The incredible business model of SHEIN
Shein has surpassed Amazon as the most downloaded shopping app in the U.S.
Teens and young adults in Asia are fascinating to observe.
To my daughter who is just 11, everything is an app. Chrome browser is just Chrome app. She laments that the google doc app on phone is hard to work with. Using a desktop is an alien behavior. China is on a totally different plane. Every consumer business that is online is actually on an app – their own or through a super app. There is a reason for this behavior. In Asia, the internet didn't become mainstream until mobile phones became affordable. So for people, the internet is really mobile apps.
In the US, watch Gen Z. They are more Asian in digital consumption than the rest of America. They are app-first.
Quick poll: How many of you buy on SHEIN?
I guess less than 5%. SHEIN is one of the most searched-for brands in PipeCandy. You can find the company profile here.
The fashion business is just like food delivery
Why is SHEIN important? Because, if you have teenage kids in your household, they are buying their clothes from SHEIN and not from Zara or Uniqlo. SHEIN sells in nearly 200 markets. They are the no.1 or no.2 in the fashion shopping category in all major markets, including the US. Let's come back to your kids' preferences. What's cool for us is already old-school for them. No, it isn't the garden-variety generational gap in taste. The reason for the preference shift is deep.
When you go hungry, the first instinct is to pull an app and order food. There are a dozen 'ghost kitchens' that you cannot walk into to have a dining experience. But they are all on the app, serving everything from exotic Meditteranean to boring fast food. The more you buy Meditteranean food, the more such restaurants will pop up on your app. Your food preferences dictate the opening or closing of dozens of ghost kitchens every week. We just don't notice.
SHEIN's brilliance is that they behave like a food delivery company instead of a fashion company.
When you order through Doordash, you don't care a lot about the name of the restaurant. There is a Doordash promise of 'great selection, good price, and timely delivery'. Doordash sends the orders straight to the kitchen. Often, the food delivery apps control the order management systems of the restaurants. There is absolute, real-time visibility into the inventory.
SHEIN does the same. There are 1000s of 'ghost factories' all running archaic systems. SHEIN promises demand but in exchange installs its order systems at the factory and has complete visibility into their supply chain. SHEIN pays on time, teaches factories how to run efficient real-time manufacturing operations, and in return, has a loyal base of supply that reacts to demand – in real-time.
Tiktok-ification of fashion discovery
SHEIN, in many ways, is like Tiktok. They watch what is selling everywhere (online), produce product pages in record time, see the engagement behavior and directly order the factories based on what's trending on the front-end. From design to production, it takes a week and not two months. Their SKU volume mirrors a food delivery app more than a fashion app. Every day there are 10s of 1000s of new products. Not all those products will stay on the catalog for long. The catalog is perishable. So every time you log in, there is a fresh menu.
In the next 3 years in America, expect the following to happen:
1. Fashion apps are going to be the new Dollar General for the middle class and young demographic. Amazon's price will be beaten by multiples in the fashion category.
2. Fast fashion will grow exponentially. GenZ does not understand seasons as much as they understand memes. Memes will drive fashion. Fast fashion will respond in real-time.
3. Fashion Retail (physical stores) won't be dead. But they won't matter to the generation of the future.
4. The cruel irony is that iconic brands and celebrities will create new fashion but it's the likes of SHEIN that will fast-follow, product in real-time, and bag most of the revenue. Taste-makers will be an input into the emotion-less algorithms that decide what SKUs to sell next week or next day perhaps.
