H&M’s chief executive quit unexpectedly this week after announcing a year-on-year decline in sales over Christmas. The company is in a squeeze: its main competitor, Intidex, owner of Zara, fared well last year with white-collar shoppers, while the growth of Shein, the ultrafast Chinese fashion retailer, is undercutting H&M on price.
So what? Shein’s rise isn’t just a headache for the high street. Its breakneck business model spells disruption for regulators, investors and consumers worried to varying degrees about the price, provenance and planetary impact of their clothes.
Extremely fast fashion. Initially founded in 2008 as a website for wedding gowns, Shein’s strength – as with many businesses born in China – is its supply chain:
- A network of 6,000 small factories uses internal management software to see in real-time what’s selling online.
- Initial orders come in small batches of about 80 units before being scaled, which helps to cut cost and waste.
- “Fashion and e-commerce companies can never grow if you have to bind capital in stock,” says a source with knowledge of the industry in Asia. “This new generation has a critical component: produce as little as possible, as fast as possible.”
How fast? Thousands of new product lines a day.
Shein-y… Shein’s low-profile CEO, Sky Xu, will soon have to be ready for his close-up. The company’s sales grew by a factor of ten between 2020 and 2022, when it became the world’s third most valuable startup. It’s targeting a $90 billion valuation for a proposed public offering in the US later this year, backed by the Abu Dhabi sovereign wealth fund and Sequoia China.
In the UK, Shein (pronounced She-in) is beginning to rival Zara in market share. According to Megha Kumar, deputy director at Oxford Analytica, what’s surprising about Shein and Temu (another Chinese retailer akin to Amazon) is their popularity among consumers over 35, a cohort that increasingly prioritises cost: “There’s been a lot of pressure on the fast fashion industry to slow down, but what we’ve seen post-pandemic is a growing number of consumers moving to ultra-fast.”
…or dirty? In weighing its access to western markets, policymakers express concerns about Shein’s record on
- Human rights. A 2022 Bloomberg report found that Shein garments contained cotton from China’s Xinjiang region. In response to its confidential filing for an IPO, a group of bipartisan politicians in the US have launched a campaign for it to disclose employment practices they allege include forced labour. “We must take action to hold Shein accountable,” Democrat Representative Jennifer Wexton told Tortoise. “Americans’ money must not help prop up the brutal oppression of Uyghurs.”
- IP protection. Shein has been recently sued by both Uniqlo and H&M for alleged copyright infringement related to clothing products. Is it a feature, or a bug? “They’re launching 10,000 new items a day,” says Kumar. “No one has enough designers for that – they must be copying someone.”
- Sustainability. In 2022, Shein’s production volume increased by half and its direct emissions from fossil fuels increased by more than 3,000 per cent. In total, it emitted 9.5 million tonnes of CO2 – roughly the same as 1.8 million US homes.
Shein says AI will help shrink its carbon footprint. As digital rendering technology improves, it should be able to virtually showcase new products before they’ve even hit the factory line, minimising waste. The company said it’s committed to “sustainable and responsible growth”, has a zero tolerance policy on forced labour and “respects the intellectual property rights of others and takes all claims of infringement seriously”.
But going public will require Shein to hang out its dirty washing. So far the SEC hasn’t responded to the company’s IPO request – a rare silence which lawyers say might have something to do with recent accusations the commission veers too readily into politics.
What’s more… Although headquartered in Singapore, Shein is also facing a security review from China’s powerful internet regulator over how it handles information about its employees. Xu and co-founder Molly Miao will be acutely aware of the fate of Didi Global, the ride sharing platform forced to delist in the US in 2021 following the intervention of Chinese authorities.
So Shein is in a squeeze of its own. Between Beijing, which wants market access, and Washington, which sees a threat to its e-commerce dominance, it’s going to find it tough to thread the needle.
