Economic Observer reporter Chen Yueqin Unlike many companies that regard going overseas as another growth path to seek outside the local market, SHEIN is a company that has been aiming to cross the ocean and dig for gold from the beginning of its establishment.
The cross-border e-commerce company, which has only been established for 12 years, sells clothing, shoes and hats, home furnishings and other goods labeled "Made in China" to consumers in more than 150 countries and regions around the world. However, when its tentacles go to sea extend to more and broader markets, it will feel more wind and waves.
Regulatory developments related to cross-border e-commerce or fast fashion enterprises have been reported repeatedly.
On April 26, the European Commission officially recognized SHEIN as a "very large online platform" under the EU Digital Services Act, and SHEIN must comply with the relevant rules of the Act, such as the obligation to take specific measures to strengthen user protection.
On March 14, the French National Assembly passed a fast fashion bill, which plans to impose an additional 5 euro ecological footprint surcharge on each fast fashion product from 2025, ban the advertising of fast fashion companies and products, etc.
SHEIN was specifically named by the proposal: "On average, SHEIN, a Chinese ready-to-wear company, launches more than 7,200 new styles of clothes every day, providing consumers with more than 470,000 different products, which is 900 times that of traditional French brands." "The textile industry in France has been hit hard by fast fashion companies like SHEIN. ”
The focus of these complaints is precisely the unique advantage of SHEIN's fortune - a flexible supply chain model of small orders and quick reaction, on-demand production, that is, using actual market demand to predict sales, guide production and adjust design. The supply chain side produces small batch orders, each SKU (minimum stock keeping unit) is generally ordered at a minimum of 100 to 200 pieces, and after the store is put on the shelves for "testing", the follow-up production is arranged according to market feedback.
The small single fast reflex mode closely follows the three elements of fast fashion: speed, category, and price. When the product update speed is faster and the category is more, the scale of the brand will be larger, and on this basis, the greater the product premium ability (brand power, quality power), the thicker the benefit of the enterprise.
Brands such as ZARA and H&M use all kinds of fashion elements to capture the current social psychology to the greatest extent, and make these fashion elements become popular products in this period, which are cheaper, faster and more stylish. It's just that SHEIN has taken the above three elements to the extreme.
Compared with production, SHEIN is better at discovering consumer needs and reaching consumers. For example, its design process is completely industrialized and modular: through real-time access to global fashion elements and market demand dynamics to design new products, quickly create thousands of different clothing styles, so as to achieve the target of tens of thousands of SKUs per year. Through subtle changes, SHEIN caters to and meets the needs of people from different countries and regions, different skin tones, different body shapes and preferences.
According to this, the SHEIN model has three main layers:
First, the front-end is based on big data analysis and large-scale buyer groups to quickly carry out new product launches and batch tests;
Second, with the help of a flexible supply chain at the back-end, small orders are quickly reversed production, and large-scale orders are returned to best-selling products according to real-time feedback from the website and APP, and style modification and re-testing of unpopular products are carried out. Everything is based on the yardstick of "consumers pay", constantly exploring explosive products under high-speed iteration, and discarding single products, elements and categories that are not paid for by the market in a timely manner;
The third is that SHEIN obtains traffic with the help of network-wide streaming media marketing, such as multi-channel advertising, Internet celebrity KOL (opinion leader) promotion and affiliate marketing, etc., and finely operates and precipitates private domains, which has long been verified in the European and American markets, and was later copied by SHEIN to Latin America, the Middle East and other markets.
SHEIN is seeking growth through two paths: externally, to open up more emerging country markets to seize market share, and internally, it is divided into three steps, from a single category to multiple categories, from self-operated to "independent brand + platform" dual engine, from cross-border to localization.
First of all, starting from its own clothing brand, SHEIN's existing product categories have extended to clothing, beauty, jewelry, bags, footwear, electronics, household goods, toys, etc.
Secondly, from self-operated to "independent brand + platform" dual engine, it is a huge change made by SHEIN to the business model in 2023, and it will begin to follow the dual-engine development model of "self-operated brand + platform". In May 2023, SHEIN announced the global launch of the platform model SHEINMarketplace, which allows third-party sellers to settle in as POP (autonomous operation) or agency operation.
Under the full custody wave of Temu and TikTokShop accelerating the development of overseas markets with platform advantages and setting off a wave of full custody of the supply chain of "all people going to sea", SHEIN has also launched a generation operation model: SHEIN will provide a full range of hosting services from product research and development, marketing, logistics and distribution, and after-sales service, which is more suitable for small and medium-sized sellers who have no experience in going overseas and platform.
