shein-business-model

How Does SHEIN Make Money? The SHEIN Business Model In A Nutshell

SHEIN is an international B2C fast fashion eCommerce platform founded in 2008 by Chris Xu. The company improved on the ultra-fast fashion model by leveraging real-time retail, which quickly turned fashion trends in clothes’ collections through its strong digital presence and successful branding campaigns.

SHEIN Origin Story

SHEIN is an international B2C fast fashion eCommerce platform founded in 2008 by Chris Xu.

After graduating from the Qingdao University of Science and Technology, Xu was hired as an SEO consultant for an online marketing company. There, he realized the commercial value of selling Chinese goods to international markets via the internet.

SHEIN was founded as SheInSide and exclusively sold wedding dresses. In the early days of the company, it operated like many other fashion retailers. Xu would scour the Chinese wholesale clothes market for items he thought had the potential to be popular in Western markets. Products were advertised on the website and purchased from the wholesaler once there was sufficient demand.

Using Xu’s SEO expertise, SHEIN experienced a high volume of sales – leaving little time to launch new products. In response, Xu decided to change direction by reimagining SHEIN as a women’s clothing brand with its own supply chain in 2014. 

Two years later, the company had a design team consisting of 800 people. It uses Google Trends and other data to identify new clothing trends ahead of time. SHEIN now offers clothing for men and women including accessories such as bags and shoes.

In recent years, SHEIN has acquired multiple fashion rivals to become a truly global presence. The company claims to ship to 220 countries and territories with annual revenue estimated to be $10 billion. Like many online retailers, SHEIN has benefitted from the COVID-19 pandemic.

How SHEIN built upon the ultra-fast fashion model and into real-time

To understand how we got to the SHEIN business model, it’s worth highlighting the evolution of the fashion industry, from a business standpoint, of the last decades.

Indeed, by late 1990s, early 2000s, a phenomenon driven by companies like Zara and H&M took over: Fast Fashion.

fast-fashion
Fash fashion has been a phenomenon that became popular in the late 1990s, early 2000s, as players like Zara and H&M took over the fashion industry by leveraging on shorter and shorter design-manufacturing-distribution cycles. Reducing these cycles from months to a few weeks. With just-in-time logistics, flagship stores in iconic places in the largest cities in the world, these brands offered cheap, fashionable clothes and a wide variety of designs.

Fast fashion was based on a few key premises. If we take a player like Zara, who most represented this phenomenon, the company leveraged fast following trends developed by high-fashion brands. It built its strengths on shorter manufacturing cycles, just-in-time logistics, and massive investments in flagship stores located in most city centers across the globe.

This model enabled the stores to operate at a fast turnover by offering a wide variety of inexpensive clothes that changed each week. This speed, variety, and convenience became the key strengths of fast-fashion players.

And this business model worked pretty well until the 2010s. Since then, e-commerce penetration has dramatically increased in most European countries, also favored by the birth of mobile commerce. And it’s worth noting that hundreds of millions of Chinese consumers, thanks to mobile commerce, got online, natively with their smartphones (as we’ll see, this would play a key role in developing ultra-fast fashion first and real-time retail then).

ultra-fast-fashion
The Ultra Fashion business model is an evolution of fast fashion with a strong online twist. Indeed, where the fast-fashion retailer invests massively in logistics, warehousing, its costs are still skewed toward operating physical retail stores. While the ultra-fast fashion retailer mainly moves its operations online, thus focusing its cost centers toward logistics, warehousing, and a mobile-based digital presence.

Therefore, ultra-fast fashion really worked as an evolution from fast fashion. And its key strengths relied on a strong online presence, primarily driven by mobile e-commerce. That managed to create a feedback loop between users’ feedback about fashion trends, manufacturing, and the quick availability of these items on the digital properties of the ultra fast-fashion retailer.

In short, the ultra fast-fashion retailer invested most of its resources in capturing fashion trends even faster, by further shortening manufacturing cycles and making its items readily available on its online properties, and therefore investing massively in logistics to easily distribute these clothes to millions of customers across the world, without the burden to have to operate physical stores.

This leads us to the evolution that led to the SHEIN business model. With the further rise of social media platforms like TikTok by the 2020s, SHEIN further mastered the ability to grasp fashion trends while also further shortening cycles quickly.

