Fast-fashion giant Shein has managed to snag hordes of Gen-Z shoppers in the US despite a key business drawback: It has typically offered 10-15 day e-commerce delivery windows that its competitors easily beat. .
Now, the China-founded apparel company is pushing to get its ultra-low-priced merchandise to your doorstep faster by establishing distribution centers in the Midwest and California, a significant shift from its practice of shipping orders. individuals directly to US consumers from abroad.
The investment in logistics adds to the pressure Shein has already put on more established rivals like H&M and Forever 21, while threatening the newcomer’s profit margins and introducing new risks to its business model.
“The time it takes to get products to the consumer in the world of fast fashion, where a young consumer, particularly a young female consumer, probably doesn’t want to think two weekends ahead is really important,” said Adam Cochrane, retailer and luxury analyst at Deutsche Bank AG.
A Shein distribution center, located in Whitestown, Indiana, is already operational and could cut shipping times by up to four days. It currently has 800 employees, with plans to have 1,000 by the end of this year. A second facility in Southern California is expected to open by spring 2023, the company said, and it is considering a third such space in the Northeast.
These facilities will not carry Shein’s full assortment of garments, but they will carry certain products, especially key staples. Inventory will be chosen based on what’s selling well in the US and will also reflect seasonality, with gear like tank tops claiming more space when temperatures rise. US centers also handle merchandise returns.
Shein is taking a similar tack in other key markets: It has announced plans for a distribution center in Poland that will serve Europe. And on Tuesday, the company said it opened a 170,000-square-foot warehouse in Toronto, along with a corporate office at the same location.
The improved speed could help Shein, which was valued at $100 billion in a fundraising round earlier this year, build a remarkably fast raise.
The company, which started selling in the US in 2012, gained traction with its website and app thanks to a steady stream of new products, ubiquitous marketing on TikTok, and extremely low prices. It largely avoids physical stores, except for the occasional pop-up store.
It is the ninth most popular clothing brand among Gen-Z women in the US, according to survey data from Morning Consult. That puts Shein up there with classic American brands Levi’s and Calvin Klein.
“There have always been disruptors in the fast fashion space, but what Shein brings to this is greater scale, coming from China,” said Caroline Gulliver, an analyst at Stifel Financial Corp. in London. “It’s a dramatic change in the landscape in the United States.”
Shein has become a formidable competitor to US chains like Forever 21 and American Eagle Outfitters Inc. that cater to the same demographic. It also competes with international fast fashion players with a strong presence in the US, including Hennes & Mauritz AB (H&M), Zara owner Inditex SA, and UK-based brands Asos Plc and Boohoo Group. Plc.
Shein is expected to generate $24 billion in revenue this year, according to a person familiar with the figures who asked not to be identified. In the first quarter of this year, Shein’s US sales grew 43% from a year earlier, compared to a 10% decline at H&M, according to data from Bloomberg Second Measure.
bulk inventory
Still, developing a US distribution network adds the potential for new costs. The US allows up to $800 of goods to be imported from China duty-free, a limit that was mostly easy to avoid when shipping individual customer orders. But if Shein now ships bulk inventory to distribution centers, he will likely have to ship heavier packages that are subject to tariffs.
Additionally, Shein typically makes small, near-order batches of its garments, a setup that helps avoid discounts and protects profit margins.
“Once you have a distribution center in the United States, you’re no longer making to order,” said Sucharita Kodali, principal analyst at Forrester Research. “You are shipping large bulk quantities of an item that may or may not sell. I don’t think this is a home run, but it’s too early to tell.”
“The question is, can they maintain their price point with the incremental cost of the US distribution center?” Cochrane said, noting that Shein’s price advantage over competitors may shrink.
Shein’s effort to expand its US distribution network is part of a race in the apparel industry to rethink logistics to find or maintain a competitive advantage.
Online fashion retailer Boohoo is making a move similar to Shein’s, opening a distribution center in Pennsylvania next year that it says will offer three-day delivery windows to 95 percent of the country, compared to time. current standby of 10 days.
American Eagle is moving in a somewhat opposite direction, piloting a program in which it will ship merchandise directly from overseas facilities to US customers in an effort to “more quickly react to changing business trends.” Quiet Platforms, the logistics arm of American Eagle, will also offer fulfillment services to other retailers looking to ship merchandise from China to consumers in the US.
“By providing companies on our platform with access to upstream inventory pools, we enable them to carry less heavy inventory and be more strategic in their assortment decisions,” Shekar Natarajan, director of supply chain for American Eagle, said in a statement.
Meanwhile, Asos is slowing investment in automation at its Atlanta warehouse, in line with expectations it will handle less inventory as part of a broad restructuring plan. The brand is giving up hope of international growth, noting in a recent earnings statement that expansion outside the UK has become “overly capital intensive”, resulting in a “lack of significant growth”.
long term danger
Shein’s operational gamble follows a series of news reports exposing it for high carbon emissions, unfair labor practices and poor product quality, none of which appear to have significantly affected consumers’ appetite for its merchandise.
But its business model, along with that of peers like H&M, faces longer-term dangers. Legislation on environmental and labor costs associated with garment production is gaining ground globally. A recent investigation found that Shein workers in China worked 18-hour days and were paid £3 ($3.34) per garment, just the kind of situation lawmakers might try to crack down on.
“All these fast fashion brands are basically going to face a reckoning in the next 10 years,” said Forrester’s Kodali. “They need to figure out how to coexist when the fundamental demand for their business is going to go down, either because the consumer doesn’t want it, it’s going to be legislated against, or the cost of their raw materials is just going to go up.”
By Olivia Rockman
Learn more:
How to compete with Shein
The Chinese fast-fashion giant built an empire on unrivaled speed to market and unbelievably low prices. To compete, the others must play a different game.
Source: news.google.com