Shein chases new revenue streams as it prepares for London listing

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Shein has been investing in logistics infrastructure and chasing new revenue streams as its core fast fashion business matures ahead of a planned listing in London.

The Chinese-founded start-up popular with Gen Z and valued at more than $60bn in its latest fundraising round has been diversifying away from fast fashion and trying to build warehouse capacity to cut delivery times.

Shein’s ability to convince investors that it can continue to grow beyond its fast fashion market will determine its valuation as it prepares to go public. Analysts have said the company needs to adapt its business model of shipping clothes directly from factories in China to take on Chinese rival Temu and Amazon.

“Shein can’t run the risk of being just another brand in a crowded digital consumer sector but needs to keep refining its relevance,” said Singapore-based business strategist Martin Roll. “The current global market and IPO conditions are very challenging, so the company needs to be able to deliver stable projected revenues and earnings.”

Shein, which exploded on to the fashion scene during the early years of the pandemic, waited until November to formally initiate plans to list in the US due to regulatory issues in China and an anaemic global IPO market.

In recent months, the company has shifted towards listing in UK amid tensions between Beijing and Washington. It remains unclear whether Shein will get Beijing’s approval to list in London.

The company hit a record of more than $2bn in profits in 2023. By comparison, rivals H&M and Zara owner Inditex reported net profits of SKr8.7bn ($829mn) and €5.4bn respectively, in their most recent fiscal years. It expects growth to slow as it becomes an established player in the fast fashion market, according to a company presentation from last year.

Shein has sought to turn customers into loyal shoppers to hit revenue targets, the presentation stated. It set a goal to have more returning customers than new ones by 2024.

Just over 25 per cent of Gen Z consumers in the US and UK reported using the Shein app over the past month, according to a study conducted by research group GWI during the first quarter of this year. That is a fall from peaks of 28 per cent and 27 per cent in the UK and US, respectively, last year.

Customer use of the app appears to have plateaued globally, with just over 12 per cent of respondents saying they had used Shein during the past month, the same amount as over the previous two quarters, said GWI.

Shein has been trying to improve its return logistics and cut delivery times. It typically takes seven to 10 days for it to deliver packages from China to US shoppers, while rival ecommerce platforms can often offer same-day or next-day delivery.

In the US, it launched a service last month to enable box-free returns at Forever 21 stores. Shein has an equity stake in Forever 21’s parent company.

In 2022, the group said it was building a 1.8mn sq ft distribution centre in southern California to store its best-selling products closer to shoppers. Since then, it has scaled back its strategy of building warehouses to store inventory, according to two people with knowledge of Shein’s warehouse plans. A person close to the company said Shein had found it “much harder” to build warehousing in the US than anticipated.

“Shein’s mistake was thinking that they needed to copy Amazon to build or buy its own warehouses,” said US supply chain consultant Brittain Ladd, who previously worked at Amazon and Dell. “It can partner with any number of warehouse providers for that service.”

Shein is branching out beyond selling clothes and accessories to furniture, electronics and petcare. It has done this in part by mimicking Temu, launching a marketplace last year to allow third-party vendors to sell products alongside Shein-branded goods.

Hu Jianlong, founder of Shenzhen consultancy Brands Factory, said the move was logical. “Just selling Shein products means there’s a limit to how much you can make. Shein’s big success comes from its huge traffic, so why not turn that traffic into even more sales by offering third-party products?” 

A year after the marketplace launch, Shein’s branded goods still account for nearly 90 per cent of sales, with the marketplace taking up about 10 per cent. Shein X sales, which feature products from independent designers, make up less than 1 per cent, according to the person close to Shein.

Roll said the marketplace strategy carried risks. “Shein’s move into the marketplace runs the risk of shoppers getting confused about what the brand truly is,” he said.

“Shein has been struggling to get merchants to sign up for the marketplace. There’s often a conflict between allocating traffic to its own versus third-party products,” said Robin Zhu, China internet analyst at Bernstein, adding that Temu was dominant in this space. “There are signs that in the first half of this year, Temu has had a meaningful impact on Shein’s growth.”

Ladd said the company would eventually have to acquire more warehouse space in core markets as the cost of flying goods from China becomes too high.

“Shein has no choice but to start using warehouse facilities in the US, especially as it moves into heavier and bulkier products like furniture,” he said. “The logistics costs are too high.”