nascent, keeping Shein at the forefront of the rapidly changing fashion scene. Contrary to a common belief, spotting new fashion trends at Shein is not automated or driven by artificial intelligence.
B. Design
In the design phase, Shein's creative minds collaborate closely with suppliers and Original Design Manufacturers (ODMs). These ODMs are specialized companies that craft product designs from scratch, and together they distill and enhance new ideas, ensuring that only the finest designs are considered for actual production.
C. Manufacturing
Another crucial part of their process involves Free-On-Board (FOB) factories, responsible for manufacturing and shipping the goods. These factories are continually improving their production capabilities to meet Shein's demands.
D. Extremely rapid production
Shein's dedication to swift action and quick responses is truly remarkable. When a design is finalized, production starts immediately. Suppliers use Shein's advanced system to input the materials needed, taking advantage of pre-negotiated low prices and a wide selection of raw materials. Within days, they produce the first samples, make necessary adjustments, and then initiate the first production run, typically comprising 100 to 200 items.
These initial batches quickly make their way to the warehouse, ready for their debut on Shein's website. Shein's swift operations enable the introduction of around 2,000 new designs every day, ensuring their online marketplace stays fresh and up-to-date with the latest trends. Remarkably, the entire process from design conception to delivery is often completed in just 28 days. What happens if the product is popular? It can be produced repeatedly in larger quantities very quickly too, as long as it stays popular.
3. Private label apparel
Setting themselves apart from traditional marketplace platforms, Shein embraces the "private label apparel" approach. By leveraging a network of manufacturing partners and suppliers, Shein designs and produces its own products, thereby gaining complete control over their quality, style, and price. A large portion of the production occurs in Nansun, a region in Guangzhou, where Shein works closely with factories to transform their designs into tangible products. This approach allows Shein to ensure consistency in its offerings and benefit from vertical integration.
4. Minimizing waste, maximizing savings: lean manufacturing strategy
By minimizing waste and streamlining their operations, Shein keeps prices astonishingly low. Unlike their competitors with seasonal collections that often result in excess inventory, Shein's agile approach allows them to produce smaller, more targeted quantities. This lean manufacturing strategy enables them to pass on significant cost savings to their customers, making fashion accessible to a wider audience. This is ultra-fast fashion: although ir produces less waste, it generates enormous demand and is in no way more sustainable than Zara, H&M or other global competitors.
5. Quality assurance & saving return costs
The company's success, in part, stems from its focus on quality assurance. Designing and producing its own line of products gives Shein complete control over quality. They've adopted a quality control system and in instances of recurring product defects, Shein doesn’t hesitate to send project teams directly to factories to identify and rectify the issue. However, it's noteworthy that some products may still fall short of expectations. To mitigate this, Shein's return policy cleverly focuses on refunds, discounts, or coupons for future purchases instead of product returns, reducing costs significantly given the steep postage fees.
The result: generous funding & a strong market position
Through an innovative business model and a relentless pursuit of customer satisfaction, Shein has made remarkable strides. Notable achievements include becoming the most downloaded fashion app in the U.S. and obtaining $2 billion in funding in May 2023.
As of October 2022, Shein is the most valuable e-commerce and direct-to-customer unicorn in the world.
Moreover, it secured the biggest market share in the U.S., outpacing the combined forces of established giants like H&M and Zara.
As Shein capitalizes on its success, it continuously identifies growth opportunities. It's extending its reach to emerging markets like Brazil, forming strategic alliances with local manufacturers, and broadening its footprint in regions such as Poland and Turkey. The company is also diversifying its inventory, adding product lines that extend beyond apparel to include items like pet products, home decorations, and beauty care essentials.