According to the Economic Observer, in the year since the launch of the platform model, the GMV (total merchandise transaction) contributed by SHEIN's self-operated brands and platform merchants accounted for about 7:3, but with the construction of the platform, the ratio is being dynamically updated.
On the other hand, the platform model will introduce more brands to enrich the platform ecology, broaden SHEIN's growth ceiling, and drive more Chinese clothing, home furnishing and other manufacturing industries to go overseas.
Finally, from cross-border to localization. Behind the wave of economic and trade globalization, localization is an unavoidable path for overseas enterprises to deepen the market, and SHEIN is well aware of this truth.
The Middle East and Latin America are the main battlefields for cross-border e-commerce companies except North America and Europe. Especially in the Middle East, the population base is close to 500 million, the unit price of the six Gulf countries is much higher than that of Europe and the United States, and it also has a relatively mature e-commerce development environment - a large young population, wealthy, and an Internet penetration rate of up to 98%, and due to excessive dependence on oil exports, many countries in the Middle East have a weak industrial base, which attracts many overseas companies to target the "rich mine" of the Middle East.
However, there are two insurmountable mountains in the Middle East market - inefficient logistics and distribution and high cash on delivery sign-off rates, which make many e-commerce companies have to "fold" this golden desert.
SHEIN, which first entered the Middle East in 2014, has invested a lot of time and money in localization, building "infrastructure", and cultivating the market, nearly 10 years earlier than TikTok, Temu and AliExpress, which will only enter through the full custody model in 2023.
Familiarity with religious beliefs is a must for enterprises to go overseas. A cross-border e-commerce merchant summed up the differences in the Middle East as follows: on the one hand, compared with East Asia, Middle Eastern consumers like clothes with a strong sense of design and colorfulness, and on the other hand, they also have a great demand for traditional conservative and religious clothing, especially women, which is very different from the trendy and unrestrained style of Europe and the United States.
To this end, SHEIN has set up a Middle East design team to combine the current popular elements with the Middle East women's clothing style, behind which is the production and marketing idea of customer-oriented products.
In the Middle East, doing a good job of accurate customer positioning in the early stage can make e-commerce companies lose a lot of money, which is also what people love and hate in this market: the address library in the Middle East is not perfect, the regional division is vague, and Middle Eastern consumers lack the habit of filling in the address accurately. In addition, online payment in the Middle East is not well developed, and there is a lack of a unified online payment platform.
Therefore, the Middle East cross-border e-commerce with cash on delivery (CashOnDelivery) as the most important payment method, the core of the profitability of the business model is to control the signing rate, once the package is rejected, the order amount is basically lost, and many global cross-border e-commerce have withdrawn from the Middle East market due to the problem of signing rate.
But SHEIN has carved out a niche in the Middle East.
Relying on the marketing strategy of social media and "public domain + private domain" with high penetration rate, SHEIN has entered the lives of Middle Eastern women who rarely go out, and has also achieved the ultimate in fast fashion and cost performance, with the price of a dress as low as a few dollars, and "rolling" the Middle East consumer market in terms of price, fashion, customer service, logistics and distribution performance, etc., creating a record of 85% signing rate for women's clothing in the Middle East.
In the past two years, SHEIN is expanding its global supply chain layout and further localization. For example, acquiring established local fast fashion brands, establishing warehouses overseas, and partnering with local factories to achieve local production and operations can not only reduce distribution costs, speed up delivery times, but also better enter emerging markets with complex tax compliance and high logistics costs.
The aforementioned French fast fashion bill states that "the shift to fast fashion in the apparel industry, combined with increased production and low price policies, has influenced consumer buying habits, creating impulses to buy and constantly updated demand, which has an impact on the environmental, social and economic levels." "Seeing the rapid development of the fast fashion industry, the bill is more concerned about its impact on the environment, as well as the impact on the development of the traditional French clothing industry and the employment of the textile industry.
At the end of March, SHEIN responded by announcing plans to open up its supply chain infrastructure and technology to global brands and designers, allowing external users to leverage SHEIN's system to test new fashion products in small batches and track the popularity of these products among consumers. Tang Wei, executive chairman of SHEIN, called the new initiative "supply chain-as-a-service".
In a sense, SHEIN's supply chain infrastructure, technology "open source" and platform strategy are all aimed at better integrating into the local market and laying a good foundation for driving more sellers and industries to go overseas.
Peers hunted and shared the market share, facing accusations from local small and medium-sized enterprises, "difficult customs clearance, difficult logistics, high tariffs" layered on top of each other...... The sea is not calm, however, SHEIN itself is a company that is good at dealing with change.