Lindsay Firko used to be a regular big-box customer, rarely making it out of her local
\n Target
\n without multiple shopping bags. But ever since the 28-year-old downloaded the app from online retailer Shein, her shopping sprees have changed.<\/p>\n
Rather than strolling the aisles of her local Pittsburgh retailers, Firko now spends hours scrolling Shein. Every few months, she piles her virtual cart with a bounty of items at spit-take prices: trendy pants, skirts, and tops at $3 or $6 apiece, household and beauty items like a $2 bath mat or a $5 soap dispenser, and the occasional just-couldn\u2019t-pass-it up treat like a curly wig for her Jack Russell mix, Bailey. With more than a million products to choose from, she says her virtual cart often tops $250, even with the single-digit price tags.<\/p>\n
\u201cWalmart, Target, stores like that\u2014I barely go into them now,\u201d says Firko.<\/p>\n
That\u2019s the kind of sentiment that should send shivers down the spines of U.S. retailers. Shein, pronounced \u201cshee-in,\u201d may be the most ambitious company you\u2019ve never heard of. Shein, which was founded in China and later moved its headquarters to Singapore, was the most downloaded shopping app in the world last year (it was No. 2 in the U.S. after
\n Amazon.com
\n \u2018s [ticker: AMZN] app, according to Apptopia). The retailer took off during the pandemic-era e-commerce boom, rising to global prominence on the back of Gen Z\u2019s taste for the $4 shirts and $6 dresses, which it\u2019s able to churn out with its norm-breaking supply-chain model. Along the way, it picked up backing from some of the biggest names in venture capital, including Tiger Global and Sequoia Capital China, and a valuation of roughly $66 billion, dwarfing fast-fashion and affordable-apparel companies such as
\n H&M
\n (HNNMY; $24 billion market cap) and
\n Gap
\n (GPS; $3.4 billion).<\/p>\n
But that appears to have been only Phase 1. There have been repeated reports of plans for a U.S. initial public offering, on which Shein declined to comment, and the company is putting down roots in the States, hiring U.S.-based employees and investing in distribution facilities. At the same time, it\u2019s taking its supply chain global, announcing plans to partner with hundreds of factories in Brazil, India, and Turkey. And Shein is growing its offerings, expanding beyond the cheap apparel that made its name into categories like home goods and beauty, and opening its platform to third-party sellers \u00e0 la Amazon with its \u201cShein Marketplace.\u201d<\/p>\n
\u201cCustomers are loyal to us because we give them the products they want and the price they love,\u201d says Donald Tang, Shein\u2019s executive vice chairman, in an interview with Barron\u2019s<\/em>. \u201cThe first group of customers were Gen Z girls. Now we\u2019re in men\u2019s products, pet products, shoes, bags, accessories, and beauty products. Customers get married, have pets, they buy houses\u2014we now have home goods, as well.\u201d<\/p>\n Despite that world-eating vision, few retailers are paying attention, experts say. Certainly, U.S. companies object to being grouped together with a start-up that has been the subject of allegations of everything from labor abuses and damaging environmental practices to mishandling customer data and copyright violations. And given the trade war brewing between the U.S. and China, some may be gambling that Shein\u2019s aspirations for the U.S. market will be quashed.\u00a0<\/p>\n Ignoring the company could be a costly mistake. Just ask the fast-fashion retailers: According to Bloomberg Second Measure, Shein accounted for roughly half of U.S. fast-fashion sales as of November 2022. Now, its expansion plans put it on a collision course with industry giants like Target (TGT), Amazon, and Walmart (WMT). Perhaps most threateningly, Shein\u2019s business model opens the door for more disruption from other entrants with ties to China that are attempting to emulate Shein\u2019s success, including Temu, an online marketplace that launched last September and has since racked up more than 50 million downloads on the Make no mistake, says TD Cowen analyst John Kernan of Shein. \u201cThis is a formidable competitor, and a very different model than what U.S. traditional retailers are used to.