This is at the core of real-time retail. The experience becomes so fast that in a few days, the cycle from fashion trends picking up to clothes collections; shortens to just a few days!

real-time-retail
Real-time retail involves the instantaneous collection, analysis, and distribution of data to give consumers an integrated and personalized shopping experience. This represents a strong new trend, as a further evolution of fast fashion first (who turned the design into manufacturing in a few weeks), ultra-fast fashion later (which further shortened the cycle of design-manufacturing). Real-time retail turns fashion trends into clothes collections in a few days cycle or a maximum of one week.

In a way, SHEIN really mastered the digital distribution channels into its business model, to capture or create fashion trends faster, and to easily market them to its millions of shoppers.

shein-digital-marketing-channels
The key digital channels SHEIN leverages to quickly create fashion trends and convert them into mobile shoppers. SHEIN’s brand popularity is the main strength of its digital marketing strategy (data source SimilarWeb).
shein-brand-popularity
SHEIN’s brand has become increasingly popular by 2018, by leveraging digital marketing (data source: KeywordsEverywhere).
shein-social-media-traffic
SHEIN also mastered social media channels, which as of now bring substantial traffic back to its site, without counting the further exposure from TikTok (data source SimilarWeb).
shein-display-advertising
SHEIN also leverages display advertising, especially on YouTube, to create buzz, amplify the brand and lead conversion (data source SimilarWeb).
shein-success-curve-line
The SHEIN “plus-size” or “curve clothing line” has incredible success, and it seems among the most successful parts of the business (data source KeywordsEverywhere).

SHEIN revenue generation

SHEIN makes money by purchasing clothing from wholesalers and then selling items for a profit.

However, the company has several unique ways of maximizing its profits. Let’s take a look at them below.

Ghost factories

Many argue that SHEIN behaves more like a food delivery company than a fashion company.

Food delivery apps that run so-called ghost kitchens appeal to consumers who prioritize price and convenience over the brand or name of the restaurant. These apps also control the order management system of the restaurant and provide real-time inventory level data.

Instead of ghost kitchens, SHEIN utilizes ghost factories. The company approaches factories with archaic inventory management practices and offers to install its own order system in exchange for guaranteed consumer demand. SHEIN then teaches factories how to respond to real-time consumer preferences and in the process, make the fashion retailer more money.

Targeted marketing and vertical integration

customer-segmentation
Customer segmentation is a marketing method that divides the customers into sub-groups, that share similar characteristics. Thus, product, marketing, and engineering teams can center the strategy from go-to-market to product development and communication around each sub-group. Customer segments can be broken down in several ways, such as demographics, geography, psychographic, and more.

The fast-fashion retail model is most often utilized by those under the age of 25. SHEIN targets this demographic by offering on-trend clothing at competitive prices. 

As we noted earlier, the company is increasingly vertically integrated. Through high-volume manufacturing, it also benefits from economies of scale. Both these factors allow SHEIN to undercut competitors such as H&M, Zara, and ASOS.

Brand awareness is focused on social media platforms such as Instagram and YouTube using influencers to produce videos with millions of views. Again, this targets the younger generation who tend to discover new fashion brands through real-life friendship networks and recommendations.

Gamification

gamification
Gamification borrows key concepts from the gaming industry to encourages user engagement and experience. Some of those concepts include competitiveness, mastery, sociability, achievement, and status. With the application of game principles to the business context, companies can design products that are more enjoyable to users and customers.

SHEIN drives more revenue by gamifying the consumer purchasing experience. For one, there are so many different products for sale that finding a clothing item replicating a high-end look is like finding a needle in a haystack. This is made all the more difficult when one considers that many popular clothing items become sold out very quickly.

These factors have resulted in so-called “SHEIN haul” vlogs where satisfied customers proudly share their clothing finds with others. This drives brand loyalty and increases word-of-mouth advertising

Key takeaways:

  • SHEIN is an international B2C fast fashion platform. The company was founded in 2008 by Chris Xu, who recognized the power of SEO to promote Chinese-made clothing to the world.
  • SHEIN makes money by purchasing wholesale clothes and then selling them for a profit. It operates thousands of ghost factories that utilize proprietary inventory level management systems to increase supply chain efficiency.
  • SHEIN maximizes profits by understanding its target demographic, becoming vertically integrated, and utilizing economies of scale. This makes the company ultra-competitive against the likes of ASOS and H&M.

Read Next: ASOS, Zara, Fast Fashion, Ultra-Fast Fashion, Real-Time Retail.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"