Original images by Mohamed Hassan and Clker-Free-Vector-Images.
In our previous part of the May 2023 update on Shein, we read how the company has seen great success in the past years, but how this has come with increased scrutiny. In this second part, we’ll read how Shein is doing in emerging markets and what other initiatives it has rolled out.
While in 2022, Europe and North America made up 60% of Shein’s revenue, there are other interesting growth markets for the company. Different circumstances in different markets have made Shein decide to differentiate its local approaches.
Brazil
When Shein saw 3% (almost $1 billion) of its sales coming from Brazil, Shein management flew to Brazil to research the market, despite the height of the pandemic. In February 2023, former Softback COO Marcelo Claure was appointed chairman for Shein in Latin America, with a primary focus on Mexico and Brazil. He also personally invested $100 million in the company.
A challenge Shein faced in Brazil was the high import tariffs of up to 30% on apparel. To avoid these taxes Shein started sourcing goods from local manufacturers and piloted a marketplace model in Brazil in March 2022. It also built a team of over a dozen people to grow this marketplace.
Shein has said to invest about $150 million in technology and training in Brazil, cooperating with 2,000 manufacturers and creating 100,000 jobs in the next 3 years. By the end of 2026, 85% of Shein’s sales in the country should come from local manufacturers and merchants.
Stock prices of three Brazilian textile companies (Coteminas, Springs, and Santanens, all part of the Springs Global conglomerate) shut up triple-digits on April 24th upon news of Coteminas signing an agreement with Shein. 2,000 of Coteminas customers were said to become Shein suppliers in Brazil and Latin America. Interestingly, Coteminas CEO da Silva had been the matchmaker between Shein and Brazil’s Finance Minister Haddad, who had announced tax reforms targeting foreign e-commerce companies in early April. After a week, the policy proposal had been withdrawn…
Middle East & Europe
The Middle East has a 13% share in Shein’s sales, with a higher average order value of $130 versus $75 in the US and $30 in Brazil. Shein has been accelerating its manufacturing activities in Turkey, one of the world’s largest cotton producers, where it tries to recreate its ‘small order and quick response’ business model (see our January update). By the end of 2023, 20% of Shein’s sales in Europe should originate from Turkey.
Shein also opened 3 distribution centres in Poland, Italy, and the United Arab Emirates, shortening delivery times in the serviced areas from 2 weeks to 3-4 days. In May 2022, Shein set up its EMEA headquarters in Dublin, where it is hiring 30 key roles in data analytics, security engineering, finance, and legal. Shein also plans to launch 30 pop-up stores in the region.
Building a marketplace
While it has several impressive years behind it, Shein’s growth rate is declining, so it is looking for new growth paths. Launching a marketplace platform will give Shein more ways to monetize besides its original direct sales model: advertisements, commissions and adding other services to its ecosystem.
After pilots in Brazil and Mexico, Shein rolled out the marketplace to the US in 2023, and on May 4th it officially announced the platform model of ‘Shein Marketplace’. The company has the ambition to become a new Amazon with local brands, merchants, and global third-party sellers selling on its platform.
Shein recruited Liu Xiuyun, former president of Alibaba’s Lazada, who is experienced in third-party brand management, as well as several Amazon executives to help with the expansion of categories. Shein also hired a team in Los Angeles to recruit and support merchants.
A look at Shein’s website shows the product categories that the company has opened up, on top of its mostly self-operated apparel categories. Additional categories will undoubtedly be added soon.
Anker, a popular cross-border brand for consumer electronics, was one of the first brands to join Shein, seemingly wanting to diversify further its channels that already include its own website and marketplaces like Amazon.
Chinese media outlet Tech Planet mentioned three challenges for Shein’s marketplace:
- Balancing self-operated direct sales with third-party sales.
- Quality control of third-party sales.
- Third-party merchant’s requirements for infrastructure. Amazon has invested heavily in warehouse and logistics, having more than 1,500 logistical facilities. It will be difficult for Shein to top this, especially considering how these investments have dampened Amazon’s profitability.
Recruiting merchants
Shein is gradually expanding its product categories and is recruiting merchants that have already reached $2 million GMV on Amazon. It avoids recruiting sellers in the clothing category since it considers that to be self-operated with its own 10 brands. Merchant recruitment still seems to be low-key, though, with the company sending out targeted invitations. Shein offers third-party sellers several benefits: no commission and no return shipping cost in the first 3 months, and a 10% commission after that (lower than Amazon).