\u201d\u00a0<\/p>\n For a first-time shopper scrolling Shein, the initial shock is the prices: a pair of kiwi- and lemon-bedecked swim trunks for $6, a glittery one-shouldered women\u2019s jumpsuit for $10, a three-pack of children\u2019s shorts for $6.56. Then there\u2019s the sheer volume. Unlike other retailers, Shein breaks its \u201cnew arrivals\u201d section into individual days. On June 2, for instance, the retailer added 2,257 new women\u2019s styles\u2014a tally that doesn\u2019t include whatever men\u2019s, children\u2019s, and home items hit the site that day. Some estimates have put the influx of new designs at about 6,000 to 8,000 a day.<\/p>\n The company attributes its low prices and vast selection to what it refers to as its \u201con demand\u201d business model. While traditional apparel retailers forecast trends and order items\u00a0based on what they hope will sell, fast-fashion companies look at what designers and retailers are offering and try to jump on whichever trends are taking off. Shein follows the second model, but with a significant twist. The company says it relies on user activity on its app to determine in real time which products are attracting the most interest and uses that information to quickly iterate on and make more of the most popular designs.<\/p>\n \u201cThis is kind of the product of the digital age,\u201d says Sheng Lu, associate professor of fashion and retail studies at the University of Delaware. \u201cIt\u2019s a study on how to leverage digital tools and data science to\u2026create new products based on the market trends observed from interacting with consumers.\u201d<\/p>\n To produce a new design, most retailers need to place bulk orders in the tens of thousands per item to meet manufacturers\u2019 minimum requirements. That means, at best, the need to store and distribute that inventory, and, at worst, thousands of unsold pieces that eventually need to be marked down, eating into profits.<\/p>\n The Shein model miniaturizes that approach. The company partners with tens of thousands of small Chinese manufacturers, which allows it to produce thousands of styles in batches of just 100 to 200 items. If a design is popular, Shein can crank up production quickly, often in less than a week. If it bombs, the company is left with just a handful of stinkers. As a result, the company says it maintains low-single-digit inventory levels, well below the industry average.<\/p>\n \u201cWe are profitable,\u201d Tang says. \u201cThat\u2019s the power of the on-demand model. We have redesigned our supply chain to anchor our on-demand approach and eliminate overproduction. We are asset-light\u2014we have very little unsold inventory, and we lease warehouses.\u201d\u00a0<\/p>\n This approach keeps overhead low, he notes. \u201cWe do not own supply-chain factories. We do not own delivery vehicles or planes\u2026we do not own marketing platforms. We do not own anything at the last mile,\u201d says Tang. The company retails exclusively online and mails goods directly from its warehouses and partner factories in China to consumers in the U.S. and elsewhere. (It doesn\u2019t sell in China itself.) Shein links all of the pieces of its supply chain\u2014from designers to manufacturers to raw material suppliers\u2014with its operational software. <\/p>\n Replicating this type of infrastructure isn\u2019t easy, says Derek Yan, senior investment strategist at KraneShares, a China-focused investment manager.\u00a0\u201cThat speed and flexibility in the production is really phenomenal,\u201d he says. \u201cThat\u2019s the core advantage compared to Zara, H&M, and Forever 21.\u201d<\/p>\n Last year,\u00a0<\/strong>Shein had global revenue of about $23 billion, with earnings of $800 million and just shy of 30% of its business coming from the U.S., according to people familiar with the company. Its revenue was up about 50% year over year, estimates Coresight Research. That outpaced the sales of the larger fast-fashion pack: Zara parent Inditex saw year-over-year growth of 17.5% in 2022; H&M and But the potential impact of Shein\u2019s rise could be much broader. The company\u2019s appeal among middle-class teenagers and young adults threatens to pit it against midtier legacy apparel retailers, or what Neil Saunders, managing director and retail analyst at GlobalData, calls the \u201cmurky middle\u201d\u2014the Still, few in the industry seem to have registered Shein as a threat. \u201cWhen I ask, \u2018Are you worried about competition from Shein?