Don't Bother Looking for the Next Shein

Key Takeaways: Ultra-fast-fashion brands like Shein have adeptly tapped Gen Z’s demand for cheap, trendy apparel by combining influencer marketing, low price tags, and the liberal distribution of discount codes. Gen Z preferences are rooted less in any sense of brand loyalty and more in their weaker spending power compared to their millennial and Gen X counterparts. Greater interest in and demand for sustainable goods and rising incomes spell trouble for inexpensive fashion over the longer term, as Gen Z’s spending power is poised to outpace millennials’ by 2030. The Nanjing-based, direct-to-consumer fashion brand Shein has attracted headlines around the world recently as it has risen as a serious competitor to fast-fashion incumbents like Zara and H&M by leveraging China’s manufacturing supply chain to release hundreds of new products a day. Powered by micro-influencer marketing on Instagram and TikTok that relies on discount codes for already cheap apparel (in some cases costing a fraction of its competitor’s prices), Shein encourages its customers to share their massive “hauls” with a captive audience of teens around the world. Shein’s approach of blanketing the world with its products by making them nearly free for influencers — ranging from the nano-sized to the mega-popular — seems to be working. As Jing Daily previously noted, its TikTok hashtag #shein had garnered 6.2 billion views by April 2021, and its name appeared in more than 70 other trending hashtags on-app. On Instagram, Shein's ten verified accounts boast a total of nearly 30 million followers. The company has doubled its sales for eight consecutive years, and it has most recently been reported to be valued at around $30 billion, approaching the likes of H&M ($38 billion) and overtaking Zara ($21 billion). In May, Shein bumped Amazon from the top spot as the most-downloaded e-commerce app in the United States. Naturally, Shein’s success has motivated investment firms to kick off the search for similar companies that can become the next big thing among global Gen Z, ideally with a TikTok-style algorithmic model that can hook young shoppers and keep them buying via a steady stream of personalized recommendations. The most recent “copycat” deal is Andreessen Horowitz’s $22 million investment with DST Global in the Chinese retailer Cider. According to the Business of Fashion, Cider’s business model centers on pumping out small batches of new items on a weekly basis, with products taken down within days if they fail to generate sufficient interest from shoppers. As Connie Chan, a general partner at Andreessen Horowitz, put it, “What sets Cider apart is that it looks like a direct-to-consumer brand on the outside but operates like Shein on the inside,” adding that “its technology is the secret sauce.” All of the activity around new models of the not-so-new fast-fashion sector begs the question, should we be looking for the next Shein? Part of the excitement surrounding ultra-fast-fashion for investment firms are the anticipated ultra-fast returns, plus an inroad to reach young consumers around the world. According to a November 2020 Bank of America Research report, Gen Z will rule the global economy within the next 10 years, with “Zoomer” income reaching $33 trillion by 2029 and overtaking that of millennials the following year. For major investors plowing millions into the fast-fashion scene, the logic seems to be that today’s consumers of cheap clothing will move on to higher-end apparel by the end of the decade. But the reality is a bit more complicated. In addition to rising spending power and an encyclopedic knowledge of labels, Gen Z has become increasingly aware of environmental issues and expects more from brands than older consumers. According to a December 2019 survey by First Insight, a majority of Gen Z consumers prefer to buy sustainable brands and are willing to spend 10 percent more on sustainable products. They (along with millennials) are also the most likely to make their purchase decisions on values and principles. So while the current Gen Z spending spree on fast fashion powered by pricing has fueled the rise of Shein and its wannabes, it’s a boom that could very well fizzle sooner than we think. Already, the “middle-fast-fashion” market is being scooped out as young consumers polarize at opposite ends of the spectrums, with ultra-cheap names like Shein on one side, and higher-quality affordable brands like Arket and Everlane on the other. Those caught in the middle have either resorted to widespread store closures or even bankruptcy, as in the case of Topshop/Topman and Forever 21. And among Gen Z consumers who make their purchasing decisions based on a company’s values and principles, Shein will struggle if it continues to pump out massive volumes of cheap clothing “largely made of virgin synthetics like polyester.” With more young consumers looking to limit their carbon footprints and flex on a budget, resale is shifting into a higher gear. According to the thredUP 2020 report, the global secondhand market is set to hit $64 billion in the next five years and will outpace fast fashion by 2029, the same year that Gen Z income is forecast to surpass $30 trillion. This consumer demographic is already key for major luxury brands, even if their spending hasn’t reached the levels of millennials or Gen X. As Daniel Langer noted earlier this year, “[Gen Z consumers] are the most digital, the best informed, have the highest expectations, and are the least loyal. If a brand does not see them as an actual consumer group, it is likely because they already find the brand irrelevant.” As their incomes rise, so will Gen Z’s demand for higher-end, higher-quality products, meaning the current love affair with ultra-fast-fashion may very well be outpaced by their rising interest in less environmentally damaging forms of apparel and accessories, whether that comes in the form of demand for vintage and archive pieces, sustainable and plant-based materials, or simply greater transparency on a brand’s environmental impact. If the likes of Shein or Boohoo don’t think ahead, their current boom may turn to a bust before the decade is up.

Don't Bother Looking for the Next Shein

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Published June 21, 2021

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Don't Bother Looking for the Next Shein