Everything You Need To Know About SHEIN - Part 1
Marcelo Claure investing $100M and leading Latam; the history and secret sauce of SheIn
As previewed in my last post, I was preparing to write about Temu. Then, on Jan 31, WSJ broke a significant piece of news on SheIn — a competitor of Temu that I was going to discuss — so it was only fair to shift our focus a little bit.
Since there is too much to cover on this topic, I’m going to write about SheIn in 2 pieces — this post is Part 1 of the series, which explains the recent news, the company’s journey, and its core competitive advantage. In the next post, as Part 2, I will focus on some of the critical challenges SheIn faces and how fintech can help solve the problems.
1. Major headline news
The online fashion retailer was reported to name Marcelo Claure as its head of Latin America, leading a massive strategy to build out the entire supply chain in Brazil and Mexico.
Marcelo is undoubtedly a heavy-weight executive, well known for his previous position as the COO of SoftBank Group (as Masayoshi Son’s No.2) and Executive Chairman of WeWork after the fiasco of Adam Neumann. After the fallout with SoftBank over compensation issues in early 2022, Marcelo started his own family office Claure Group, which reportedly will invest about $100 million in SheIn.
This is very likely part of the new round of financing underway now. On Jan 19, it was reported that SheIn was in the process of raising $1.5 to $3 billion at a valuation of $64 billion. This is a sharp drop of about 1/3 from the previous round, Series F from Apr 2022, where it raised $1.5 billion from General Atlantic, Sequoia China, and Mubadala, at a valuation of $100 billion — higher than the other two fast fashion giants H&M and Zara combined.
But even $64 billion is still quite a jump from its 2020 valuation of $15 billion — 4x in 3 years. Meanwhile, it’s widely anticipated that SheIn would IPO in 2023, together with Stripe, among other highest-valued unicorns.
Now one of the largest fashion retailers in the world, it was largely unknown before 2017. What was the secret behind its sudden rise in fame and skyrocketing revenue growth almost 40x over the period?
2. The journey of SheIn
2.a. 2008-2012: Before SheInside.com
Founded in 2008 in Nanjing, the original business model of SheIn (back then called Dianwei) was a small online shop selling wedding dresses made in China to the rest of the world. What’s remarkable was that the founder Yangtian Xu didn’t come from a fashion background but was a tech guy — Xu was working as an SEO specialist for an ecommerce company.
During Dianwei’s early years, Xu used his SEO skill to test several permutations of keywords such as fashion, outlets, online, shopping, she, her, etc. He was burning nights and days on SEO — he was so good at it that he managed to control advertising costs at 70% cheaper than his competitors.
In 2012 Xu finally settled on SheInside.com as the domain name and transitioned from wedding dresses to fast fashion female clothing cross-border ecommerce.
2.b. 2013-2014: Fueled by SEO
His SEO skills paid off. By 2013, his SheInside hired over 50 employees, with monthly order volume as high as $7 million. On the sales and marketing side, SheInside gained substantial traction from social media such as Facebook, Instagram, and Pinterest.
During the same year, it raised a $5 million Series A from JAFCO Asia. However, SheInside hit a capacity bottleneck — they couldn’t fulfill all the orders at reasonable costs.
That was the pivotal moment in SheInside’s history — it triggered Xu to relocate the headquarters in 2014 from Nanjing to Guangzhou, closer to the manufacturing base, so that it could set up its supply chain.
2.c. 2015-2016: Rebranded as SheIn
In 2015, Xu shortened the domain name from SheInside to SheIn, to make it crisper. With RMB 300 million (~$45 million) in Series B from Greenwoods and IDG Capital, SheIn reached a valuation of RMB 1.5 billion (~$220 million). Meanwhile, it bought out a group of smaller brands to expand its supply chain. It also acquired several tech companies to enhance its core technical competitive advantage.
For fast fashion, the hardest part is flexible manufacturing for small orders. Remember, this was before Alibaba made it super cheap to flexibly manufacture small batches in orders of 5 or 10 pieces of clothes. No other manufacturer in China could sustainably take orders of less than 100 pieces of clothes and respond swiftly to market reactions.
