Shein, now based in Singapore, is pivoting from selling just its own branded apparel to becoming a marketplace platform where other merchants can sell everything from $1,200 commercial ice makers to 50-cent safety pins directly to consumers.
The shift, plans for which The Wall Street Journal reported in December, occurs as the fashion giant seeks new growth opportunities and puts Shein in more direct competition with e-commerce stalwarts like Amazon.com, which started out as an online bookseller, as well as another newcomer, Temu, the international arm of Chinese e-commerce company PDD Holdings.
Shein recently launched its marketplace in Mexico, Brazil and the U.S., with plans to roll it out in Europe later. Shein has also announced an expansion beyond its bread-and-butter categories: fashion, beauty and lifestyle.
Shein’s head of strategy, Peter Pernot-Day, said in an interview that the company is seeking out “third-party sellers who will complement our product offering, whose offerings will resonate with our customer base.”
Shein said it aims to offer incentives to 100,000 sellers to reach annual sales of $100,000 and 10,000 of them to hit $1 million in annual sales within three years. Most of the products sold by third parties are low-price, but the company’s U.S. platform now also lists wares from high-end brands like Paul Smith and Stuart Weitzman, alongside Shein’s own branded clothing.
To recruit third-party sellers, the company has doled out incentives on Chinese social media, from zero commission for the first three months to zero advertising charge. To join Shein’s platform, sellers must already have annual sales of $2 million on Amazon, according to some of its recruitment advertisements.
Shein captured the hearts of millions of American teenagers with its trendy $5 skirts and $9 jeans. The 11-year-old company is now the top fast-fashion retailer in the U.S., with a 40% market share, according to New York-based Earnest Analytics.
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The U.S. is one of Shein’s biggest markets. Market-research firm Euromonitor International estimated that Shein recorded $8 billion in U.S. sales last year. That suggests the U.S. accounts for about a quarter of the company’s gross merchandise value, or total value of products sold. Shein doesn’t sell to consumers in China, where the e-commerce market was saturated at the time of its founding.
But recently it has lost some steam in the U.S., where sales growth slowed to 13% year-over-year in the first five months of 2023, data from Earnest Analytics show. That compares with a 59% increase and a 223% surge in the same periods in 2022 and 2021, respectively.
In May, after its latest round of financing, Shein cut its valuation to $66 billion from $100 billion a year ago, the Journal has reported.
Pernot-Day said Shein sees “very strong” growth and is “very, very bullish on the future.” He declined to share specific financial numbers.
The move toward general merchandise makes sense, said Neil Saunders, a retail analyst at GlobalData, since it offers “much better prospects to become enormous.”
What Shein has going for it is its large and loyal following, including an impressive social-media presence that lets it quickly detect trends—and spark new ones. Shein has more followers on TikTok than any other apparel brand, according to a recent report published by the investment bank UBS. On Instagram, it has the third-most followers, snagging the most likes in May.
“If they can establish themselves with that younger crowd and stick with them through the years, that could really turn them into a viable Amazon competitor,” said Brian Ehrig, partner in the consumer practice of the consulting firm Kearney.
But Shein’s explosive success is rooted in a model distinctive from Amazon’s. The company uses algorithms to predict customer demand and preferences based on their browsing activities. It subcontracts with thousands of small factories, places orders in small quantities to test market appetite and replenish orders as needed, which helps cut inventory waste to low single digits, the company said. That’s far below the industry average of 30%.
Shein will continue to produce apparel, cosmetics and lifestyle products, Pernot-Day said, and third-party sellers will have access to Shein’s demand-measurement and supplier-management capabilities to help them cut down unsold items.
By opening up to third-party sellers and general merchandise, Shein is introducing complexities to its established supply chain, analysts say. It requires discipline to manage other merchants and ensure adequate logistics. Onboarding a large number of sellers, along with tens of thousands of new products, presents another challenge.
Shein is also entering a part of e-commerce dominated by Amazon, which has spent decades building a logistics system. The new model also puts Shein in head-to-head competition with Temu, which has used Chinese third-party sellers from the start to ship extremely low-price wares to shoppers around the world. ByteDance’s TikTok is also poised to launch a similar shopping platform in the U.S.
PDD launched Temu in the U.S. last September; it has since expanded into more than 20 other countries. Besides its fashion stronghold, Shein has started selling the kind of niche items that Temu focuses on, such as mini washing machines and fruit-fly traps, said Rui Ma, founder of research firm Tech Buzz China.
“I think Shein’s major competitor is Temu,” Ma said.
Although Temu has fewer customers than Shein, it has been successful at driving user engagement. According to Sensor Tower, which tracks internet usage, Temu users spent 13 minutes a day on average on its app in June, slightly longer than Shein users, at 11 minutes, and more than double Amazon customers’ 6 minutes.
Both Shein and Temu have come under scrutiny from Washington over their supply chains. U.S. lawmakers have pressed the companies to address whether they source cotton from China’s Xinjiang region, where the U.S. has accused Chinese authorities of committing genocide and of using forced labor in its repression of mostly Muslim Uyghurs. Beijing denies these allegations. Shein has said the company doesn’t work with suppliers that source cotton from Xinjiang. Temu didn’t respond to a request for comment.
The marketplace shift is part of Shein’s localization strategy. Shein has been on a hiring spree globally and building supply chain infrastructure outside China. In the U.S., the company has opened two large distribution centers and is building a third. Many of Shein’s marketplace products are now eligible for delivery in 4-7 business days. Currently, Shein’s customers need to wait up to 14 days for regular orders to be delivered, according to the company’s U.S. website.