SHEIN is an online fast-fashion retailer that works together with thousands of manufacturers to quickly churn out new clothing designs.
The marketplace business model of SHEIN is based on testing thousands of new designs every day. SHEIN consequently makes money by purchasing clothes in bulk and selling them for a profit to consumers across the globe.
Founded in 2008, SHEIN has risen to become one of the world’s most successful fashion brands. The company is valued at $100 billion.
What Is SHEIN?
SHEIN (pronounced “She In”) is an online fast-fashion retailer that works together with thousands of manufacturers to quickly churn out new clothing designs.
It offers products targeted at men, women, kids, and even home-related products. Customers can purchase thousands of different products including dresses, tops, shoes, and more.
SHEIN ships to over 220 countries across the globe and operates dedicated websites supporting the United States, Spain, France, the Middle East, and many other regions.
Nevertheless, the absolute majority of factories and warehouses that SHEIN works together with are mostly located in China.
Just like most other fashion websites, customers can add products to their “Shopping Bag” as they please. Once a customer is ready to check out, they can review their shopping bags and move on to the secure checkout portal.
Customers can then use a variety of payment methods including debit and credit cards, PayPal, Apple or Google Pay, Buy Now, Pay Later services such as Klarna, and more.
SHEIN effectively controls the whole production chain by working together with thousands of factories that manufacture the clothing it sells.
Once its technology discovers a new trend, it immediately sends an order to those factories that produce a sample of that product, which is then tested on its website.
Moreover, SHEIN works together with hundreds of influencers who promote its products across a variety of social platforms.
SHEIN can be accessed by visiting the firm’s website or by downloading any of its mobile apps (available on Android and iOS devices). Sometimes, the firm also sets up pop-up stores to highlight new designs.
SHEIN Company History
SHEIN, headquartered in Nanjing, China, was founded in 2008 by Yangtian Xu (also known as Chris Xu), Xiaoqing Ren, and Yang Pei.
Not a lot is known about the company as well as its executives as it remains notoriously secretive and doesn’t disclose much to the media.
What is known is that Chris Xu, an American-born Chinese national who graduated from Washington University, is the main man behind the fashion platform.
Xu began his career in Search Engine Optimization (SEO) at a company called Aodao, which was also based in Nanjing.
He eventually decided to put those skills to use by launching his first company. In 2008, he started ZZKKO together with his co-founders Wang Xiaohu and Li Peng.
They experimented with a variety of different brand names and products. Back in the day, business owners could create a variety of domain names to market different items and rank them as fast as possible in Google (a similar tactic was employed by the founders of Wayfair).
The team eventually discovered a winning product that they then doubled down on: wedding dresses. These dresses were sold to American and British consumers under the brand name SheInside.
In those first few years, the whole operation was fairly scrappy. The founders would walk into Chinese production facilities, take photos of dresses they liked, and upload them to the SheInside website from where they’d be shipped across the world.
However, not everything was always running kosher. In 2009, a year after launching the company, Chris Xu allegedly disappeared and set up the company with a different team. He even gave all of the shares that were owned by Xiaohu and Peng to other employees.
Being essentially on his own now, Xu put all his eggs into one basket and focused on growing SheInside as much as he could. In 2012, he expanded the site from wedding dresses to all kinds of female fashion products.
Demand skyrocketed to the point at which Xu and his team simply couldn’t keep up anymore. To make matters worse, they often ran out of stock and simply couldn’t serve customers. Therefore, in 2013, Xu decided to completely revamp the company and effectively change the way it operates.
In November of that same year, SheInside launched a worldwide designer-recruitment program to expand its product variety. Moreover, it began to approach hundreds of manufacturers that would produce those designs for SheInside.
And the best part? It wasn’t even tough to convince them. All it took was to simply pay them on time. The biggest problem that Chinese factories face is that their clients often don’t end up paying for the products and services they source. Having a reliable partner is, therefore, often sufficient.
In order to finance that strategic shift, Xu and the team had previously raised $5 million in Series A funding from JAFCO Asia. Less than 1.5 years later, it raised its next round of CN¥300 million (~ $16 million) at a $200 million valuation.
A month after the fundraise, in June 2015, the company made a rare public appearance by disclosing that it had rebranded from SheInside to SHEIN. The relaunch was accommodated with the introduction of its warehouse in Los Angeles and a slew of other improvements.
