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How Shein Invented Fast-Fashion 2.0 And Outgrew H&M And Zara

How Shein Invented Fast-Fashion 2.0 And Outgrew H&M And Zara
Investor attention will be drawn to two key questions when Inditex, the company that owns Zara, and H&M reveal their latest sales figures: how are the two fast-fashion pioneers reacting to Shein, the current market leader?
Shein is well-positioned for an IPO and has a high valuation. According to research firm Coresight, the business made over $23 billion in revenue globally in 2022 with almost all of its sales occurring online.
Shein surpassed Zara and H&M to hold about one-fifth of the global fast-fashion industry in 2022. Shein's inexpensive merchandise, such as $5 t-shirts and $10 sweaters, attracts customers who might have otherwise bought at discount apparel stores.
“Shein’s actual strength is acknowledging that they have no idea what you want to wear,” said Rui Ma, an analyst and founder of the newsletter Tech Buzz China. “What they have confidence in is their ability to ramp up production very quickly.”
This China-founded e-tailer has become a serious challenge to Inditex, which reports results on Wednesday, and H&M, which reports quarterly sales on Friday, in the market for inexpensive apparel and accessories.
Adam Cochrane, an analyst at Deutsche Bank, lowered Inditex and H&M to a "sell" recommendation on December 6. He cited a number of issues, including price deflation in the apparel industry and pressure from Shein and Temu, a rapidly expanding rival company owned by PDD.
Regarding Shein's market share, H&M chose not to comment. A request for comment from Zara was not answered right away.
Shein does, in fact, share several characteristics with Zara and H&M, which are frequently recognised for having invented "fast-fashion," the idea of taking runway styles and selling them to customers for less.
Shein is considered an especially serious offender due to its extremely quick manufacturing cycle, according to some critics, despite criticism being levelled at all three retailers for allegedly stealing designs from other firms.
Shein is accused of using artificial intelligence and a proprietary algorithm to trawl the internet for design ideas, sometimes directly resulting in plagiarism, according to a lawsuit filed in July for intellectual property infringement.
Analysts and investors, however, believe that Shein's most important approach is to leverage a network of suppliers, most of whom are located in China, who defy conventional manufacturing patterns by taking modest initial orders and scaling up in response to demand.
Compared to more established fast-fashion retailers like Zara and H&M, who pioneered shorter production deadlines but still mostly relied on guessing what styles people would buy, Shein was able to develop a fundamentally different business model thanks to its incredibly flexible supply chain.
“For the most part, a Zara or an H&M is still anticipating fashion trends, pre-ordering that product between three to 12 months ahead of sale, and committing to fairly large order volumes,” said Simon Irwin, a former Credit Suisse analyst who has researched Shein’s pricing strategies.
Based on a 2022 study, Shein can ship products straight to customers via air freight after receiving orders, usually in five to seven days.
Still, shipping times may reach two weeks, based on the item and the customer's location. But according to Sheng Lu, a professor of fashion and apparel studies at the University of Delaware, Shein has an advantage over brick-and-mortar retailers because of its direct-to-consumer business strategy. These businesses have to deliver clothing over a global network of storefronts and maintain those locations stocked.
According to Patricia Cifuentes, senior analyst at Bestinver's securities division, which owns shares of Inditex, Zara has a fundamental advantage over H&M and even Shein in terms of delivery time.
"The sooner a customer receives the garment, the less likely they are to return it. So Inditex wants to be the fastest in sending you the product, but also if you do not like it, they want to put it back into the system as quickly as possible to maximise the chances it will sell at full price."
Based on statistics from Lu, Zara and H&M introduced 40,000 and 23,000 new items to the U.S. market, respectively, between November 2022 and November 2023. The "stock keeping units," or SKUs, used by each shop to identify specific products, including different sizes of the same clothing, are analysed by the data.
During that time, Shein launched 1.5 million products, which is 37 times more than Zara and 65 times more than H&M combined.
Furthermore, despite the fact that H&M and Inditex still use Chinese suppliers, both companies have sizable manufacturing facilities abroad.
The company's headquarters are in Spain, although 12 countries—including Portugal, Morocco, and Turkey—accounted for 98% of Inditex's output in 2022. According to a spokesman, Bangladesh and China are H&M's two main apparel production markets.
Shein declined to comment on its supplier network, but current import data indicates that nearly all of the products it imports in large quantities into the United States originate in China.

Christopher J. Mitchell

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