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Shein is investing in logistics infrastructure and looking for new sources of revenue as its core fast fashion business matures ahead of a planned IPO in London.
The China-based start-up, popular with Gen Z and valued at more than $60 billion in its latest fundraising round, has diversified away from fast fashion and sought to build warehouse capacity to reduce delivery times.
Shein’s ability to convince investors that it can continue to grow beyond its fast-fashion market will determine its valuation as it prepares to go public. Analysts said the company needs to adapt its business model of shipping clothes directly from factories in China to take on Chinese rivals Tema and Amazon.
“Shein can’t risk being just another brand in the crowded digital consumer sector, but needs to keep improving its relevance,” said Singapore-based business strategist Martin Roll. “The current global market and IPO conditions are very challenging, so the company must be able to deliver stable projected sales and profit.”
Shein, which exploded onto the fashion scene during the early years of the pandemic, waited until November to formally launch plans for a U.S. listing due to regulatory issues in China and an anemic global IPO market.
In recent months, the company has moved to list in the UK amid tensions between Beijing and Washington. It remains unclear whether Shein will get Beijing’s approval to list in London.
The company has achieved a record profit of more than 2 billion dollars in 2023. By comparison, rival H&M and Zara owner Inditex reported net profits of SKr 8.7 billion ($829 million) and 5.4 billion euros in the last fiscal years. It expects growth to slow as it becomes an established player in the fast fashion market, according to a company presentation from last year.
Shein was trying to turn customers into loyal shoppers to meet sales goals, the presentation said. It has set a goal of having more returning customers than new customers by 2024.
Just over 25 percent of Gen Z consumers in the U.S. and U.K. said they used the Shein app in the past month, according to a study conducted by research group GWI during the first quarter of this year. That’s down from last year’s highs of 28 percent in the UK and 27 percent in the US.
Customer use of the app appears to have stagnated globally, with just over 12 percent of respondents saying they used Shein in the past month, the same amount as in the previous two quarters, GWI said.
Shein is working to improve its return logistics and shorten delivery times. It typically takes seven to 10 days to deliver packages from China to US shoppers, while competing e-commerce platforms can often offer same-day or next-day delivery.
In the US, it launched a boxless returns service at Forever 21 stores last month. Shein has an equity stake in Forever 21’s parent company.
In 2022, the group said it is building a 1.8 million-square-foot distribution center in Southern California to stock its best-selling products closer to shoppers. Since then, Shein has scaled back its strategy of building warehouses to store inventory, according to two people with knowledge of the company’s warehouse plans. A person close to the company said Shein found it “much harder” to build warehouses in the US than expected.
“Shein’s mistake was that they thought they needed to copy Amazon in order to build or buy their own warehouses,” said US supply chain consultant Brittain Ladd, who previously worked at Amazon and Dell. “It can work with any number of warehouse providers for this service.”
Shein is expanding from selling clothing and accessories to furniture, electronics and pet care. It has done this in part by imitating Temu, and last year launched a marketplace that allows third-party sellers to sell products alongside Shein-branded items.
Hu Jianlong, founder of consultancy Shenzhen Brands Factory, said the move was logical. “Just selling Shein products means there’s a limit to how much you can make. Much of Shein’s success stems from its massive traffic, so why not turn that traffic into even more sales by offering third-party products?’
A year after its launch, Shein’s branded merchandise still accounts for nearly 90 percent of sales, with the marketplace accounting for about 10 percent. Shein X sales, which feature products from independent designers, account for less than 1 percent, according to a person close to Shein.
Roll said the market strategy carries risks. “Shein’s move into the market risks confusing customers about what the brand really is,” he said.
“Shein was trying to get merchants to sign up on the marketplace. There is often a conflict between traffic allocation between own products and third-party products,” said Robin Zhu, China Internet analyst at Bernstein, adding that Temu is dominant in this space. “There are signs that Temu has had a significant impact on Shein’s growth in the first half of this year.”
Ladd said the company will eventually have to acquire more warehouse space in key markets because the cost of flying goods from China is too high.
“Shein has no choice but to start using US warehouse space, especially as it moves into heavier and bulkier products like furniture,” he said. “Logistics costs are too high.