The Current #5: Inside Shein: The disruption and opportunities behind real-time retail

The Current is a bi-weekly series from NEA on the developments impacting consumer technology. Each installment examines a trend, disruption, or opportunity with consumer data. Posts are concise, informative, and always current.

As a private company,?Shein?does not disclose its financials. Perhaps the best indication of its scale didn’t come from a leaked P&L or report, but a slip of tongue. In an interview earlier this year, the CEO of a Shein retail partner said, with a bit of braggadocio, that the Chinese retailer “does a lot?more than $30b” in annual revenue. Taken seriously, the estimation suggests Shein’s scale rivals Inditex, owner of?Zara?and largest publicly traded apparel retailer – a colossal feat for a company twenty-three years younger.

The rise of Shein is a success story in an otherwise unforgiving retail ecosystem. Last month, Macy's announced the closure of?150 stores?in a strategic pivot to luxury sales. Farfetch, the luxury e-commerce platform once valued at $25b, was?acquired?by Coupang in February for a mere $500mm. Outdoor Voices, previously a darling of direct-to-consumer brands, abruptly?closed?all its brick-and-mortar stores in March – a surprise to even its employees. Meanwhile, public market investors continue to discount brands like Warby Parker and Allbirds (the latter, as of writing, is valued at a modest .5x NTM revenue[1]).

How can merchants translate the success of Shein into their own business – and how commerce enablement software can support that translation – first requires answering a more fundamental question. What do consumers value about Shein in the first place? To uncover relative value, a panel of adult consumers in the United States familiar with Shein and Zara compared the two across purchasing criteria:

The value consumers identify underlie, by my account, Shein’s two greatest superpowers:

• Low-batch manufacturing base: Shein leverages China’s basis of small and medium sized manufacturers not just for low-cost production but impossibly low minimum order quantity batches. That manufacturing basis enables an inventory agility and velocity that makes incumbents look outdated
• Large-scale automated test and re-order (LATR) model[2]: Likened to Fordism or the Toyota Just-in-Time model, Shein has pioneered a new manufacturing model that continually optimizes production based on real-time data from the open web. The system scrapes social platforms and competitor sites to interpret trends, tests consumer demand with a low-batch order, scales up and down production based on product launch sales, and reiterates. LATR, the Darwinian mechanism behind the 6,000 SKUs Shein adds every day, represents the evolution beyond fast-fashion to what some commentator have called ‘real-time fashion’

The disruption of Shein and other real-time retailers presents an opportunity for the commerce enablement ecosystem. Examples include?Raspberry AI?who leverage custom trained models to shorten design schedule and increase sell-through rates,?Syrup?who optimize inventory allocation, replenishment, and buying to improve full-price sell-through without stockouts, and?Portless?who fulfill e-commerce orders directly from China, improving merchant shipping costs, cashflow, and inventory risk.

Reach out to?[email protected]?to continue the conversation. Subscribe below to read the next edition of the Current.

Notes and Sources

[1]?Valuation data accessed via?CapIQ

[2]?More reading on Shein’s Latr system:?Rest of World,?Guardian,?McMillan Doolitte

The consumer survey was conducted among a representative sample of 150 adults aged 18 to 30 living in the United States. The survey was fielded using the Pollfish platform during April 2024. Pollfish partners directly with app developers; the developer defines an appropriate and specific non-cash incentive in exchange for completed surveys that benefit real consumers but doesn’t motivate them to become career panelists. Please note that as with all survey research, there is a potential for sampling error and other forms of bias. Results should be interpreted as an indication of sentiment among the target population rather than an exact measure.

The information provided in this blog post is for educational and informational purposes only and is not intended to be investment advice, or recommendation, or as an offer to sell or a solicitation of an offer to buy an interest in any fund or investment vehicle managed by NEA or any other NEA entity. New Enterprise Associates (NEA) is a registered investment adviser with the Securities and Exchange Commission (SEC). However, nothing in this post should be interpreted to suggest that the SEC has endorsed or approved the contents of this post. NEA has no obligation to update, modify, or amend the contents of this post nor to notify readers in the event that any information, opinion, forecast or estimate changes or subsequently becomes inaccurate or outdated. In addition, certain information contained herein has been obtained from third-party sources and has not been independently verified by NEA. Any statements made by founders, investors, portfolio companies, or others in the post or on other third-party websites referencing this post are their own, and are not intended to be an endorsement of the investment advisory services offered by NEA.

NEA makes no assurance that investment results obtained historically can be obtained in the future, or that any investments managed by NEA will be profitable. To the extent the content in this post discusses hypotheticals, projections, or forecasts to illustrate a view, such views may not have been verified or adopted by NEA, nor has NEA tested the validity of the assumptions that underlie such opinions. Readers of the information contained herein should consult their own legal, tax, and financial advisers because the contents are not intended by NEA to be used as part of the investment decision making process related to any investment managed by NEA.