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Shein has invested in its logistics infrastructure and is looking for new revenue streams as its core fast fashion business matures ahead of a planned London stock exchange listing.
The Chinese-founded startup popular with Gen Z and valued at more than $60 billion in its latest fundraising round is diversifying away from fast fashion and trying to build warehouse capacity to shorten delivery times.
Shein’s ability to convince investors it can continue to grow outside the fast fashion market will determine its valuation as the company prepares for an initial public offering. Analysts have said the company will need to adapt its business model of shipping clothes directly from factories in China to take on Chinese rivals Temu and Amazon.
“Shein cannot risk being just another brand in a crowded digital consumer sector, but must continue to refine its relevance,” said Singapore-based business strategist Martin Roll. “Current global market and IPO conditions are very challenging, so the company must be able to deliver stable expected revenues and profits.”
Shein, which rose to prominence in the fashion world during the early years of the pandemic, waited until November to formally initiate plans for a U.S. listing due to regulatory concerns in China and a bloodless global IPO market.
In recent months, the company has switched to a stock exchange listing in Great Britain, due to tensions between Beijing and Washington. It remains unclear whether Shein will receive Beijing’s approval to list in London.
The company achieved a record profit of more than $2 billion in 2023. By comparison, rivals H&M and Zara owner Inditex reported net profits of SKr8.7 billion ($829 million) and EUR5.4 billion respectively in their most recent financial years. It expects growth to slow as it becomes an established player in the fast fashion market, according to a company presentation last year.
Shein has sought to turn customers into loyal shoppers to achieve revenue goals, the presentation said. The goal was to have more returning customers than new customers by 2024.
Just over 25 percent of Generation Z consumers in the US and Britain reported using the Shein app in the past month, according to a survey conducted by research group GWI in the first quarter of this year. That’s down from peaks of 28 percent and 27 percent in Britain and the US respectively last year.
Customer usage of the app appears to have leveled off globally, with just over 12 percent of respondents saying they used Shein in the past month, the same number as in the previous two quarters, according to GWI.
Shein has tried to improve reverse logistics and shorten delivery times. Packages from China typically take seven to 10 days to be delivered to U.S. buyers, while competing e-commerce platforms can often offer same-day or next-day delivery.
In the US, it launched a service last month to enable box-free returns at Forever 21 stores. Shein has an equity stake in Forever 21’s parent company.
In 2022, the group said it was building a 1.8 million-square-foot distribution center in Southern California to store its best-selling products closer to shoppers. It has since scaled back its strategy of building warehouses to store inventory, according to two people with knowledge of Shein’s warehouse plans. A person close to the company said Shein had found it “much more difficult” to build warehouses in the US than expected.
“Shein’s mistake was thinking they had to copy Amazon to build or buy their own warehouses,” said US supply chain consultant Brittain Ladd, who previously worked at Amazon and Dell. “It can partner with any number of warehouse providers for that service.”
Shein goes beyond selling clothing and accessories, but also focuses on furniture, electronics and pet care. It has done this in part by emulating Temu and last year launching a marketplace where third-party suppliers could sell products alongside Shein-branded goods.
Hu Jianlong, founder of Shenzhen consultancy Brands Factory, said the move made sense. “Just selling Shein products means there is a limit to how much you can make. Shein’s great success comes from its massive traffic, so why not turn that traffic into even more sales by offering third-party products?
A year after launching on the market, Shein’s branded merchandise still accounts for almost 90 percent of sales, while the market accounts for about 10 percent. According to the person close to Shein, sales of Shein
Roll said the market strategy came with risks. “Shein’s move into the market risks confusing shoppers about what the brand really is,” he said.
“Shein is having a hard time getting sellers to sign up for the marketplace. There is often a conflict between allocating traffic to first-party products and third-party products,” said Robin Zhu, Chinese Internet analyst at Bernstein, adding that Temu was dominant in this area. “There are signs that Temu has had a meaningful impact on Shein’s growth in the first half of this year.”
Ladd said the company would eventually need to acquire more warehouse space in core markets as the cost of flying goods from China becomes too high.
“Shein has no choice but to use warehouse facilities in the US, especially as it deals with heavier and bulkier products such as furniture,” he said. “The logistics costs are too high.”