What challenges may Shein face as it steps up its efforts to become a third-party platform in the United States?

It is learned that after industry insiders revealed not long ago that Shein may officially open its third-party platform business in April. On April 21, Modern Retail reported that Shein recently posted recruitment information for multiple related positions in Los Angeles and California on LinkedIn.

Earlier this week, Shein reportedly posted a job posting for a "Senior Business Developer for Marketplace Business," whose primary responsibility is to identify and pursue new business opportunities for Shein's U.S. market. Shein is also hiring an "Anti-Money Laundering Compliance Officer" to lead, oversee and ensure effective execution of anti-money laundering and compliance activities in North America and Latin America. In addition, Shein is also hiring for positions such as a supplier management specialist and a stock clerk.

In March last year, Shein first tried the platform model in Brazil and expanded it to Mexico this year. Regarding Shein's launch of a third-party platform in the United States, experts and retail executives interviewed by Modern Retail believe that this is a tough battle that Shein must fight, but they do not seem optimistic about Shein's development prospects in this model.

To become a third-party platform, Shein must take a step

Shein's growth in the United States is very fast. Starting from fast fashion, relying on the supply chain model of small orders and fast returns, and an efficient traffic conversion system, Shein successfully surpassed Amazon in 2021 and became one of the most downloaded shopping apps in the United States. In the first quarter of this year, Shein ranked third in the US mobile app download rankings.

Still, Shein's problems have mounted as the macroeconomic slowdown and competitors have flooded in.

In the latest round of financing, SHEIN's valuation shrunk to $64 billion. Just one year ago, SHEIN's valuation in the last round of financing was $100 billion. In less than a year, the valuation has shrunk by about one-third. With the valuation shrinking, SHEIN needs to find new growth to increase its overall market value and ensure that it has funds to support new businesses in order to obtain more financing.

In addition, Temu's relentless pursuit has also made Shein feel a sense of crisis. Temu once said: "By September 1, 2023, North American GMV will exceed SHEIN at least one day." Although the audience overlap between Temu and Shein is relatively small at present, the impact on Shein cannot be ignored.

First of all, there is Temu’s explosive power in traffic.

According to the latest data from SensorTower, in the first quarter of this year, Temu became the most downloaded app in the United States, and Shein ranked fourth. During the peak shopping season before Christmas in the fourth quarter of last year, Temu was downloaded 13 million times in the United States. After the Super Bowl commercial was broadcast, Temu's warehouse was overwhelmed and it had to suspend the delivery of new products.

Currently, Temu is promoting fashion products as one of its main categories, and also highlights this category in its Super Bowl advertisement. With the same low prices and focus on fashion categories, the traffic advantage may attract more domestic third-party sellers to join Temu.

In addition, Temu is wooing Shein's suppliers.

Due to the large scale of suppliers, Shein has established a supplier elimination mechanism for management. The evaluation indicators include the on-time rate of stocking and delivery, the rate of defective products, and the success rate of new products. Under the strict evaluation mechanism, the competition among suppliers is also increasing, and the profits of suppliers with lower grades are smaller. Therefore, suppliers who suffer from low profits and high workloads are also eager to try Temu's invitation.

Finally, in terms of logistics, Pinduoduo and Jitu Logistics are cooperating in China. Temu is Pinduoduo's cross-border platform, and Jitu is also planning overseas business. When the order volume is large enough, the cooperation between the two will bring greater economies of scale, making Temu's future logistics costs lower than SHEIN.

Due to various factors, Shein has to speed up the pace of establishing a third-party platform to establish closer cooperation with suppliers.

It is difficult to recruit local American sellers, or the same mistakes as Alibaba and Wish may be repeated

Experts and retail executives interviewed by Modern Retail said that given that Shein has already launched a marketplace platform in other countries such as Brazil, it is not surprising to bring this model to the United States, one of its main markets. But in recruiting local American sellers, Shein faces the same problems as Alibaba, Wish and other Chinese companies going overseas.

MarketplacePulse founder Kaziukėnas revealed that Shein seems to be seeking the participation of American merchants, and local sellers and brands can deliver goods to consumers faster than goods from overseas. In the latest recruitment position, the "senior business developer" is responsible for driving growth, building relationships, and optimizing the performance of SHEIN's sellers in the United States.

Kaziukėnas pointed out that in the past, Chinese overseas e-commerce platforms have been seeking to expand the supply of third-party sellers' goods and attract local American sellers and brands to their platforms, but there have been no successful cases so far.

The main reason is that the prices are too low, so local American sellers and mid- to high-end brands are not willing to join. In addition, the platform has a low threshold for third-party sellers, and the lack of control over product quality also makes local brands and sellers worry about affecting their reputation, which is not worth the loss. The most typical example is Wish, which once relied on low prices to gain glory, but later fell to the bottom due to its reputation for quality.

In fact, it is not only the local sellers in the United States. As the overseas expansion of brands has become a major trend, Shein also faces the same problem in recruiting Chinese third-party sellers.

Shein follows the brand route and has formed a relatively fixed brand image in the minds of American consumers, namely "low price" and "fast fashion". This also limits the audience and price of third-party sellers. Although they can accumulate stores and brand assets through the platform, the premium they can generate is limited.

It is understood that as early as 2021, Shein had attempted platform-based investment promotion, but it mainly adopted the OBM model, similar to JD.com's own brand, and the operation and after-sales links were still in the hands of the platform.

After opening up to third-party sellers, the operation and after-sales service will be the responsibility of the sellers themselves. But in terms of traffic and logistics, which are the most important, how much traffic can Shein give to third-party sellers? How to do a good job of quality control? And whether it still adopts the inefficient "one warehouse to send to the world" logistics model? These can only be known after the platform is actually launched.

Editor✎ Ashley/

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