The inside story behind China’s $15b most disruptive fast fashion app

Karen Vera, 20, used to buy her clothes from well-known fast-fashion chains like Zara and H&M, or online retailers like Asos.

These days, the New Jersey college student is more likely to turn to a rapidly growing Chinese company that few people over 30 have heard of.

The platform, Shein, is arguably the most disruptive entrant into the global fast-fashion industry in decades, challenging the business models of its Western rivals.

The firm targets young women and teenage girls through its website and mobile app, selling a far wider range of trendy clothes than its competitors at a fraction of the price.

The plan appears to be working. Despite its relative obscurity, Shein has secured investment pricing it at $15 billion, ranking it among the world’s most valuable technology startups.

The company, which operates almost solely for export and claims to ship to more than 220 countries and regions, currently boasts the title of most downloaded shopping app on Apple Inc.’s App Store and the Google Play platform, outranking the world’s largest retailer, Amazon.com Inc.

Shein’s rise has drawn both praise and criticism. The company’s admirers say it is redefining the global fast-fashion sector for a younger generation smitten with mobile technology and less likely than ever to visit brick-and-mortar stores.

But its detractors say Shein’s low profile shields it from the criticism leveled at rival firms for their involvement in an industry linked to a range of environmental and labor abuses.

Additionally, more than a decade after the company was founded, Shein’s opaque ownership means that few people know who’s in charge — even those who work for it.

Even faster fashion

Shein’s success has centered on responding more quickly to emerging trends than its competitors, offering a greater variety of new lines and selling at bargain-basement prices — effectively turbocharging existing fast-fashion business models.

Whereas Inditex, the world’s largest fashion group and the owner of Zara, claims to bring new clothing lines from the drawing board to store shelves within three weeks, Shein can make new products available online five-to-seven days from conception, some suppliers said.

And while the Spanish conglomerate says it creates 50,000 new fashion designs every year, its Chinese rival added more than 30,000 in the last week alone, according to a Caixin calculation based on figures given in the Shein app.

The key to selecting them is analyzing huge amounts of real-time data, maintaining close ties with manufacturers, and aggressively acquiring new users, according to Caixin interviews with experts and people close to the company.

Besides its headquarters in the eastern Chinese city of Nanjing, Shein also has a key office in Guangzhou, the southern metropolis known as a global hub for garment manufacturing.

Having evolved from a wedding dress wholesaler, the company maintains long-term relationships with apparel-makers, whom it requires to use a highly automated supply chain management system that utilizes real-time trend data to commission new designs and monitor orders, local suppliers told Caixin.

To maintain quality, Shein severs ties with the lowest-performing 10% of suppliers at the end of each quarter, said a staffer at a maker of women’s exercise gear who is familiar with the platform’s business model.

When it comes to international distribution, Shein’s huge order volumes make it eligible for lower shipping costs and other perks from Chinese postal services, further driving down costs, the staffer said.

As it’s woven deeply into southern China’s rapid production chains, Shein is able to outcompete fast fashion giants on many of the metrics that drove their rise to the top.

Shein is also winning the price war. A recent Caixin search of Zara’s U.S. website found newly added women’s T-shirts on sale for about $10, jeans for $40 and swimwear for $45. Shein sells similar products for about $7, $20 and $13, respectively.

Shein’s wildly successful business model has opened a new front in the global fashion sector that might be called “real-time retail,” said Matthew Brennan, an expert on Chinese mobile technology and author of “Attention Factory: The Story of TikTok and China’s ByteDance.”

The company has created a “unified system whereby the activity that happens on the website globally is monitored and comes into a centralized system” that decides whether to adjust order volumes, he said. “Although they don’t own their factories … they’re so well integrated that it’s almost as if they do, in terms of how they’re able to up their orders almost instantaneously.”

Low prices, but at what cost?

Customers said Shein’s low prices, wider product range and the user-friendly app kept them coming back despite concerns about the quality of some of their garments.

Vera, the college student, said she began using the platform around 2017 and made her most recent purchase three weeks ago. For just $168, she bought 22 items, including shirts, jeans and swimwear — a deal she says other outlets would struggle to beat.

Compared to other online stores, Shein “is more affordable, and I feel like they have a lot more variety (in terms) of what I like to wear,” she told Caixin in a phone interview, adding that the company also offered generous discounts and shipping deals in return for ordering in bulk or writing feedback on its app or website.

