There’s a widely held belief that market disruption requires some form of radical innovation, such as a new product (think iPad), service (think WhatsApp), or business model (think Spotify). Thus, organizations are often advised that to disrupt, they must think outside the box, radically transform themselves, or, at the very least, become fast followers. But is that actually true?
Shein, one of China’s fastest growing fashion retailers, provides an interesting counterpoint. Haven’t yet heard of Shein? Well, stay tuned. After tinkering with its business model in relative obscurity for over a decade, the company burst onto the global scene in 2017 and, by 2021, it had become the world’s largest online-only fashion retailer. In May, Shein surpassed Amazon to became the top shopping app on the US Apple and Google Play stores. Its revenues reportedly reached $10 billion in 2021 – about two-thirds of Zara and a little less than half of H&M – and are expected to double in 2022.
Shein is currently disrupting the notoriously competitive fashion sector, and yet the company has not introduced a new manufacturing or distribution model. There is no ground-breaking technology nor a new business model, and Shein hasn’t raised billions in venture financing.
So how is Shein disrupting without the benefit of a disruptive innovation?
As our colleague Sean Meehan, author of The Customer Copernicus, would say: Shein is simply delivering on its value promise better than anyone else. Indeed, the company’s remarkable success stems from a combination of factors, none of which are particularly radical.
First, the company is very clear on its value proposition – it provides on-trend styles to young women and teens at low prices. Even the company’s name is a clear nod to this singular focus – Shein is a contraction of the words ‘She’ and ‘Inside’. It doesn’t pretend to be high end or exclusive, it pays very little attention to other segments, and it doesn’t sell offline.
“Since Shein controls sales and distribution, it has access to huge quantities of data about consumer trends. This data allows the company to track changes in fashion trends globally in real-time”
Second, it keeps its prices to a bare minimum, typically much lower than its Western competitors. Primark, Boohoo, and Forever 21 also have low prices, but they struggle to compete with Shein’s average unit price per item of $8 in North America and €8 in Europe. This ultra-low price point is possible thanks to a super-efficient supply chain that minimizes costs from design to shipping, and preferable taxation rates since it ships to individuals in small quantities, avoiding import duties that kick in at $800 in the US and €150 in the EU. The company also ducks domestic taxes since it doesn’t sell any of its products in China.
Third, it maintains a massive selection of items – hundreds of thousands of options and adds an average of around 5,000 new products a day. By comparison, UK-based fast-fashion rival Boohoo adds around 500 products a week.
It also moves quickly to refresh its product portfolio. As an originator of the fast fashion model, Inditex (the parent of Zara and Pull and Bear) aims to get clothes from design to store in three weeks or less. So-called “ultra-fast fashion” retailers like ASOS and Missguided have reduced this time period to as little as 10 days. Shein, meanwhile, has managed to cut lead times to three to seven days. Speed matters in fashion. According to a study by Goldman Sachs, there is a direct inverse correlation between supply-chain lead times and like-for-like sales growth.
Shein’s superior supply chain is one reason that makes this speed possible. The company requires manufacturers to be located no more than a five-hour drive from its sourcing hub in the southern Chinese city of Guangzhou. Suppliers are also required to use its cloud-based supply chain management software so that product lines that sell well are automatically reordered in larger volumes.
Fourth, the company works hard to ensure that its products are attractive to its consumer base. Since Shein controls sales and distribution, it has access to huge quantities of data about consumer trends. This data allows the company to track changes in fashion trends globally in real-time. It often tests new products with small batch production lines, a few as 100 items at a time, compared to a minimum of 500 for Zara. If a product attracts demand, it scales production on the fly though an Uber-like app directly to its network of manufacturing partners.
Shein has made the shopping experience exciting by incorporating many elements of the Chinese Internet experience, such as gamification, couponing, and live streaming
Shein is continually on the watch for the latest trends. While Zara monitors the catwalks at haute-couture fashion shows, Shein scans social media posts for trending looks. As early as 2011, it worked with online celebrities on Facebook and Instagram who wielded considerable influence with their audiences. Today, Shein has an army of influencers, from student campus ambassadors to pop stars such as Katy Perry.
Shein ensures consistency and high quality across all touchpoints, including product photos and other brand visuals. Each Shein product is featured with at least five different looks. As the company’s former general manager Pei Yang commented, “if a product doesn’t sell well, in 90% of cases it’s a problem with the photo”.
Shein also uses algorithms and data science to identify new trends. As one of Google’s largest China-based clients, Shein has access to Google’s Trend Finder product, which allows for real-time granular tracking of womenswear related search terms, such as colors, fabrics, etc. across various countries. This data allowed Shein to accurately predict the popularity of lace in the U.S. and 100% cotton in India during the summer of 2018.
Fifth, it’s fun. Shein has made the shopping experience exciting by incorporating many elements of the Chinese Internet experience, such as gamification, couponing, and live streaming. Shein was also an early adopter of TikTok, which played a large role in its success with teenage girls. In 2020, Shein was the most-mentioned brand on TikTok in the U.S., far ahead of second place Netflix. In 2021, Shein launched a design competition TV series aimed at further entertaining and engaging with its customers.
Shein has become successful by outcompeting its rivals in each of the five areas mentioned above. For its core segment of young women, it’s faster, better, cheaper, and cooler than any of its competitors. Critics have rightly pointed out Shein’s sketchy record on protection of intellectual property, an ambivalence to worker welfare, and a generally lax attitude towards its environmental impact. Despite these criticisms, the company has achieved remarkable success by delivering on its brand promise rather than through radical innovation.
In fact, Shein is far from the only company to have disrupted an industry without a significant product or market innovation. Google wasn’t the first search engine; it was just qualitatively much better and faster than its peers. Zoom was a bit player in the video conferencing market until the onset of the COVID-19 pandemic when people realized that it outperformed its more mainstream competitors on key functionality and ease of use. Many pundits discounted Shopify’s chances to succeed in the highly competitive ecommerce management software sector, but it prevailed over rivals such as Amazon with process excellence and a singular focus on the needs of vendors.
Shein, like many others today, has succeeded in becoming a disruptor without a breakthrough technology or business model. Instead, the company has prevailed with a clarity of purpose backed up with process excellence. Shein is yet more proof that you don’t need to spin the wheel on a radical innovation to succeed in highly volatile environments; you just need to deliver on a crystal-clear value proposition.
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