SHEIN Fast Fashion Retailer: Business Model Analysis
As you may know by now, Fashion Aftermath is a London-based vintage shop focusing on recycling and reusing clothing to achieve more sustainability in the fashion industry.
On our blogs, we regularly discuss topics like Textile Care or present our readers innovative Sustainable Solutions in Fashion.
However, we also feel responsible to acknowledge the opposite to our business and the most common practices in our sector: Fast fashion businesses.
Today, we will review the world's second largest fast fashion manufacturer and distributor: SHEIN.
Decoding Shein: Dive into the Business Model of Fast Fashion Giant Shein
The name synonymous with trendy clothing at rock-bottom prices.
An online source claims that the Chinese fashion retailer SHEIN has reached all-time high in profits, estimated at USD$2,000,000,000 (Yahoo Finance, 2024).
But have you ever stopped to wonder how this online retailer manages to churn out endless styles at such breakneck speed and affordability?
Today, we dissect the fascinating business model that has propelled Shein to the forefront of the fast fashion industry.
Although, praised for its financial performance and use of technology, Shein's reputation is questionable.
The company has been under critic's radar for allegedly forcing labor, executing a business model without environmental cosideration, not complying with ESG, and exploiting tax laws in certain countries (Reis, 2023).
Terminology: Business Model Analysis Framework
When it comes to understanding a company's inner workings, the business model becomes a critical lens.
It unveils the core elements that drive a company's value proposition, customer relationships, and ultimately, its financial success.
But how do we effectively analyze these complexities?
Enter the Business Model Canvas – a powerful framework designed to dissect and visualize a company's business model.
The Business Model Canvas, developed by Alexander Osterwalder and Yves Pigneur, offers a simple yet comprehensive approach to business model analysis (Osterwalder and Yves Pigneur, 2010).
It presents nine key building blocks that encompass the entire value creation and delivery process. These building blocks are categorized into:
- Customer Segments
- Value Propositions
- Channels
- Customer Relationships
- Revenue Streams
- Key Resources
- Key Activities
- Key Partnerships
- Cost Structure
The beauty of the Business Model Canvas lies in its visual nature.
Each building block occupies a specific space on a canvas, allowing for a clear and concise representation of the company's strategy.
Additionally, the canvas encourages exploration of the interconnections between these elements.
For example, analyzing the relationship between a company's Value Propositions (what value does it offer customers?) and its Customer Relationships (how does it interact with customers?) can reveal valuable insights into customer experience and satisfaction.
Shein Through the Business Model Canvas Lense
Let's review Shein's business model with help of the above mentioned framework, the Business Model Canvas.
1. Customer Segments
2. Value Propositions
3. Channels
4. Customer Relationships
5. Revenue Streams
6. Key Resources
7. Key Activities
8. Key Partnerships
9. Cost Structure
Photo credit: Moose Photos
Shein's Competitive Advantage: Pros & Cons
At this stage, you should have a basic idea of Shein's business model and it's structure.
Let's look further at areas the fast fashion retailer succeeds in.
Photo credit: Mikael Blomkvist
The Power of Data-Driven Design
Unlike traditional fast fashion giants who rely on seasonal forecasts, Shein leverages the power of big data.
They employ sophisticated algorithms to analyze social media trends, search queries, and competitor offerings.
This allows them to identify micro-trends in real-time, enabling the design and production of clothing that aligns perfectly with current desires (Uchańska-Bieniusiewicz and Krzysztof Obloj, 2023).
This focus on data ensures Shein stays ahead of the curve, offering the latest styles before the competition can catch up.
A closer look at social media trends: The student-managed Sustainability Blog by University of San Fransisco posted an article title 'A Look Inside Shein's Factories'.
The author found that search terms like 'shein haul' on social media platforms shows an astonishing amount of posts, thereby active customer engagement (or user generated promotion) with the brand and its products (USF Blogs USFCA, 2023).
Photo Credit: Ivan Samkov
The Agile Manufacturing Advantage
Shein boasts an incredibly short lead time between identifying a trend and getting the garment onto virtual shelves.
This agility is attributed to a network of smaller, independent manufacturers located primarily in China.
These partnerships allow for smaller production runs, minimizing the risk of overstock and wasted inventory.
Additionally, geographically close production facilities enable faster turnaround times, getting trendy pieces to customers quicker.
Low Prices: A Double-Edged Sword
Shein's price strategy is undeniable.
Their garments are significantly cheaper compared to established fast fashion brands.
This affordability is achieved through several factors:
Lower Material Quality
Shein often utilizes cheaper fabrics like synthetic fibers to keep costs down.
While this translates to lower prices, it also means clothes may not be as durable as those from competitors using higher-quality materials.
Limited Overhead Costs
Shein's online-only presence eliminates the need for physical stores, significantly reducing operational expenses like rent, utilities, and staff.
These savings translate directly into lower prices for consumers.
High Volume, Low Margin
Shein adopts a high-volume, low-margin model.
They prioritize selling large quantities of each item at a small profit rather than focusing on higher margins with smaller production runs.
The Allure of the App
Shein's mobile app is at the heart of its success.
It offers a seamless user experience, allowing customers to browse thousands of products, utilize gamification features like points and rewards, and engage with a vibrant influencer community.
The app also leverages push notifications to keep users informed about new arrivals and exclusive deals, fostering a sense of urgency and encouraging frequent purchases.
Marketing on a Shoestring Budget
While Shein stays relatively low-key in traditional advertising, they have mastered the art of social media marketing.
They collaborate with a vast network of micro-influencers on platforms like TikTok and Instagram.
These influencers showcase Shein styles to their engaged audiences, creating a sense of authenticity and driving organic brand awareness.
Additionally, user-generated content plays a vital role.
Shein encourages customers to share their outfits using specific hashtags, creating a viral loop and further boosting brand visibility.
Shein's Sustainability Question Mark
Shein's rapid production cycle and focus on low prices raise concerns about environmental and ethical practices.
The use of synthetic materials contributes to textile waste and microplastic pollution.
Additionally, questions remain regarding labor conditions within their vast network of suppliers.
While Shein has made strides towards greater transparency, the true impact of their business model on the environment and garment workers requires further scrutiny.
The Future of Shein
Shein's meteoric rise has disrupted the fashion industry.
Their data-driven approach, agile manufacturing, and effective use of technology have established them as a dominant force.
However, questions about sustainability and ethical sourcing remain.
Moving forward, Shein will need to address these concerns to ensure long-term success.
Will they embrace more sustainable practices and prioritize ethical production?
Only time will tell.
Conclusion
Shein's business model is a fascinating case study in innovation and disruption.
They have redefined fast fashion by leveraging technology and data to cater to the ever-evolving desires of a trend-conscious generation.
However, with great success comes great responsibility.
As Shein continues to grow, addressing environmental and ethical concerns will be crucial to ensure their model remains sustainable in the long run.
