Merging Fast Fashion: Shein and Forever 21
Fast fashion super houses Shein and Forever 21 have decided to team up, combining their platforms and global influence. Both companies have agreed to a merger, which has shocked many but should we really be that surprised?
Fast Fashion Defined?
Shein and Forever 21 are some of the most successful companies in the fast fashion space. But what exactly is fast fashion? The term was coined relatively recently. It first was used in the 1990’s by the New York Times to talk about another rising star in the fashion space, Zara. In the 90’s, Zara was the first company to promise that their garments would only take 15 days to go from a mere idea in a sketchbook to being sold at one of their now over 2000 store locations worldwide. They took inspiration from two main outlets: micro-trends and celebrity fashion. Micro-trends are styles of clothing that have a quick rise to popularity and a just as quick fall from relevance. Nowadays, micro-trends are very popular on social media, including Tiktok and Instagram. Along with micro-trends, recent celebrity street fashion has also been an influencer on what consumers wear. Fast fashion companies are able to produce near replicas of micro-trends or celebrity outfits that can be seen in stores just days after hitting the runways (or streets). This was unheard of in the 1990’s and gave the company a spotlight in the competitive world of fashion.?
However, over time other companies like Shein, Forever 21, Boohoo, and Fashion Nova, entered the space and threatened to push the envelope even further. These companies are able to offer chic looks that follow what’s on trend like Zara, but offer their clothing at a lower price point. Because of all of the competition and desire from consumers to have clothing in stores and available for purchase as quickly as possible, there has been a recent shift in fast fashion creating the ultra fast fashion sector. Shein and Forever 21 are among the top companies in this area, but they dominate slightly different markets.
Targets of Ultra Fast Fashion
Both Shein and Forever 21 aim to sell trendy pieces of clothing to a generally younger audience. They both offer their items at a greater discount than other companies. They also both are recognizable within their designated spaces.?
Shein is a company based in China that has a great digital footing. They have historically been a primarily online company with the exception of a few rare pop-ups. Shein has seen a large amount of growth and popularity on social media. This popularity has allowed them to amass over 150 million recurring customers. On the other hand, Forever 21 is a company known for their brick-and-mortar locations within popular malls. They also have an online presence including an app and website, but they have historically used acquiring new store locations as their means of growth. They currently have 560 stores world-wide. Of that 560 stores, 414 are based in the United States.?
Because both take inspiration from United States fashion trend cycles, it is important for both companies to have some sort of presence and connection to the United States market. Since they both rule in different areas though, how does this merger help them?
Striking a Deal
The deal that was recently struck gave Shein around one third of Forever 21’s operating company, Sparc Group Inc. Sparc Group Inc. is a joint venture group owned by brand management company Authentic Brands Group and mall property owner Simon Property Group. A joint venture group is basically when two or more entities or companies join together to create a profitable business. Since there is more than one entity, they share the risks associated with business development.?
Sparc Group Inc. produces and distributes merchandise for companies such as:?
The company is in charge of around 4,280 retail and shop-in stores in over 65 countries. All of their current brands have a presence and distribution available within the United States. This is a big perk for Shein who has been wanting to be more involved in the United States market for some time. They’ve actually tested out the possibility for them to move into the brick-and-mortar mall space with rare pop-ups in cities like Dallas, Los Angeles, and New York City which saw a good amount of success and buzz.?
The other part of this deal is what Forever 21 or Sparc Group Inc. gets. Sparc Group Inc. will receive a minority stake in Shein, which was recently valued at $66 billion. They will also get to reach Shein’s 150 million customers and sell some of their merchandise on Shein.com. As a result of this merger, both companies will stand to gain a lot.
Shein will gain:
Forever 21 will gain:
Both companies stand to gain both exposure and monetary increases. Although, they haven’t released what the exact financial benefits will be from the merger.?
Backlash?
Shein has faced a lot of backlash because of rumors they partake in forced and child labor, are invading the privacy of their digital consumers, have recently gotten a RICO or Racketeer Influenced and Corrupt Organizations charge, among other allegations. Having a RICO charge basically means that they have engaged in or have been suspected of engaging in a pattern of racketeering and corrupt activities. There have been other complaints filed that also do not paint a pretty picture for the company here in the United States.?
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Back in May of this year, over two dozen California lawmakers asked the SEC or Securities and Exchange Commission to halt an initial public offering that Shein was planning on doing in the US. An IPO or initial public offering is when a private company opens itself up to being bought in the means of share(s) on a stock exchange. To make matters worse, they have also been the recent target of an investigation under the newly formed House Select Committee on the Chinese Communist Party to look into the validity of the numerous accusations they face.?
Since there have been suspicions and accusations of Shein being a part of heinous crimes and formal complaints against them, the China based company has had a lot of difficulty entering the U.S market. They hope that this merger, along with other efforts, will distance them from their geopolitical restrictions due to their home country and allow them to leave these allegations in the past.
Good Move??
This merger could be a pivotal part of what the retail fashion industry will look like in the future. However, many experts are still debating whether this combination will last in the long-run. Both companies have their own identity and reasons that their consumers love them. If they leave behind what their target market desires, they may stand to fail in this new endeavor.?
Dr. Jeff Campbell, an Associate Professor in the Department of Retailing at the University of South Carolina has chimed in to tell his opinion on the merge. Campbell said, “In the short term, it makes sense financially. In the long term, I don’t necessarily know it’s going to make sense from a strategic standpoint.” Since we do not currently know all of the financial benefits they stand to gain once this deal is officially closed, we can assume that there will be financial benefits. However, predicting long term gains can be a bit more difficult.?
Although experts have mixed opinions on how long this merger will last, James Salter, the founder of Authentic Brands, has a different view. He said that this merger is, “all about maximizing distribution.” This gives us a glimpse into what their focus is with merging the two companies. If they are able to maximize the production and distribution over both online and in-store channels, both companies may stand to gain financially, at least in the short term.?
Over the past few years, there have been other companies that have decided to merge with other companies within their same industry. A recent example is the merger between Six Flags and Cedar Fair. Both of these companies are big corporations within the theme park industry. They did what is called a “merger of equals” which is two companies of around the same size form a single company. This would allow for more economic growth, park expansion, and creativity available when developing rides and attractions.?
As we continue to see the fashion industry merge and change before our own eyes, it is difficult to pinpoint exactly what it could look like in 20 or 30 years. But just as quickly as we’ve seen the emergence of fast fashion and ultra fast fashion companies, we could see their downfall if they try to expand too quickly.
Sources:
Relationship Manager at Citi Commercial Bank Consumer Products & Retail
1 年Great piece, Emaan. Can’t wait to see what you do next.