\u2019 almost none of them are,\u201d says Lu, the University of Delaware professor. \u201cThey see themselves as very different from Shein.\u201d<\/p>\n Barron\u2019s<\/em> reached out to 11 brands identified by analysts as potential competitors to Shein. Three declined to comment, and six didn\u2019t respond. One retailer, which agreed to comment if we didn\u2019t use its name, said its business model was different from fast-fashion brands like Shein, from its bricks-and-mortar strategy to its price points, quality, and sustainability initiatives.<\/p>\n Different or not, consumer spending is finite, and every dollar spent at Shein is one less going to legacy retailers, says Brian Ehrig, a partner and retail analyst at Kearney. That\u2019s often overlooked, he says, because many competitors underestimate the purchasing power of Shein shoppers. The average Shein order value in the U.S. was about $70 this April, compared with $93 for Zara, $52 for Walmart, and $46 for Amazon, according to data aggregator Measurable.ai.<\/p>\n Another common misconception is that Shein caters solely to low-income consumers, Ehrig says. To place an order from Shein, you need a debit or credit card, something that less-affluent shoppers have historically struggled to access.<\/p>\n \u201cIf you were to walk into any deep-discount store, you\u2019re gonna see a lot of people paying cash,\u201d Ehrig says. \u201cShein is actually serving a little bit more\u2014I\u2019m not going to say affluent, but a customer who has access to credit, which is not the bottom 20% of the economy.\u201d<\/p>\n As Shein expands into home and beauty, it threatens to creep into territory claimed by big-box retailers such as Target and Walmart, as well as e-commerce companies such as Amazon. An Amazon spokesperson says that it considers Shein a partner, noting that the company sells some products on Amazon\u2019s marketplace. The spokesperson adds that Amazon\u2019s marketplace model sets the company apart from others.\u00a0<\/p>\n But that particular moat may not last. In April, Shein launched a third-party marketplace in Brazil, which it plans to roll out in the U.S. and other countries. The marketplace will allow Shein to add local sellers, reducing shipping times and letting it sell bulkier items.<\/p>\n For the past three years, there have been periodic reports that Shein is planning to go public in the U.S.; the latest was that the company is now raising funds for a U.S. listing in the second half of 2023. The capital injection of an IPO would help Shein continue to evolve its business and make it an even more formidable competitor to U.S. retailers, says Brendan Ahern, chief investment officer at KraneShares.\u00a0<\/p>\n Shein declined to comment on any IPO plans, but it\u2019s clear that it\u2019s moving to increase its U.S. presence. The company opened its first U.S. distribution center last year and plans to open two more by 2025 to speed up its shipping times, which can be as long as two weeks for standard shipping from China. The company is engaging with the American press in a way that it shied away from in previous years, and has ramped up its hiring in the U.S., including bringing Tang on in 2022. Before joining Shein, Tang helmed a media conglomerate and helped broker a series of high-profile deals, including Dalian Wanda\u2019s takeover of AMC Entertainment in 2012 and Bear Stearns\u2019 foray into the Chinese market back in the early 2000s. <\/p>\n \u201cThe U.S. is one of the most important markets and one of the biggest markets that we have, so we pay an extraordinary amount of attention to it,\u201d Tang says. <\/p>\n Despite those efforts, the path to becoming part of the U.S. retail fabric is far from clear. A drumbeat of investigations into the company\u2019s carbon footprint, alleged mistreatment of workers, and accusations of stealing others\u2019 designs have turned off some shoppers.<\/p>\n \u201cIf Shein doesn\u2019t reconcile these problems, I\u2019ll probably end up shopping more on Amazon and doing more discount hunting,\u201d says Breja\u00e9 Chamberlain, a 21-year-old hairstylist from Chicago.