However, Shein doesn’t always hit the right note. Several customers interviewed by Caixin said they had ordered products that took weeks to arrive, differed from their online listings, or were of such low quality that they were virtually unwearable.

Similar complaints appear online, where some users have blasted the brand on reviews sites and popular influencers have criticized certain products on video platforms like YouTube.

Shein has also sparked its fair share of controversy, issuing a public apology last year for selling a necklace that resembled a Nazi swastika and stirring more ire by offering what appeared to be home decorations modeled on Muslim prayer mats.

But despite the drawbacks, Shein’s fans keep coming back. Even though Vera said she planned to return three items from her recent order due to sizing or quality problems, the experience hasn’t damaged her view of the brand.

“I don’t even mind returning them,” she said. “I’d rather try (them) and see if I like (them).”

Low profile, big profits

“A $3 shirt on Shein looks the same as a $30 one at Zara. Who wouldn’t love that?” said a senior executive at one domestic private equity giant with links to Shein.

It’s one of a new generation of Chinese companies which produce their goods almost entirely for the overseas market, using clever branding, analytics and celebrity tie-ups to overcome the persistent headwinds faced by domestic brands overseas.

The cross-border e-commerce firm grew more than 200% in North America last year with sales of $10 billion, the executive told Caixin.

But it’s still relatively unheard of in China outside of private equity circles — where it’s so hot that investors can barely secure themselves a stake and IPO rumors are swirling.

Sequoia Capital is one of the only firms that has confirmed it is an investor in Shein, but others linked to the company include Tiger Global. Shein has not disclosed its investors.

But Caixin has learned it was a 300 million yuan round from Jinglin Capital and IDG Capital in 2015 — a year after it established its office in Guangzhou — that helped the company rebrand and start rebuilding its supply chain from the ground up to square off against the world’s largest fast fashion brands.

Shein’s affiliated companies in Nanjing and Guangzhou both declined to comment for this article.

Below is the second part of the series, originally published on Caixin Global. 

Challenging global brands

The rapid rise of the $15 billion Chinese fast-fashion firm challenging industry titans like Zara and H&M has prompted questions about who controls the company and the sustainability of its business model.

Shein, a Chinese retail website and app focused almost entirely on the export market, has proved a smash hit among young women and teenage girls in Western countries thanks to its huge selection of cheap, trendy clothing.

But observers say its strategy, which uses China’s world-leading garment manufacturing networks to outmuscle its rivals on speed and price, reprises global fast-fashion schemes linked to a litany of environmental and labor abuses.

Shein is not publicly listed, and therefore is not under an obligation to disclose its finances. But as rumors swirl that the company is preparing for an IPO, its opaque ownership structure and media-shy approach has prompted questions about who exactly is reshaping the sector.

Black box

Shein shuns traditional marketing in favor of online advertising, social media promotion and tie-ups with celebrities and influencers. Western A-listers Katy Perry, Lil Nas X and Rita Ora are among those who have promoted the company’s clothes.

It also shies away from the news media. Since its founding more than a decade ago, Shein has issued just a handful of press releases, most of which are run-of-the-mill communications about corporate events, supplier reshuffles and changes to its brand name.

Neither Shein’s app nor its website give details of the company’s origins, history or ownership, or disclose that it is a Chinese firm. Few details about the company exist in major online directories and encyclopedias.

It may make sense to keep a low profile. Chinese technology firms have come under fire overseas in recent years, with the U.S. taking aim at TikTok, a short-video app developed by Beijing-based ByteDance Ltd., and India banning dozens of apps, including Shein, on supposed national security grounds.

Who, then, ultimately runs Shein? Corporate filings paint a hazy picture. Tianyancha, an online registry of Chinese companies, says the brand belongs to Nanjing Lingtian Information Technology Co. Ltd., an internet firm specializing in cross-border trade. But the same website also says the company revoked its business license in April.

A person who answered when Caixin called a number associated with Nanjing Lingtian said they worked for Shein and that the company was now known as Nanjing Xiyin E-Commerce Co. Ltd. The person said they did not know why the name had changed. Phonetically, “Xiyin” sounds like “Shein.” Companies sometimes change their names when they are gearing up for an IPO.

