Fashion has had to constantly evolve. But the industry radically changed in the 1990s when brands like Zara, H&M and Topshop led
the way with what we now know as fast fashion. They mastered the process of taking
expensive clothes that were on the catwalk and mass producing them in
as little as three weeks. Fashion had never been this cheap
and accessible before. Then, at the turn of the century
online-only giants like Asos and Boohoo took this model to the next level, shortening
production time to as little as a week. Industry experts call these online-only brands,
ultra fast fashion. And now we're in a new era: Real-time retail. Companies disrupting the status quo
produce clothes in as little as three days. And this era's leader?
Well, it's a Chinese company called Shein. Shein launches around three to four thousand
new female apparel products every day so it is a very huge amount and the product is at pretty low
price ranging from two dollars USD to $30. It is very fast and the products are updated much more frequently and at a higher
volume than any other fast fashion brand. In April 2022, it was reported that fashion
the startup was worth $100 billion, which would make it more valuable
than H&M and Zara combined. Guys I placed a $500 Shein order
and it came in the mail. Y'all! The Shein package that
I was waiting for arrived, so let's open it. So let's dig, how did Shein beat
these fast fashion outlets at their own game? Shein is a very secretive company and
shares little publicly about its origins and, as I learned through my reporting, it was pretty much
impossible to connect with a spokesperson for the company. We did find two consultants who had studied the
company closely for years. Here's what we learned. The CEO and founder has only been seen a couple times and yeah he really
it really keeps an air of mystery. This mysterious CEO is Chris Xu, a former digital marketer experienced
in search engine optimization or SEO. Even though Shein states it was founded in 2012, several sources say its origin story
actually began in 2008 in Eastern China. That's when Xu and his
business partners founded Dianwei, an e-commerce business that reportedly sold everything
from knockoff goods to wedding dresses. It was here that Xu seemingly refined the business model
that would eventually launch Shein to success. In 2011, Xu and his partners parted ways, and the domain that would
become Shein was registered. Investment began to pour in and so did sales. At the same time, the world was being
transformed by a five-ounce device: the iPhone. Apple's rivals are rushing their own versions
of this kind of product out into the stores. And China's growing middle class played a huge role
in the smartphone revolution that followed. All of a sudden everybody is getting smartphones
and so the majority of Chinese kind of skipped the computer phase and the introduction to the
digital world was really through the smartphone. Between 2009 and 2012 the number
of smartphones shipped to China grew from 13 million to nearly 200 million, a more than 1400% rise. China overtook the U.S. to become
the world's largest smartphone market. This phenomenon fueled the rise of
e-commerce platforms in the country such as Alibaba, JD.com and of course Shein. But unlike most of china's e-commerce giants
Shein wasn't interested in Chinese customers. Shein's focus is entirely on the outside world. However, a lot of the marketing tactics that
Shein uses are inspired by and very similar to to Chinese fashion brands that are operating in
the country and also Chinese e-commerce sites that are operating in the country. And so, if Shein were to target just the Chinese audience,
it is actually a much more saturated market and wouldn't be able to compete in terms of speed
and price like how it does compete in the West. Shein's Chinese roots gave it another advantage too:
a rich understanding of data and how to use it. As a mobile-first country with lax privacy laws
and the largest population in the world, collecting user information was easy. This created the perfect foundation
for developing rigorous algorithms. By 2015, Sheinside had rebranded to Shein. It had collected an enormous amount of data
through its shopping app and had developed a system to score websites
like Etsy, Instagram and Google for fashion trends. At this stage I think Shein definitely has
the first-move advantage by its big data analytics system, which enables pretty early identification
of some trends emerging from online so I think that's one of the critical key success factors of Shein
and also will keep it ahead of the competition. In the same year, Shein shifted its supply chain operations center
to the Panyu district in Guangzhou, a major clothing manufacturing hub. Their office in Guangzhou is in close proximity to their factories
and so it really sped up the communication. Over time the company's reputation for
making timely payments to suppliers, a rarity in the industry, meant factories that would
normally accept orders of a minimum quantity were eager to take on Shein's orders. And avoiding these minimum
orders helped Shein develop another competitive advantage: the lean model. We call it small order, quick response. So basically that means Shein places orders in
a smaller batch and then it is able to quickly adjust it based on the market performance. The suppliers will just produce 100-500 items as the first batch
which will take around only three to five days to produce. Where, if we compare that with
the traditional fast fashion players like Zara, usually it will produce over 100, 000 items so, by placing small orders,
Shein could react pretty rapidly based on the sales performance. These products are then shipped
directly to consumers from China. This cuts out middlemen and
expensive import tariffs. Competitors making larger
bulk shipments to stores aren't so lucky. While the pandemic was devastating for most of
the clothing industry, it was good for Shein. Its sales generated an estimated
9.8 billion dollars in 2020, and 15.7 billion dollars in 2021 and Shein
was shipping to most countries in the world. In 2021, it overtook Amazon to become the
most downloaded shopping app in the U.S., and these users were spending
a lot of time on the app. But it hasn't been all smooth sailing. Even though Covid restrictions
were being eased abroad, they only intensified at home
and Shein's growth began to slow. And then there are the controversies. One of the downsides of using data is that it can sometimes see that: "Oh, a particular blouse
is wildly popular on an e-commerce platform, what if they just recreate the blouse in a cheaper way?" Several smaller designers
have taken to social media alleging that Shein had stolen their designs. This top is a knock off of my silk lace cami to the tee.
It's exactly the same and they're selling it for $10. This is the original design. But it is hard for like boutique clothing designers when their
designs are copied and somebody can just get it from Shein. That wreaks havoc on the industry because
what it does is it allows the large companies to just really rake in all the profits that could have been
going to small and local boutiques and designers. And it's not just the independent designers. Shein has been sued by Doc Martens
and Levi Strauss for copying their products and selling them at a fraction of the price. It has been reported that Shein removed from
sale some of the allegedly offending designs and it has been reported that they have
paid certain designers a settlement in relation to copyright infringement claims. Shein did not immediately respond to
CNBC for comment but it did release a statement to the Financial Times in 2021, saying the company takes
copyright infringement seriously. Shein's ability to produce clothes at a rapid
pace has also raised questions from watchdogs like Switzerland's Public Eye about the
working conditions of its production lines. Its manufacturing process
remains shrouded in mystery. Shein told the BBC it has a strict
supplier code of conduct and that it takes immediate action if
non-compliance is identified. It has a lot of lack of transparency
and so this is potentially problematic for Shein because if it wants
to gather investments then it really has to come clear
and people really need to have peace of mind about what is
happening at the company.
