Let’s make Shein’s success more tangible: it was the second most downloaded shopping app globally in the first half of 2021, reached about $10 billion in revenue in 2020, has been growing more than 100 percent for each of the last 8 years and is supposedly preparing a $47 billion IPO.
Before going any further, we should be aware that fast fashion players such as Shein have an immensely negative impact on the environment, while fashion as a whole is already the world’s second most polluting industry (right behind petroleum). They promote throwaway culture just by existing and are known to cut manufacturing costs through underpaying their workers and using cheap, toxic chemicals in production.
While we strongly oppose fast fashion mechanisms, we do believe that we should try to gain useful insights from Shein’s approach to production, platform and marketing. Ideas that can then be applied to more ethical businesses. Let’s dive right in.
Back in the nineties, Inditex (with brands such as Zara) revolutionized the fashion industry by introducing fast fashion. They monitored global fashion trends continuously and were able to design, produce and sell new items following these trends within a matter of weeks instead of months. Also, they were able to do it at a low cost, allowing their customers to both keep up with the latest fashion trends and quickly expand their wardrobe. In doing so, they forced direct competitors, such as H&M, to follow suit and completely rethink their manufacturing process.
Now, Shein has started the next revolution in the fashion industry: real-time fashion, a term coined by Packy McCormick and Matthew Brennan. In a highly automated way, Shein's AI derives new product ideas from search and social media behavior within a specific country. Next, these ideas flow through to an army of about 800 designers that continuously translate them into new pieces of clothing. The designs are then automatically pushed to the suppliers through the central Shein ERP to be manufactured and sold at limited volumes. If specific products prove popular based on the viewing and buying behavior in the web shop, the order volume for manufacturing increases in real-time through the ERP.
You could compare this way of working to TikTok’s engagement algorithm, where new videos automatically appear in the timeline of more and more people when they have proven their worth in engagement with limited sets of viewers. While doing so, they also deliver a better digital user experience and use this feedback loop to create better products. When applied to production, this mechanism cuts back costs drastically as it limits excess inventory.
Through this consumer-to-manufacturer (C2M) process, Shein is able to add between 700 and 1,000 new items to their webshop daily. Rather than representing a specific style as a fashion brand, it serves as a mirror reflecting the local fashion taste in real-time. That is how they are able to create a different, relevant offer for 220 countries and regions around the world (oddly enough not including their home turf China) without understanding the cultural nuances between those countries. That’s probably also why some culturally inappropriate items slipped through the cracks in the past. In any case, automated C2M is undoubtedly at the core of Shein’s success.
Shein is only there where it needs to be. For a $15 billion company, it has an incredibly limited corporate presence, exemplified by its empty Wikipedia page and the fact that there are no interviews to be found with its Founder & CEO Chris Xu. After all, a company this size doesn’t need to court investors, attract the masses through billboards on Times Square or spectacular TV ads. Instead, they exclusively focus on their core audience: young, predominantly female consumers with lust for fashion, limited buying power and extensive mobile usage. Though this audience consists of increasingly conscious consumers, choosing more durable products simply is not affordable for them. The benefit of having a wide variety of cheap clothing to pick from, seems to outweigh any concerns regarding environment, quality, service, privacy and wokeness.
Shein has succeeded in attracting their audience by creating a strong presence on the most popular social channels for that group, through analyzing their behavior on those platforms and applying those insights to its tactics. Back in 2013-2014, Pinterest was their biggest traffic driver. Today, they have close to 21 million (!) Instagram followers and are the most talked about brand on TikTok. Not only is Shein an expert in targeted social campaigns (and obviously spends aggressively on them), they have created an affiliate network that is at the forefront of their marketing. Key Opinion Consumers (KOCs) are activated to create content, such as try-on haul videos, or share discount codes by giving them free clothes or shop credits. As a consequence, much of what Shein posts on its own channels is actually user-generated content. More recently, they have added collaborations with Key Opinion Leaders (KOLs) like Katy Perry, Rita Ora and Lil Nas X through events and product lines to further boost their relevance with their audience.
So, not only does Shein use its prowess in data analytics to drive its design and manufacturing, it also applies it directly to acquisition as well. Also, acquisition does not even have to mean ‘first sale by a new user’, seeing as any newly registered user (and even non-registered ones) is actively feeding the AI with new data - allowing Shein to become so efficient in both production and marketing that it becomes close to impossible for competitors to catch up.
For years, e-commerce players have been investing a ton of effort in making sure that users can easily navigate between products, be triggered by product suggestions and order and pay as smoothly as possible. This has proven to be quite the challenge for many companies. In the meantime, Shein has already surpassed providing a mere frictionless experience: they have made sure that spending time on their platform is actually fun, which of course boosts retention, first-party data collection and conversion significantly. It’s a trend that some like to call retailtainment: blurring the lines between content, community, games, events and buying to create an entertaining shopping experience.
Shein has built this kind of entertaining effect in different ways. We highlight two of them here. First off, they focused on building a mobile app that feels more like a social media timeline than a regular shop. It relies on spontaneous discovery by recommendations rather than active search. Through the infinite product scroll with daily additions, tons of discounts, limited inventory and personalized suggestions, they are successfully generating FOMO with their user base. It’s so addictive that the hunt for new, limited items at lower prices than what their friends have access to has in itself become a reason to keep checking back in. For many, being able to then show those new items off in TikTok try-on haul videos or Instagram glamour shots has become an even bigger benefit than actually owning the product.
Second, Shein has set up a points system that rewards users for a wide variety of actions. Verify your email address, 100 points. Write a product review adding a picture of you wearing the item, another 30 points. Log in daily, participate in outfit competitions, watch live events, play games, post pictures within a Show theme … There are plenty of ways to add to your point total. Each 100 points is worth $1, ready to be spent on a maximum of 70% of your total order. Not only has this system succeeded in increasing retention, it’s the main driver for engagement and user-generated content on the platform.
It should come as no surprise that a Chinese e-commerce player such as Shein is so proficient at creating an incredible mobile experience. Seeing as mobile usage as a whole and mobile e-commerce specifically is much more widespread in China compared to western countries (with apps such as WeChat in the forefront), there is simply a lot more knowledge concerning native app technology and mobile user experience. Shein was able to capitalize on this, and by doing so tap into the needs of a mobile-obsessed Gen-Z audience abroad.
As if we needed any more arguments to approach e-commerce from a data-first, user-first mindset, Shein comes along and rapidly sweeps its entire industry by applying it in all facets of its business. The fact that its founder and CEO Chris Xu has a background in SEO has undoubtedly been a huge factor in that. Shein has not just optimized existing procedures, it has revolutionized them and became a $15 billion company in doing so - with a welcome boost by increased e-commerce spending during the lockdowns.
We are not just analyzing faraway innovations here. This is happening now, in our markets, and companies in your industry will start to apply the same principles concerning manufacturing, platform and marketing. Be first.
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