Both Nanjing Xiyin and a related company, Guangzhou Xiyin Supply Chain Management Co. Ltd., are owned by Guangzhou Xiyin International Import-Export Co. Ltd., a trading firm, according to Tianyancha. The trading firm, in turn, is owned by Zoetop Business Co. Ltd., a company registered in Hong Kong about which little is known.

Shein has said in press releases it was founded in 2008 by Chris Xu, an American-born Chinese graduate of “Washington University.” It is not clear if that refers to Washington University in St. Louis, a Missouri-based university, or one of several other universities with similar names, such as Seattle’s University of Washington.

Several Chinese media outlets, citing interviews with former colleagues, name the founder as Xu Yangtian, an entrepreneur from East China’s Shandong province who, the story goes, started the company in 2008 as sheinside.com and initially sold wedding dresses online.

Xu Yangtian is the legal representative of Nanjing Xiyin and was chairman, CEO and legal representative of Nanjing Lingtian. Like the other people named as key personnel at the above companies, he has a minimal online presence.

Caixin was unable to contact Chris Xu, Xu Yangtian, or any other people listed as executives at Shein’s affiliates. We were also unable to contact Zoetop, whose details are not listed in Hong Kong’s corporate registry. All of the above companies in Nanjing and Guangzhou declined interview requests.

More than 10 current and former Shein employees contacted by Caixin for this story either declined to be interviewed or did not respond.

But one who did was Hamza Uçar, a Turkey-based business developer who worked as a digital marketing manager at Shein’s Nanjing headquarters for seven months in 2018.

During his tenure, Uçar helped design a website targeting Turkish consumers, conducted market research and analysis, and oversaw Shein’s expansion into Turkey, he said. The firm’s multistorey, open-plan workplace was decorated with images of iconic global cities and felt “pretty relaxed and cool,” akin to the culture of a tech startup.

Two things about the company particularly stood out, Uçar said. One was how aggressively it pushed into new sectors: In one case, Shein began building its Turkish website before Uçar had even completed his market analysis, indicating that the report was a mere formality.

The other was how little was known about the people in charge. Throughout those seven months, Uçar said, he never once met or spoke with Xu or any other Shein executives. As far as he could tell, neither did any of his immediate colleagues.

“We never actually saw them,” he said. “We didn’t even know where their offices were.”

‘Unapologetically fast fashion’

Industry experts interviewed by Caixin described Shein as filling the space vacated by fast-fashion brands that have bowed to pressure to abandon some of the business model’s worst excesses.

Such marques include Zara, Pull & Bear, and Bershka, all of which are owned by Inditex, the world’s largest fashion group. The Spanish conglomerate has pledged that all its labels will only sell sustainable clothes by 2025.

H&M, which like Zara recently faced a backlash in China for its response to alleged labor abuses in its Chinese supply chains, has also announced a series of targets for the coming decade.

Such companies have sought to burnish their ethical credentials at a time when consumers are increasingly anxious about the fashion industry’s impact on workers and the global climate.

The sector has long been linked to suppliers with unsafe or exploitative labor practices, and also produces more global emissions of carbon dioxide, a planet-warming greenhouse gas, than international air travel and maritime shipping combined, according to the World Bank.

Shein, too, stresses its dedication to sustainability. The company says on its website that it bans the use of child or forced labor in its supply chains, demands that its vendors pay their workers fairly, and minimizes waste and power consumption to limit its impact on the environment.

But experts said it was tough to substantiate those claims. One clothing sustainability expert, who later asked not to be named, described the firm as “unapologetically fast fashion.”

Shein’s marketing materials are filled with “vague statements like ‘pledge to stay transparent,’ but they technically haven’t even started being transparent,” said Stephanie Lawson, the founder of sustainable fashion consultancy Laws on Design. “There is no absolute information or data to show their track record or goals.”

In response to climate concerns, “many other brands are more clearly working — if imperfectly — toward reducing their carbon footprint and are actively engaged within civil society and with their customers in order to do so,” said Lawson, who previously consulted for H&M.

While other companies gradually invest in new materials, experiment with more sustainable business models and back initiatives that empower disenfranchised communities, “Shein is doing none of these, at least not visibly,” Lawson said.

“The planet cannot currently sustain a lifestyle whereby the majority purchase non-recyclable products currently priced and seen as single-use,” she added.

The two-part series was first published on Caixin Global.com

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.