In September 2023, Shein’s UK business posted £1.1bn in sales and a pre-tax profit of £12.2m in the 16 months to December 31, 2022, according to a Companies House filing. Here are the key things you need to know about this ecommerce powerhouse and how it is making waves in the fashion industry

Shein banner

The biggest brand some may never have heard of, Shein is a Chinese fast-fashion retailer of womenswear, menswear, shoes and accessories with a young customer base. 

It was founded by Chris Xu under the name ZZKKO in 2008 and sold only wedding dresses. When it expanded into womenswear in 2012, it relaunched as Sheinside before expanding its product offering and rebranding to Shein in 2015.

As an online pureplay, Shein’s sales proliferated during the pandemic. In April 2022, according to The Wall Street Journal, a funding round valued the company at $100bn (£83bn), making it bigger than H&M and Zara combined. 

And it continues to grow, with Retail Week’s exclusive report revealing significant growth in the UK during Black Friday 2022, compared with the same period in 2021.

 

The report shows Shein and Primark as the only two fashion retailers with positive website traffic growth in 2022. Shein’s popularity climbed four places from sixth to second most popular fashion website for Black Friday 2022, just behind the UK’s largest fashion etailer Asos.

In September 2023, Shein’s UK arm, Shein Distribution UK Limited, reported £1.1bn in sales and a pre-tax profit of £12.2m for the 16 months ending on December 31, 2022.

It’s worth noting that this British company was only incorporated on September 6, 2021, and this is its first Companies House filing. 

The UK arm currently employs 14 people: one in administration and operations, and 13 in sales and marketing.

Earlier in the same month, Shein was also reported to be in talks to buy Missguided from Frasers Group, less than 18 months after Mike Ashley’s retail empire bought it out of administration.

The potential deal would be Shein’s first acquisition of a British brand.

There’s plenty to note about this etail behemoth, including how it ships to more than 150 countries but does not sell on its home turf in China. Here’s what you need to know: 

 

1. AI algorithms and ‘test and reorder’ strategy

Before building the brand, Xu was an SEO (search engine optimisation) expert and this expertise is built into Shein’s strategy. 

The brand uses algorithms to analyse the data scraped from web searches and social media mentions. This allows it to identify the latest fashion trends, predicting the most popular colours, fabrics and styles.

The data is then shared with its in-house design team to create new sketches.

It operates a consumer-to-manufacturer business model with a ‘test and reorder’ strategy. Most of the new designs are manufactured and sold initially in very small batches of between 100 to 200 pieces, in order to test the market.

By comparison, its competitor Zara usually places orders in larger quantities of around 500 pieces. 

 

On average, production takes as little as five to seven days and the whole process, from sketch to sale, takes less than two weeks to complete.

For each SKU, real-time sales are tracked and larger orders are placed promptly if specific designs prove popular. Unsold styles are discontinued and discounted to clear. 

This ‘test and reorder’ strategy allows the fashion etailer to offer a vast range of on-trend styles without creating excessive inventory waste and results in 5,000 new items launching on its site every day.

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Shein ships to more than 150 countries but does not sell in its home country of China

2. Diversified supplier relationship management model

Shein works with its suppliers via a tailored communication platform, which enables them to view real-time sales and inventory levels, as well as get insights on click rates for each listing, shopping basket add quantity, product reviews and item popularity by region and country.

New orders and reorders are sent via the system, so once an order is received suppliers can review it at the SKU level, including style, colour and quantity.

After accepting the order, suppliers are required to log their progress on the system, keeping both parties updated on the production process.

“These digital tools allow factories to see real-time updates and accurately calculate production based on the utilisation of each factory’s capacity,” says Leonard Lin, the global head of government and public relations at Shein.

Retail Week’s analysts summarise Shein’s supplier co-operation in various modes below:

 

Based on each vendor’s factory scale, production capability and speed, Shein works with the suppliers in different modes: ODM, OEM and OBM are the most common patterns, while VMI is for non-garment products such as shoes, leather goods, jewellery, beauty, etc. 

