[ad_1]
Between 2019 and 2021, Shein quadrupled sales and at one point last spring, commanded a $100 billion valuation in a funding round, more than the market capitalization of the owners of H&M and Zara combined. Claims that the retailer’s clothes were shoddily made, that it mistreated workers, ripped off independent designers and that its business model was a disaster for the planet seemed to fall flat.
Shein isn’t looking so invincible these days.
In the US, the growth of Chinese fast fashion retailers slowed dramatically starting in early 2022, according to data from Earnest Research, which tracks online consumer spending. In June, the company saw its first year-over-year sales decline since the pandemic. Sales then fell for five months before picking up slightly in December. Last week, Financial Times reported that Shein was raising funds at a $64 billion valuation — still big for an online fashion retailer, but less than a third of its recent raise.
There is no reason why some of Shein’s customers have moved on. In a slowing economy, some are spending less money on fashion. The infamous Shein dresses – large orders of clothes meant to be shown off on social media but only worn once, if at all – seem increasingly out of step with the times. Negative publicity may have caused damage. And Shein is no longer the only Chinese fast fashion giant on the scene; in November, Temu, an American app that sells cheap clothes and other items launched that month by Pinduoduo, topped Apple’s charts shortly after launch.
Shein doesn’t stand still. It is opening warehouses and manufacturing centers in the US and Europe, reducing shipping times for its customers. It has launched a designer incubator program and an initiative to reduce its emissions by 25 percent. Far from hurting sales, a recession can increase the appeal of fast fashion to consumers worried about their finances. Shein will have plenty of money to execute his plans: Financial Times reported that the company is looking to raise $3 billion and may plan an initial public offering in the US later this year.
“We are very excited about the direction of the business,” said Peter Day, global head of strategic communications and former chief privacy officer at Shein. “One of the beauties of our business model is that because we are so connected to customers in terms of price, we see ourselves as well positioned in the macroeconomic environment.”
At the same time, Shein will have to show results quickly. The life cycle for fast fashion brands can be short: Forever 21 and Topshop are among the many off-price retailers that burst onto the scene practically overnight and faded just as quickly.
“They have to seriously ask themselves how this fast fashion model of theirs will evolve to take into account the new generation of environmentally conscious consumers,” said Jessica Ramirez, a retail analyst at Jane Hali & Associates.
A less eager buyer
There are several key factors driving Shein’s decline, according to analysts and industry insiders. First, Shein’s Gen-Z, tech-savvy shoppers are simply spending less money on clothing, especially through e-commerce as the world opens up again.
“The people who especially had extra dollars in their pockets in 2021 and 2022 were low- and middle-income consumers,” said Sonia Lapinsky, managing director of AlixPartners’ retail practice. “In 2022, we saw compression in retail sales across the board, but it’s hitting this lower-income consumer much harder. Discretionary income is drying up, so are low prices [of fast fashion] are not low enough.”
And younger customers, in particular, aren’t “glued to their computers and online shopping all day like they were a year ago,” Lapinsky added.
As the novelty of Shein’s ultra-low prices faded, mentions of her increased in conversations about its unethical business practices and alleged copying of others’ designs, according to Brandwatch, a consumer intelligence firm. Between 2020 and 2023, about 70 percent of overall conversations about Shei online skewed negative in sentiment.
Shein “is taking a lot of the criticism for the industry as a whole,” said Kellan Terry, head of PR and communications at Brandwatch.
However, the brand has its defenders.
“There’s a moral debate going on in the negative mentions of Shein,” Terry said. “Many people are citing questionable and ethical business practices by the brand and the ramifications of fast fashion as a whole, but others are talking about lower income people being able to afford and buy stylish clothing as well.”
Young consumers are particularly sensitive to the opinions of their peers, said Ryan Nelson, a partner at Jobi, a venture firm that specializes in retail and technology.
“Shein is on the hot seat right now,” Nelson said. “That doesn’t mean that in a few months or a year it won’t be over.”
Bright spots
Shein has addressed its shortcomings by investing millions of dollars to help young designers launch their lines in an incubator program called Shein X. Last year, it also announced a plan to cut its carbon emissions by a quarter to 2030 and introduced a resale program that allows shoppers to sell their pre-worn Shei for in-store credit.
Whether this is enough to repair her public image remains to be seen.
“Reselling them [launch] it seemed like a marketing gimmick,” said Ramirez, with Jane Hali & Associates.
Other fast fashion retailers have sought to portray themselves as sustainable. H&M and Zara owner Inditex are ranked second and third respectively in BoF’s 2022 Sustainability Index of the world’s 30 largest retailers. H&M in particular has led the charge in materials and waste innovation with initiatives such as collecting old clothing in its stores since 2013 and using textiles made from grapes, food crop waste and organic cotton.
Last year, Shein launched a collection of pieces made from recycled polyester and “forest-safe” viscose fibers called EvoluShein. The company did not disclose how much of its overall assortment is made from more durable materials.
Shein is also in the process of opening two new distribution centers in North America this year, in addition to one in Indiana that opened last year, which will shorten product delivery times to customers. The company is also said to be exploring a market model that would offer consumers not only its own branded parts, but also products from other brands.
Cultivating a more globalized supply chain and offering an even greater assortment of goods may ultimately be more effective strategies for growth.
These moves “are likely to see Shein become even more of a competitor in the fashion segment,” Deutsche Bank analyst Adam Cochrane wrote in a recent note.
[ad_2]
Source link