The US market is facing an incremental crisis, and the platform model saves Shein from danger

Recently, Shein has been active on third-party e-commerce platforms. After launching in Brazil and the United States, Shein recently announced the launch of the platform model in Mexico, and will also launch in five European countries in the third quarter. For Shein, the fast fashion industry is full of giants, and the transformation of the e-commerce platform is also under attack from all sides.

Shein's business footprint covers more than 220 countries and regions around the world, but Europe and the United States, with their high spending power, remain its main markets, accounting for most of its sales. However, after reaching its peak valuation of hundreds of billions, Shein's revenue and profits declined for the first time in 2022, and its growth momentum in the U.S. market was also much weaker than before.

Despite slowing growth and being squeezed by competitors, Shein still made a bold promise to investors, promising sales of $80 billion and profits of $7.5 billion by 2025. The former is equivalent to the sum of Zara and H&M, and the latter is ten times the current profit. At present, the most important thing for Shein is to break the growth dilemma, and transforming to a platform model is one of the ways to do so.

Shein's growth slows in the U.S. as competition intensifies

According to market research firm Euromonitor International, Shein's sales in the United States will reach $8 billion in 2022, which is equivalent to a quarter of its global sales. It can be seen that the United States is one of Shein's most important markets.

But the latest data from EarnestAnalytics shows that Shein's sales growth in the United States was only 13% in the first five months of 2023. In contrast, the growth rates in the same period of 2022 and 2021 were 59% and 223%, respectively, which is a significant slowdown.

Not only in the US market, Shein's overall annual revenue increased by 52.8% in 2022, with a profit of US$700 million, a sharp decline compared with the 57% growth and US$1.1 billion profit in 2021. According to the Wall Street Journal, in May this year, after the latest round of financing, Shein's valuation was reduced from US$100 billion a year ago to US$66 billion.

In addition to launching the platform model in more markets around the world, Shein has also recently expanded its product range to include home appliances, smart home and other categories. This means that Shein's competitors will directly expand to platforms such as Amazon, eBay, and Temu.

Amazon has long dominated the North American market with its logistics network that it has spent more than a decade building. This is also an important factor in its competition with Chinese cross-border e-commerce platforms. In comparison, Temu is more like a direct competitor of Shein. Although Temu has fewer users, its participation rate is significantly higher.

Temu users spent an average of 13 minutes a day on the app in June, slightly longer than Shein users at 11 minutes and more than double the six minutes spent by Amazon shoppers, according to SensorTower, which tracks internet usage.

Today, Shein still holds a 40% market share in the US fast fashion market, but is extending its reach into the market covered by Temu, such as small commodities such as mini washing machines and fruit fly traps. On the other hand, TikTok is also actively recruiting third-party sellers to settle in its US store.

With the platform transformation, is Shein planning a bigger plan?

At the beginning of the platform model, in order to attract more sellers, Shein announced that it would waive commissions for the first three months. At the same time, in order to ensure the quality of sellers, it requires buyers to have at least $2 million in annual sales on Amazon.

Recently, Shein also launched the Xiyou Gravity Plan, providing incentives to 100,000 sellers to achieve annual sales of US$100,000, and hopes that 10,000 of them will be able to achieve annual sales of US$1 million within three years.

At present, most third-party sellers on the Shein platform sell products at low prices, but high-end brands such as PaulSmith and PaulSmith are gradually emerging.

But what attracts third-party sellers the most may be Shein’s two secrets to success: “traffic operation” and “supply chain management”.

Shein’s advantage is the huge amount of direct traffic it generates from its social media outreach. A recent report from investment bank UBS showed that Shein has more followers on TikTok than any other clothing brand. On Instagram, it ranks third in terms of followers and received the most likes in May.

Secondly, Shein's turnover rate far exceeds that of its domestic and foreign counterparts in the clothing industry. Its small order and fast return supply chain model not only creates a very high speed of new product launches, but also greatly saves inventory costs, making its prices much lower than its competitors. Shein's strategy of focusing on traffic with one hand and supply chain with the other has been learned and imitated by overseas brands from all walks of life.

However, the introduction of third-party sellers has also brought more complexity to Shein in terms of traffic distribution and supply chain management. It is reported that Shein's platform model also includes full hosting, which means that it must first ensure timeliness in logistics. Currently, Shein has opened two large distribution centers in the United States and is building a third one.

Under the platform model, Shein outputs not only Chinese products, but also a complete e-commerce system.

Today, due to the United States's various difficulties for Chinese companies going overseas, Shein and Temu have been accused of procurement violations and data security. In addition, Shein is expanding its supply chain beyond China and recruiting on a large scale around the world. There are even reports that Shein's headquarters and bosses have immigrated to Singapore.

Shein is deliberately trying to shed its Chinese corporate identity and advance its localization strategy globally. Its transformation into a platform to recruit more local sellers is part of its localization strategy.

Editor✎ Ashley/

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