Ever since we published the “Who is SHEIN” report, many have reached out to us for questions not only about SHEIN, but also on cross border ecommerce from China in general and of course, the crowded fashion space.
To address some of these questions but also to have discussion with everyone, Momentum Academy together with 01VC, a Shanghai-based VC fund which has been looking at cross border investments for many years, conducted “Off the Record: Behind SHEIN’s Success and Global cross-border trends” last Friday (2 September).
Momentum Works’ CEO Jianggan Li and Ian Goh, Managing Partner of 01VC spoke with close to 300 participants about SHEIN, the reasons behind its success, how cross-border ecommerce has evolved over the years and what’s next for the space. We received many questions from the participants, which we’ll answer soon.
In this first part of a three-part series, we share a few snippets about the speakers’ insights on SHEIN’s beginning, the mysterious founder and several other interesting aspects:
1. Back in 2017/8, many investors thought that SHEIN was growing too slowly…
Back then, companies like JollyChic, ClubFactory etc. were popping up and raising millions from investors. Everyone was also interested in Wish, which was powered by Chinese sellers and was at the height of its growth in 2017.
Growth was easy to achieve back then because of cheap capital, customer acquisition costs and cheap logistics. They were acquiring customers and expanding very fast.
SHEIN was already around for a few years then and was selling to quite a few countries. However, Ian mentioned that he heard from fellow investors, “SHEIN is growing too slowly and the founder is prioritizing the wrong things – supply chain instead of growth.”
2. What was SHEIN’s strategy?
In hindsight, they were doing the right thing. SHEIN paused their focus on growth to get their supply chain right. Was it a deliberate strategy? Partly.
What SHEIN has done is very different from the early guys. SHEIN gained experience in selling wedding dresses, and slowly built infrastructure and their own supply chain. First SHEIN was selling pictures, then SHEIN was selling products, and now SHEIN is selling a brand.
We all know from the “Who is SHEIN?” report that SHEIN, like any other ecommerce player, was able to acquire customers at a low cost.
Then, instead of continuing to grow – they concurrently built up their flexible supply chain with the focus on the “small order, quick reorder” mechanism – quickly testing out winning designs before scaling production. To do that it requires strong trust with the factories as well as an information system that allows full visibility/control of the entire manufacturing process. Once you have that, you have the advantage/ability to obtain/retain customers through a vast number of new designs. You can read more here.
Ian mentioned that in the past, online sellers were selling products’ images. They don’t necessarily have the products in hand – and SHEIN did that. He said, “First SHEIN sold images of products, then they sold products, and now they are selling their brand.
3. SHEIN’s founder (and the founding team) is still very mysterious
When you google Chris Xu, the founder of SHEIN, most of the results are not actually him. It’s a professor who happens to have the same name.
The real founder, Xu Yangtian (who took names of Sky and Chris), has a degree in international trade from Qingdao University of Science & Technology in 2007. He then joined a company in Nanjing, Jiangsu Province to do SEO. He quit to become an entrepreneur, selling wedding dresses crossborder. He founded SHEIN in 2012.
A few key lieutenants have stuck with him ever since. His three co-founders are in-charge of the supply chain, marketing, and product, and have been working together as a team since 2012.
4. The location of SHEIN’s facilities and headquarters helped it achieve growth
SHEIN’s manufacturing HQ is in Guangzhou.
Jianggan mentioned, “It is not as fancy as tech companies in Singapore, but it is located in an industrial area with sizable but unimaginative offices. Their factories are also quite simple.” The close proximity to thousands of factories and access to large markets of accessories give SHEIN the ability to launch its small order and quick reorder model and build trust with the suppliers.
5. Not every ecommerce player can tackle fast fashion
Unlike SHEIN’s quick reorder model, big ecommerce players like Amazon are not structured for fast fashion.
Ian said, “Amazon requires you to put your inventory in their warehouse in the US to drive better traffic. Fashion is seasonal, so by the time you put down your order and ship it to the US, it could be weeks or months and the stock could suddenly go out of style or out of season.”
This is common for most big ecommerce players. And this is a reason why unsold inventory aka fashion waste is the biggest issue for fast fashion, or fashion in general.
6. In 2021, the investors’ sentiments are very different. Now SHEIN’s massive success has investors hunting for the next SHEIN in every category
Interestingly, right after the event on Friday, it was reported that Pinduoduo was launching a cross-border ecommerce app in the US, quite similar to SHEIN on the front end.
Not just Pinduoduo, many other bigger players are also trying a similar approach. Tiktok has been trying to leverage its user base to launch a SHEIN competitor. They did a short launch for an app called Fanno for two months, but it didn’t work out.
Many investors claim that they just invested in Company X, which is the SHEIN of X industry. Many startups also claim to be the next SHEIN of industries such as maternity, consumer electronics, etc.
It isn’t quite a stampede, but there are definitely a lot of players – from majors to startups – trying to replicate SHEIN’s success across industries and regions.
7. Can SHEIN’s success be replicated?
Cross-border is not really easy and there are a lot of factors to be considered. Replicating SHEIN’s success in cross-border is not for the opportunistic. It requires patience, painstaking work with the supply chain, as well as perseverance.
It is not always easy to operate with patience when a company is venture-funded, since the investors want to see rapid growth. Thus, long-term cross-border success requires investor-founder dynamics that focus on the right decisions for the long term.
Check out Part 2 of the sharing to understand global cross-border ecommerce trends and Part 3 to know what’s next for the cross-border ecommerce space.
You can also read in-depth about SHEIN in our “Who is SHEIN?” report here and about the cross border space in our “MW-01VC Cross border ecommerce from China” report here.
Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].