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.