According to TechPlanet, Shein is expected to open a US warehouse for third-party sellers in June or July. Lacking its own developed infrastructure, Shein currently accepts shipping through Amazon’s logistical service (Fulfilment by Amazon) or delivery from a merchant’s third-party overseas warehouse. It does, however, require merchants to cover up any of their own social media or website addresses with stickers, wanting to avoid merchants setting up direct transactions. Unlike Temu, which sets the sales price for each item, Shein also allows merchants to determine their own prices.
Initial reactions from Chinese merchants seem to be positive, with traffic and order volumes considered better than those they see on Walmart. As with Shein’s clothing suppliers, merchants can see the real-time performance of their sales on Shein’s marketplace and take advantage of Shein’s supply and demand trend forecasting system.
Expanding infrastructure
Shein has announced to spend $70 million on supply chain upgrades in the coming 5 years. It wants to modernize factories, increase automation, and improve workers’ facilities. The company has recently started work on an ‘intelligent logistical park’ in Zhaoqing New District, Guangzhou. This facility, in which Shein is investing RMB 3.5 billion, will include a smart sorting centre, order distribution centre and smart manufacturing factories.
After Whitestown, Indiana, Shein also plans to build 2 more warehouses in the US that should bring delivery times down from 1-2 weeks to 3-4 days. This will be highly necessary for its marketplace since Amazon offers same- or next-day delivery to 72% of US customers.
In May, Reuters reported that Shein was planning to build a factory in Mexico to shorten shipping time and cut distribution costs in Latin America.
The competition
After launching in the U.S. in September, Temu, the cross-border e-commerce platform of Pinduoduo, is making strong inroads in Western markets (more on this in an upcoming article). A source of LatePost claimed that the overlap between Temu and Shein is limited: within the lower single digits. Still, Temu quickly overtook Shein in the US shopping app charts, and Temu’s aggressive low-price strategy and network of 11 million Pinduoduo merchants result in price levels that are 53-80% those of Shein (although Temu has been said to raise prices after operating a few months in a market).
Ironically enough, in March, Shein, who has been frequently criticized for IP theft, filed a lawsuit against Temu for ‘trademark counterfeiting and infringement, trademark dilution, improper source identification and unfair competition, false advertising, commercial fraud, commercial defamation, and unjust enrichment’.
In the meantime, there are other countless Chinese competitors in the clothing market opening their own independent websites. Some of these are being touted as ‘the next Shein’. The Chinese cross-border news platform Baijing Chuhai named three examples in a recent article:
- Cupshe: a platform launched in 2015, focussing on swimwear. In 2017 Cupshe became the number one online store for this category in North America and expanded to Europe and Australia. By 2018 it had 10 million worldwide customers. In 2020 its US revenue was $150 million. Like Shein, Cupshe uses influencers to promote the brand on Facebook, YouTube, and Instagram. It also publishes a lot of beach and swimming pool vacation content relevant to its assortment.
- Zaful: As we have come to expect from Chinese brands, a rather strange name that sounds a bit too much like ‘it’s awful’ to me, but okay. It’s another platform focussing on swim and beachwear, established in 2014 as part of the listed company Kuajietong. Its marketing leans strongly towards meme-like content on social media, combined with discount codes.
- ChicMe: An almost direct clone of Shein, up to the use of ‘hot models’ to present their products.
The U.S. e-commerce market was roughly $1 trillion large in 2022 and is believed to double by 2027. Shein will certainly try to claim a substantial part of that market with its direct sales + marketplace model. And so will these Shein clones … and Temu, AliExpress and TikTok. The Chinese battle for foreign markets is on!
Sources for part 1 & 2 of the May 2023 Shein update:
白鲸出海, 2023-03-03, Marketplace Pulse, 2023-05-24, Marketplace Pulse, 2023-02-23, Latepost, 2023-02-21, Tech Planet, 2023-05-17, Financial Times, 2023-02-17, Linkshop, 2023-05-10, Financial Times, 2023-01-18, Financial Times, 2022-10-7, Reuters, 2023-03-08, Telegraph.co.uk, 2022-08-11, USCC.gov, 2023-04-14, Shut Down Shein, Pandaily, 2023-03-27, Rui Ma, 2023-05-09, The Wall Street Journal, 2023-08-19, Business of fashion, 2022-10-17, WWD, 2023-04-02, KrAsia, 2023-04-11, PRnewswire, 2023-01-31, Marketplace Pulse, 2023-02-10, 白鲸出海, 2023-04-25, 白鲸出海, 2023-05-17, Gov.ie, 2023-05-11, Marketplace Pulse, 2023-05-11, 白鲸出海, 2023-05-11, eBrun, 2023-03-03, Equal Oceans, 2023-04-20, 白鲸出海, 2023-04-28, Ecommerce News, 2023-04-06, Reuters 2023-05-24