That same year, SHEIN moved its supply chain center from Guangzhou to Panyu (both in China), which prompted all of its manufacturing partners to relocate as well.
Over the coming few years, SHEIN primarily focused on expanding its reach. It launched dedicated websites in the Middle East (2015 and 2016) as well as India (2017). Sales, as a result, swelled from CN¥4 billion (~ $630 million) in 2016 to CN¥10 billion (~ $1.58 billion) in 2017.
Additionally, SHEIN began to pour tens of millions of dollars into advertising. Fashion influencers would display their now infamous SHEIN hauls while the company itself poured significant cash into promoting its brand on American and international TV.
2018 was kicked off with an investment from Sequoia Capital China, which invested an undisclosed sum into the company. That same year, China waved export taxes for home-grown direct-to-consumer companies after the United States imposed more tariffs.
Unfortunately, not everything was always going according to plan. In September, the firm announced that it had been hacked during the summer. The breach affected around 6.42 million accounts. SHEIN did not disclose what type of, if any, data was retrieved.
Despite those hiccups, confidence in the company remained undeterred. Tiger Global Management and Sequoia invested another $500 million into SHEIN at the start of 2019. By that point, SHEIN was available in more than 200 countries across the globe and generated annual revenues of close to $3 billion.
However, the biggest boost to its business would come in 2020. The coronavirus pandemic not only led to worldwide lockdowns but ultimately resulted in the closure of thousands of retail stores. Competitors such as H&M and Zara were forced to retract and suffered hefty losses.
Meanwhile, SHEIN’s business quite literally exploded overnight. Since it’s solely operating via its online storefront (apart from launching a few popup stores every now and then), it was extremely well equipped to take advantage of the shift towards online shopping.
With added attention, though, came increased scrutiny as well. In June 2020, the Indian government announced that it would ban 59 Chinese apps such as TikTok and SHEIN. A month later, the company came under fire for selling Muslim prayer mats as home decor or a racially insensitive swastika necklace.
Yet again, the company’s troubles didn’t affect its fundraising efforts. In August, investors poured additional capital into the firm. Unfortunately, SHEIN did not disclose who invested and how much it raised.
The money even enabled it to do a virtual fashion show that hosted stars such as Ellie Goulding and Rita Ora. It even made a bid for Topshop in January 2021 but ultimately lost out to ASOS. By May 2021, SHEIN managed to overtake Amazon to become America’s most downloaded shopping app.
In July, it even returned to India via a partnership with Amazon. During its famous Prime Day, SHEIN was allowed to list a selection of 500 products on Amazon’s platform. A month later, though, it closed down its operations in Indonesia after failing to reach profitability in the country.
Other Chinese Internet giants would follow SHEIN’s lead as well. Both Alibaba and ByteDance launched copycat platforms. However, the ByteDance experiment was short lived and closed down after three months (in December 2021).
In the meantime, SHEIN remained the target of angry customers, creators, and environmental as well as humanitarian organizations alike. SHEIN would copy the creations of many indie designers such as Bailey Prado or Kikay and simply offer their products at a significantly cheaper price tag.
In mid-November 2021, Public Eye, a Swiss watchdog group, released a detailed report about SHEIN and its repeated violations of Chinese labor laws. Many of its factory partners essentially forced workers to work 70+-hour work weeks. On top of that, some manufacturers set up shop in residential buildings that didn’t offer basic protections such as emergency exits.
As a result of the public backlash, SHEIN announced that it would not only beef up its factory screening efforts but hired multiple experienced professionals, such as Adam Whinston or Angela Tucciarone, to lead its sustainability efforts.
Additionally, in June 2022, it launched a $50 million sustainability fund that would go towards global textile waste management and ensuring that its factories meet required quality standards.
Unfortunately, 2022 began with some more bad news as well. In late February, the company decided to scrap its plans for an IPO due to the military conflict in Ukraine and resulting negative market sentiment.
During the prior months, SHEIN had already set things in motion to successfully go public. Back in June 2021, it opened up a hub in Singapore. Founder Chris Xu even applied for Singaporean citizenship. The move to Singapore is intended to help smooth the IPO process.
