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Who’s the King of Fast Fashion? 👚

Hi Everyone. This is Take Off. We're like a hidden Easter egg in your favorite video game - surprising and delightful.

Today, we’re diving into the whirlwind of Shein, the fashion powerhouse that’s taken the online shopping scene by storm.

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Who’s the King of Fast Fashion? 👚

GenZ is a bundle of contradictions. They passionately advocate for environmental sustainability while simultaneously indulging in fast-fashion. 

People do like to buy sustainably - but not quite as much as they like a good deal. 

One of the biggest beneficiaries of this -> SHEIN.

Shein (pronounced She In) is one of the fastest-growing e-commerce companies in the world and the largest fashion company in the world by revenue. 

If you haven’t heard of the Chinese online retailer (which you most probably have) - here are some fast facts:

  1. In 2023, Shein pulled in $32B in annual revenue.

  2. It made up 40% of all fast-fashion sales in the US.

  3. It ranks No.1 in the world for web traffic in the fashion and apparel category. 

The company has been redefining fast-fashion to make its clothing a staple in GenZ closet from Tokyo to Toledo. 

Bridging the Gap

Ever since the late 1970s, China has been cranking up its manufacturing machine and opening its economic doors to the world.

But its small and mid-sized factories struggled to get a foot in the door of the lucrative American and European markets.

Sure, American consumers bough Chinese manufactured products, but usually under the banners of big-name brands like Walmart and Costco. And guess where most of those profits went?

Yep, straight into the pockets of those brands, not the Chinese suppliers.

Selling on Amazon Marketplace was difficult for the small factories in mainland China because many knew little of fast-changing American consumer fashion tastes. Shein came to the rescue.

Shein’s strength comes from taking China’s advantages, and applying them to the global markets. 

Everyone knows how good China is at manufacturing. But do you know what else China is good, if not amazing at? It is its understanding of mobile commerce experience. 

In the US, many folks are still shopping from their browsers. But in China, ecommerce is heavily weighted towards native mobile apps.

Shein targets the mobile-savvy GenZ, whose habits are much closer to those of the average Chinese, both groups skipped the Web 1.0, Web 2.0 eras.

America’s Gen-Z was also the first to catch on to China's short video trend, picking up the TikTok habit long before millennials caught on.

Shein has effectively moved the shopping battleground to where China excels - native mobile E-commerce.

The numbers back it up: Shein has a much higher percentage of app traffic than any of its American competitors. 

Fashion Technology First 

When Shein is discussed, it is compared to fast-fashion brands like Zara, H&M and Fashion Nova but it’s … much faster. It is essentially defining its own category - Real Time Retail.

Shein is not a fashion company. It is more Silicon Valley than Fashion Avenue. 

The real-time retail model that Shein pioneered cuts the time from design to production from three weeks to as little as a week. It cuts out any of the remaining middlemen, and has built an advanced cross-border version of the C2M (customer-to-manufacturer) model. 

Shein’s platform is built to take advantage of the social media hype cycle. To do so, Shein uses a combination of software and a massive supplier network. 

Step 1: Find what’s trending

It starts with algorithmically scouring the internet and Shein’s own data to pull out fashion trends. It plugs into competitor’s websites and uses Google Trend Finder to understand what’s in-fashion.

It supplements it with its huge volume of first party data through its app around the globe to understand what clothes consumers want now better than anyone. 

Step 2: Test the waters

It feeds that data to its massive in-house design team to get a product into production in under a week. It utilizes its massive network of suppliers who grew loyal to them because the company actually pays them on time - a rarity in Chinese manufacturing.

This allows them to have more control and be more demanding. It means that it can start with incredibly small batches, around as small as 100 items, and then adjust up from there. This is in contrast to other fast-fashion brands like Zara’s orders which typically include a 2000 product minimum. 

Step 3: Wax or Wane Products

Once a product is live, Shein starts collecting user behavior on it such as (clicks, number added to shopping cart, sales made).

It then feeds that data to an algorithm that dynamically adjusts the production quota for the item (increase if product is performing well and vice versa) and updates this directly on the factory floor in real time. 

Shein has built a model that directly connects the factory floor to the consumer without the need for any human intervention. This is truly real-time retail happening.  And it does this with tens of thousands of SKUs EVERY DAY. 

It calls the system the large-scale automated test and reorder (LATR) model.

Source: Not Boring

The Tax Loophole

Okay, you now understand how using the C2M model, Shein is able to keep prices low. But what about import taxes? 

Not all Chinese imports get registered as imports. Specifically, if a shipment sent to individual buyers falls beneath a certain “de minimus” value, it neither gets inspected nor taxes by US customs. 

What’s the “de minimus” value, you ask? It is ***checks notes*** $800 - high enough to effectively cover all of the shipments from Shein. 

Can’t imagine someone ordering $800+ worth of stuff on Shein.

The Gap, a company that sources clothing from China and ships it in bulk, paid about $700M in import duties in 2023. Shein, by contrast, paid nothing.

A 2023 report found that 30% of packages under this tax exemption are from Shein and Temu. 

The Biggest IPO of 2024

The company is looking to go public this year - most likely on the London Stock Exchange. 

Their first preference was obviously the American stock exchange, but unlike American teens, US lawmakers were not feeling the #OOTD vibes. 

And it’s not just the US that has a problem with Shein. Their homeland - China also isn’t playing too easy. 

The US is scrutinizing Shein over its China ties and China doing the same over its US ties. 

With whispers of a $90B valuation, almost every exchange would want a piece of what could be the biggest global IPO for this year.

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