The retailer ships to 150 countries worldwide, but suppliers are only responsible for mainland shipping within China. That is, from their factories to Shein’s main warehouse located in Foshan, Guangdong. Shein then covers the product listing, marketing and international logistics.

Shein’s operations may be extremely efficient, but they have been heavily criticised. In October 2022, an investigation by Channel 4 found evidence that people in Shein’s supply chain were working 18-hour days for as little as 3p an hour.

In December 2022, Shein said it plans to spend $15m (£12.2m) over the next three to four years to support supplier factories.

3. Winning on social media

Social media is a major contributor to Shein’s success.

It understands its customers very well and knows exactly where to engage them. The etailer has generously invested in online marketing, with YouTube and Facebook its main hotspots for targeted ads. 

Despite its fair share of bad press, it has an enviable fanbase on social with more than 30 million followers on Facebook and 30.3 million on Instagram.

#sheinhaul on Tiktok Sep 2023

The hashtag #sheinhaul plays an important role in driving traffic to the site. This cross-platform hashtag, which sees shoppers unpack and show off their Shein deliveries, has generated more than 12.8 billion views on TikTok alone. 

Influencer marketing on social is also key. Shein has active collaborations with Instagram, YouTube and TikTok influencers ranging from 2,000 to 200,000 followers, known as ‘Shein Ambassadors’.

Ambassadors are asked to embed Shein affiliate links in their social posts and are offered 10-20% commission on each referred sale.

The Shein X incubator programme launched in 2021, allowing global artists to design garments, while Shein took care of the production and provided a platform to sell. 

Designers promoted the products on their social media and received 10% commission on total sales. 

Shein X

The Shein X incubator programme allows artists to design garments that are then produced by and sold via Shein

4. Loyalty programme drives repeat visits and purchases 

Like many other retailers, Shein offers a points-based rewards system to its most loyal customers.

The system is similar to other retailers, offering one point for every US dollar spent on qualified orders, redeemable on the next purchase. But points are also earned by engaging with the site in other ways. 

The site offers five points for posting a review, 10 for a review with pictures and two additional points for including sizing information, meaning there’s a potential 17 points up for grabs for each purchase. If the comment is selected as the featured review then bonus points are awarded. 

Other tasks also come with points, like visiting the website daily or watching a livestream. 

After spending beyond certain thresholds (£0.01/£55/£172), shoppers will be upgraded to Shein VIP (S1 to S3), where they receive member-only vouchers, promotions, free gifts, magazines and more. 

Shein VIP

Loyal Shein customers are rewarded with VIP status

5. Low prices and efficiency

Shein’s prices are undoubtedly very low. Retail Week’s analysts checked Shein’s UK site and found its prices range from a £0.30 scrunchie to a £145.99 wool coat. Similar items selling on Asos are priced at £2.33 and £170.

While there are obvious ethical considerations that have to be somewhat responsible for Shein’s low prices, there are several above-board strategies that are worth noting about its operation. 

Shein ships to more than 150 countries but does not sell in its home country, which means it is free from Chinese VAT and subject to lower corporate taxes. Should tax policies change in China, Europe or the US, this price advantage may come under threat. 

 

Orders are shipped directly to the final customers – and because the products carry such low values the parcels are not subject to import duties in the US or UK.

Inventory management is always a pain for much of the retail industry, but not for Shein. According to the etailer, its unsold inventory level is now less than 10%, compared with an industry average of between 25% to 40%. Only 6% of Shein’s inventory remains in stock for more than 90 days.

And, like Asos, Shein benefits from operating as an online pureplay, avoiding the expense of physical stores and only dipping its toe in pop-ups for marketing purposes.

Shein may not have a strong reputation for ethics, quality or sustainability, but its soaring popularity, particularly among younger shoppers, means that it is set to continue to disrupt the industry for the foreseeable future.

Shein reported annual revenue of $22.7bn (£18.8bn) in 2022 and is projected to achieve annual revenue of $58.5bn (£48.6bn) in 2025.