But SheIn succeeded, even with a lot of subsidies initially. The secret was to maintain excellent relationships with the factories. SheIn set a rule of never delaying payments to the factories, a sharp contrast from other companies that were constantly late in payments.
The hard-earned credibility made SheIn the magnet of many staunch partner factories — so loyal that in 2015 when it relocated from Guangzhou to a neighboring city Panyu, almost all of its partner factories moved with it.
By 2016, SheIn had built an in-house design team and pattern-making facilities. It assembled a group of 800 workers operating a super efficient workflow from design to pattern-making and manufacturing.
2.d. 2017-2019: The J curve
2017 was an inflection point of SheIn’s growth trajectory, thanks to the momentum from the Middle East market. SheIn launched in Saudi Arabia in 2015, but it wasn’t until 2017 that sales started to take off.
Over those two years, SheIn partnered with state-owned NAQE to deal with local logistics such as cash on delivery and payment collection. Local shoppers have a solid loyalty to ecommerce platforms with high quality, so SheIn invested heavily in the supply chain to guarantee quality, high recurring purchase rates, and low return rates to lower the average marketing and operating costs.
With a focus on supply chain and operational excellence, SheIn gained traction in multiple overseas markets such as the US, Europe, Southeast Asia, and India.
During 2018-2019, through the close partnership with the supply chain and also helped by the economy of scale brought by growing order volume, SheIn was able to optimize costs from improvements in key production components such as textile, printing, direct sourcing, etc.
Meanwhile, SheIn became a unicorn — with a Series C round in 2018 led by Sequoia China valuing it at $2.5 billion, then in the next year 2019 Series D led by Sequoia China and Tiger Global, raising $500 million at a valuation of $5 billion. By 2019, SheIn’s annual revenue exceeded RMB 20 billion (~$3 billion).
2.e. 2020-2022: Accelerated by the pandemic
The COVID pandemic was a disaster for most fast fashion giants, such as Zara and H&M, because their business model relied heavily on physical stores. But for the ecommerce brands like SheIn, it was a once-in-a-lifetime tailwind.
When Zara lost over €400 million during 1Q2020, SheIn’s revenue was 2x year-over-year. The volume was so high that it crashed SheIn’s server and forced it to hire over 3000 people within a week to manage the warehouse.
While the Gen-Z’s in the US and Europe had nothing to do at home, they spent more time trading stocks on Robinhood and browsing for fast fashion clothes on SheIn. The global traction drove SheIn’s revenue to over $100 million in 2020 and close to $160 million in 2021.
Finally, in April 2022, SheIn reached a new milestone — raising $1.5 billion in Series F from General Atlantic, Sequoia China, and Mubadala at a valuation of $100 billion. It’s now the 2nd most downloaded app in the US and accounts for about 28% of the fast fashion industry in the US.
Moreover, the relocation of its headquarters from China to Singapore revealed SheIn’s ambition to become a truly dominant global brand for the future world.
3. What’s SheIn’s secret sauce?
COVID accelerated the growth of SheIn, but the core strengths of SheIn come from the integration of its flexible supply chain and its social media marketing targeted at Gen Z.
With over 250 million followers and many affiliated influencers across Facebook, YouTube, Instagram, and TikTok, SheIn successfully occupied Gen Z's mindshare as the go-to fast fashion brand. Thanks to Xu’s deep understanding of SEO and marketing, he could leverage these social media followers as his A/B test platform to test and optimize his SKUs swiftly.
The signals from social media form a closed feedback loop to its R&D and manufacturing engine. It only takes SheIn 2-3 weeks to move from product ideation to the final product. As a result, during 4Q2021 SheIn was able to launch 5000-6000 SKUs on daily basis.
From the operational efficiency perspective, SheIn managed to lower the inventory cycle to only 30 days, compared to about 140 days for H&M and 90 days for Zara. SheIn’s excessive inventory level can be as low as less than 10%, compared to the industry average of 25%-40%.
This marketing-to-manufacturing flywheel underpins SheIn’s low price and popularity. However, it also exposes SheIn to several challenges that are hard to navigate.
Part 2 to be continued…
Subscribe to stay on top of my new releases.