China’s most mysterious $100 billion company

  Chinese online retailer Shein is the TikTok equivalent of the $1.5 trillion apparel industry. China has two private companies with a valuation of at least $100 billion, one of which is Shein and the other is TikTok owner ByteDance. Like TikTok, Shein makes young people addicted. Yet it is so opaque that even the U.S. investment funds that invest in it — Tiger Global and General Atlantic Investment Group — refuse to disclose an ounce of information about it.
  In the U.S., Shein’s success has been extraordinary in the face of a nearly indestructible Amazon. It accounted for nearly a third of U.S. fast fashion sales in the first three months of 2022, surpassing the combined share of H&M (17%) and Zara (10%), according to consulting firm Earnest Research.
  Morgan Stanley predicted in October that Shein could become the world’s largest clothing retailer this year, with annual sales of $20 billion. Not bad for a company that was relatively unknown 10 years ago. It doesn’t publish financial figures, so profitability is a secret. But a recent report said it overtook personal branding platform Shopify and retail giant Walmart to close in on Amazon as the second most popular shopping app in the United States.
  What makes it stand out? It exposed the outside world to the speed and dynamism of Chinese e-commerce in three ways: supply chain integration, data-driven design, and a deep understanding of the social media hype cycle.

  Let’s start with the supply chain. Guangzhou-based Shein has found thousands of clothing suppliers. It pays on time, which builds trust and allows it to commission smaller orders at lower prices, increasing the frequency of new models. Shein launched 1.3 million new models in the U.S. last year, compared with 35,000 for Zara and 25,000 for H&M, according to calculations by Lu Sheng of the University of Delaware. Shein is usually 40% to 60% cheaper than the other two. The combination of super variety and super low price is the core of its business model.
  Second, Shein uses his own software to lead various suppliers, constantly updating them with information about what is hot and what is not based on algorithms. This allows them to continuously adjust production to match people’s latest preferences and avoid building up unnecessary inventory. It’s crucial that Shein scours social media sites for data around the world. Business blogger Paki McCormick wrote: “It’s a mirror that reflects the current fashion styles in various countries.”
  Third, Bo Sheng Xuan, a consulting firm specializing in the Chinese market, described Shein as “gamification.” Masters, another feature of Chinese e-commerce. Navigating through Sheinl’s app is like browsing a store, rather than scrolling down a page on Amazon. Random discounts give people a sense of excitement, and small influencers with small sponsorships promote discounted products.
  Despite Shein’s many advantages, it has also given rise to all kinds of problems—mainly a lack of transparency, and fast-fashion companies are now under intense pressure to open up information, especially about their supply chains in China. Rumors of an IPO come and go. As long as Shein remains a private company, its commitment to sustainable development, factory working conditions and raw material sourcing has remained relatively unknown.
  As for the future, to a large extent it depends on how stable the financial model of Shein is to grow first and then make profits. Its skyrocketing growth sends a message that, even in Amazon-dominated countries, the barriers to entry aren’t too high to jump, if you get the technology right.