How Shein makes Zara and H&M look pale
Manufacturers of fast fashion all have the same goal: to produce looks as cheaply as possible and get them to customers as quickly as possible. Chinese online retailer Shein has perfected this principle with a new supply chain strategy.
Shirts for 5 euros, jeans for 15 euros, winter jackets for 25 euros: With prices like these, the Chinese online textile retailer Shein is competing with fast fashion pioneers such as the Swedish H&M Group and the Spanish Zara parent company Inditex. The Chinese rival, which wants to go public, has become a real challenge for European fashion chains.
According to a study by the analysis company Coresight, the Chinese group now has a market share of almost a fifth in the business with affordable and always up-to-date fashion, putting it ahead of H&M and the Spanish Inditex with its brands Zara, Pull&Bear and Bershka. They are followed by Primark, Asos and Boohoo. According to Coresight, Shein had a global turnover of 23 billion dollars in 2022.
The three textile companies have one thing in common: they copy the looks from the catwalks and bring them to customers very quickly for little money, hence the term "fast fashion". They are often accused of stealing ideas. In a lawsuit filed in July, Shein was accused of infringing intellectual property by using artificial intelligence and a special algorithm to scour the internet for design ideas.
Fast, faster, fastest
However, according to analysts and investors, Shein's most important strategy is its network of mostly Chinese suppliers, who - contrary to the usual approach - first accept small initial orders, which are then increased depending on demand. "Shein's real strength is that they admit they don't know what you want to wear," says Rui Ma from the Tech Buzz China newsletter. "But they are confident that they can ramp up production very quickly."
This extremely flexible supply chain has enabled Shein to implement a completely different business model to other fast fashion providers such as Zara and H&M. They try to predict what will be particularly on-trend and align their production accordingly in advance. "Zara or H&M still anticipate fashion trends, order the product three to twelve months before it goes on sale and commit to fairly large order quantities," says Simon Irwin, former analyst at Credit Suisse.
A study from 2022 showed that Shein receives the ordered goods within five to seven days and can then send them directly to customers by air freight. However, delivery can also take up to two weeks, depending on the product and the customer's location.
Shein's direct distribution is another advantage over brick-and-mortar retailers, who sell the goods through their stores and have to keep them in stock, says Sheng Lu, a professor at the University of Delaware. Lu analyzed the so-called Stock Keeping Units (SKU), i.e. the products that are in stock, including all sizes and colors of an item. According to his data, Zara and H&M brought 40,000 and 23,000 new items onto the US market from November 2022 to November 2023. Shein launched 1.5 million products in the same period.
Another difference: while Shein has most of its sewing done in China, H&M and Inditex also have a lot of their production done in other countries. 98 percent of Inditex production in 2022 was manufactured in twelve countries, including Portugal, Morocco, Turkey and Spain. According to a spokesperson, H&M has the majority of its items sewn in Bangladesh and China. Shein declined to comment on its supplier network. However, recent import data shows that virtually all of the products Shein imported into the US came from China.
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Shein's strategy in the textile industry involves working with Chinese suppliers who accept small initial orders and adjust production according to demand, which sets them apart from fast fashion competitors like Zara and H&M. This agile supply chain allows Shein to quickly respond to trends and launch products, often outpacing rivals in terms of quantity and speed. For instance, Shein introduced 1.5 million new items to the US market in a year, compared to 40,000 and 23,000 for Zara and H&M, respectively.
Shein's online shopping platform, along with its fast and flexible supply chain, has disrupted the market, contributing to its significant market share. As a result, fast fashion giants such as Inditex (Zara's parent company) and H&M Group have had to reconsider their strategies to stay competitive in the ever-changing textile industry.
The global turnover of Shein in 2022 reached 23 billion dollars, highlighting its commercial success in the fast fashion industry, outperforming several major competitors such as H&M and Zara in terms of market share and sales volume.
Source: www.ntv.de