In April 2022, SHEIN made news again after raising another $1.5 billion at an eye-popping valuation of $100 billion – making it the world’s third most valuable private company.
SHEIN has amassed millions of social media followers as of today. It, furthermore, employs over 7,000 people in offices and warehouses located across the globe.
Analyzing The SHEIN Business Model
SHEIN makes money by purchasing clothes in bulk and selling them for a profit to consumers across the globe.
The business model of SHEIN is predicated on churning out new designs at a much greater pace than traditional retailers like H&M or Zara.
SHEIN utilizes tropes of data from a variety of sources, such as Google Trends, social media hashtags, or by scraping its competitor’s website, to figure out what’s currently trending. An in-house design team comprised of hundreds of fashion designers then translates that data into fashionable products.
By requiring the factories it works together with to use SHEIN’s in-house software, it is able to send those digested insights to its manufacturing partners in quasi real-time.
Each of SHEIN’s suppliers gets its own account on its internal platform from which they can check current sales, stock levels, and even bid on manufacturing a new set of clothing.
Because it directly works together with manufacturers, SHEIN is often able to churn out new designs within three days. Even more digitally adept competitors such as ASOS still need a few weeks to do the same.
Moreover, it can place much smaller bids. SHEIN normally only produces around 100 units while even ultra-fast fashion retailers like Boohoo have to order between 300 to 500 items.
SHEIN then tests how well those designs perform within its online storefront. Traditional retailers lack this ability to test with their offline storefronts simply because they do not track the movement and activity of shoppers.
The product, once the test is deemed successful, is then rolled out to a larger set of customers. Consequently, its short lead times allow SHEIN to test over one thousand new products – every day.
Due to the fact that SHEIN relies on dropshipping, meaning it ships directly from the factory to the consumer, it can also circumvent local import taxes. In turn, customers have to wait substantially longer to receive their packages.
Its consumer-to-manufacturer model, which mimics the likes of Pinduoduo (which ironically launched a competitor product in August 2022), is fueled by aggressive customer acquisition and in-app promotion tactics.
As a result, SHEIN works together with hundreds of influencers and even sponsors TV shows such as The Voice by dressing participants in its clothes.
On top of that, SHEIN utilizes various gamification techniques such as countdown timers, subscriber discounts, trending stickers, and more to entice customers to make impulsive purchases. Rouge Media, as a result of those tactics, has named SHEIN the “most manipulative” fashion website.
The goal behind utilizing gamification is to create habits around the usage of a product. You want to entice customers to repeatedly use the platform so that eventually log onto it without the usage of notifications and other gimmicks.
In fact, many of its customers already use SHEIN without actually making a purchase mot of the time. That user behavior was inspired by the likes of Houzz and Pinterest, which primarily act as curation platforms.
The next logical step would be to introduce social profiles and enable users to follow each other, link other social profiles (such as Instagram or TikTok), and create a feed in which users share their hauls.
Going forward, SHEIN could also open up additional monetization channels. For example, it could allow manufacturers to purchase advertising space on the platform or simply collect a commission for every sale (similar to platforms like Poshmark).
However, selling clothes at a discount already means big business. SHEIN is projected to generate over $30 billion in sales during 2022 alone.
SHEIN Funding, Revenue & Valuation
SHEIN, according to Crunchbase, has raised a total of $2.1 billion across six rounds of venture funding.
Notable investors include Sequoia Capital China, Tiger Global Management, IDG Capital, Greenwoods Asset Management, and more.
SHEIN is currently being valued at $100 billion by those very same investors after raising $1.5 billion in Series F funding in April 2022. For reference, SHEIN’s valuation is higher than the one of H&M and Zara – combined.
Moreover, the company has generated about $15.7 billion in revenue for 2021 based on reporting from Reuters. In 2020, it allegedly made $5 billion.
Who Owns SHEIN?
SHEIN does currently not disclose its ownership structure. However, it can be assumed that founder and CEO Chris Xu remains one of its largest shareholders.
He had bootstrapped the company for five years before raising equity funding. With a proven concept and existing revenue, he was probably able to negotiate more favorable terms.
From an institutional perspective, Sequoia Capital, which participated in two funding rounds, as well as Tiger Global Management are likely owning significant portions of SHEIN, too.