<\/p>\n Chamberlain used to place a Shein order at least once a month and was often paid by the company to review products on her TikTok account, but says she\u2019s now rethinking the partnership. Three other Shein shoppers who spoke with Barron\u2019s <\/em>say they were also considering buying less from the company\u2014though none have yet done so.<\/p>\n But the bigger threat for Shein may be brewing in Washington. As TikTok has illustrated, companies with Chinese ties\u2014especially those capable of gathering significant data about their users\u2014are in the middle of the growing tension between the U.S. and China. Shein is already drawing congressional ire: After an April hearing in which experts testified that some Shein garments contained cotton from China\u2019s Xinjiang Uyghur Autonomous Region, a group of legislators sent a letter to the Securities and Exchange Commission asking that any IPO be put on hold until it can be verified that the retailer isn\u2019t using forced labor by China\u2019s minority Uyghur population.\u00a0And just this week, a bipartisan group of lawmakers introduced two bills that would change the rule that allows companies like Shein to avoid paying duties when shipping packages valued at less than $800 dollars from China to the U.S.<\/p>\n Also driving the backlash against the company is Shut Down Shein, a lobbying group that says Shein is able to sell products at such a low cost only because it is employing unfair labor practices and skirting billions in dollars in tariffs.<\/p>\n \u201cTheir business model is anti-competitive.\u2026 Other international companies that want to do business with America are not doing those things, and they are following the law, so we are fighting for a level playing field,\u201d says Chapin Fay, executive director of the group. Shut Down Shein itself may be evidence that, behind the scenes, U.S. retailers are indeed concerned. Fay declined to disclose which organizations are funding the group, saying only that it\u2019s a coalition of American brands and human-rights organizations.\u00a0<\/p>\n Shein disputes the allegations and says that its low prices are a result of its streamlined inventory and supply-chain management. Tang says the company makes its manufacturers sign a code of conduct, implements yearly internal audits, and uses proprietary technology to trace the origin of the products\u2019 materials.<\/p>\n No matter how the battles in Washington play out, Shein has opened the door for disruptive international retailers to hurl themselves into the U.S. market. Take Temu, an online marketplace launched by In a brief for the April congressional hearing, U.S.-China Economic and Security Review Commission policy analyst Nicholas Kaufman reported that, since 2019, more than 10 Chinese retail start-ups have copied the Shein model, all with the intention of selling to Western markets. \u201cTheir rapid proliferation raises concerns that they will rely on controversial practices similar to those of Shein and Temu to undercut competitors and gain a foothold in the U.S.,\u201d he wrote.<\/p>\n \u201cChina is very Darwinistic\u2014only the strong survive,\u201d says Ahern, the KraneShares CIO. \u201cIf you\u2019ve survived it, you can survive a lot. You\u2019re at the top of the heap.\u201d<\/p>\n Shein has emerged as the first Chinese-born retailer to break big globally, but whether it can reach \u201ctop of the heap\u201d status on the world stage is still uncertain. What is clear though, is that the company has the potential to become an apex predator, and it\u2019s time for competitors to start watching their backs.\u00a0\u00a0\u00a0<\/p>\n Write to Sabrina Escobar at sabrina.escobar@barrons.com<\/p>\n<\/p><\/div>\n
\n Apple
\n and Android app stores.<\/p>\n
\n ASOS
\n (ASOMY) were up 12.4% and 0.7%, respectively.
\n Boohoo Group
\n (BHOOY) saw a decline of 10.8%.<\/p>\n
\n Kohl\u2019s
\n (KSS), Gaps, and
\n Macy\u2019s
\n (M) of the world. Shein held about 0.1% of the U.S. apparel market in 2017, according to GlobalData. By 2022, it was 1.6%. A small sliver, but \u201cexceptional growth,\u201d says Saunders.\u00a0<\/p>\n
\n PDD Holdings
\n in September. Like Shein, Temu sells a mind-boggling array of cheap products that are shipped directly from Chinese manufacturers. Temu has been the most downloaded app on Apple\u2019s app store for much of 2023\u2014and in May, it surpassed Shein in U.S. consumer spending, according to Bloomberg Second Measure.<\/p>\n