Shein may soon be looking a little more like Amazon.
The online fast-fashion giant is reportedly looking at allowing other merchants to sell to consumers through a marketplace platform, according to a memo to investors viewed by The Wall Street Journal.
Founded in and closely associated with China, the Christian Siriano collaborator is trying to diversify away from of the country, the memo said. The controversial Gen Z darling, which appears to be headed toward an international stock market listing, started manufacturing in Turkey since midsummer, and has leased and operated warehouses in Poland to store merchandise and ship to customers in Western Europe.
“The marketplace platform makes available a range of additional merchandise and shipping options, and we expect it to result in increased customer engagement and satisfaction,” the memo said.
Shein declined to comment on the marketplace report.
A marketplace launch would pin Shein directly against e-commerce giants such as Amazon, Walmart and even Macy’s, all of which have their own marketplaces with third-party sellers, as well as Alibaba Group, which operates the e-commerce shopping site AliExpress and online marketplaces Tmall and Taobao.
The jury is out on the success of a potential marketplace, particularly since the company’s coveted buyer demographic seems to prefer the direct-to-consumer (DTC) retail sales model.
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In the U.S., just over 50 percent of Gen Z consumers believe that shopping direct with an international brand feels more personalized than buying from a large marketplace, according to a survey from cross-border e-commerce platform ESW. In China and India, that sentiment is more widespread, at 60 percent and 67 percent of consumers, respectively. Among millennials, 60 percent of U.S. consumers prefer the personalized feel of DTC sales, compared to almost 80 percent in China and 76 percent in India.
Shein denies Xinjiang ties in memo
Shein’s supply chain is largely rooted in China’s southern Guangdong province, a major manufacturing hub where the e-tailer some of its biggest suppliers among a countrywide network of more than 3,000. But recent laboratory tests conducted for Bloomberg News indicated that apparel shipped to the U.S. from Shein had cotton originating from China’s Xinjiang region, which has been banned since June under the Uyghur Forced Labor Protection Act (UFLPA) due to evidence of mass forced labor tainting products from the area.
In its memo, the company told investors that Shein doesn’t have any suppliers located in Xinjiang, and that company policy prohibits working with any of the groups identified on the UFLPA’s Entity List.
To address the forced labor concerns, Shein said in the memo that all manufacturing suppliers are required to comply with its code of conduct “based on International Labour Organization conventions as well as local laws and regulations.” The code of conduct includes compliance requirements on working hours, human rights and social-welfare standards.
“As a global organization, Shein engages various agencies in the markets we operate in, including those in the U.S., to ensure we comply with local laws and regulations,” the company said in the memo.
According to the WSJ report, Shein told investors that raw materials suppliers are also required to provide the company with an official certificate of origin. Shein said it has a zero-tolerance policy toward forced labor and has a system to trace the raw cotton that requires suppliers at each step to show production records, warehousing records, delivery notes and sales orders.
Shein also said it regularly submits yarn samples from its cotton suppliers to Oritain, a material verification company that tests cotton fibers to determine raw material provenance.
In the wake of other negative reports about the company’s factory conditions, treatment of warehouse workers and worker pay, Shein recently committed to spend $15 million over the next three to four years to upgrade hundreds of factories.
The investment focuses on making physical enhancements to its suppliers’ factories and is part of Shein’s Supplier Community Empowerment Programme (SCEP). More than 30 projects will be completed by the end of this year, 100 by the end of 2023 and up to 300 within four years.
Shein also has sought to fight off critics by both building an in-house team to monitor and audit its supply-chain partners, and also engaging independent agencies such as Intertek Group PLC and TUV Rheinland, which provide inspection and certification services, to conduct regular and unannounced audits of supplier factories, the company said in its memo. Earlier in December, Shein said in a statement that testing and quality control agencies conducted more than 2,600 independent audits in the past 12 months.
In the memo, Shein also said it has made “significant investments to improve the working conditions of our suppliers’ facilities,” citing an Intertek study that found 96 percent of its workers receive wages higher than the industry average in the same municipality of Guangdong province.
Shein remains in growth mode
Criticisms aside, Shein’s rapid popularity growth has been driven by the firm’s low-cost quick-turn business model, which financial publication Nikkei Asia estimated in 2021 produced as many as 1,000 new product releases per day. Suppliers are reportedly willing to accept orders as small as 30 pieces, which enables Shein to test ideas cheaply, rapidly replenish what’s working and shift with fashion trends.
The retailer uses proprietary software to track production in real time and gauges customer preferences and demand leveraging algorithms that incorporate sales, browsing behavior on its app and other data.
The company has had to expand its distribution network in North America amid the skyrocketing demand, further building out its Indiana distribution hub that opened in April and developing plans for additional facilities in California’s Inland Empire and the U.S. northeast. In November, Shein said it opened a 170,000-square-foot office and distribution facility in Toronto.
The potential marketplace wouldn’t be the only new venture for Shein, which recently entered the circular economy with Shein Exchange. The fast-fashion giant’s proprietary survey showed that nearly half of participants had either bought (47 percent) or sold (53 percent) its pre-owned products on sites such as Depop, Poshmark and ThredUp.
The mobile-first peer-to-peer experience is currently available only in the U.S., embedded into the Shein app so that customers interested in reselling their Shein buys can quickly access their purchase history and populate a listing with all the relevant data related to that product.
Headquartered in Singapore, Shein is on pace to generate revenue of $24 billion this year, according to the WSJ report. But the retailer’s previously reported valuation of $100 billion has taken a plunge amid the downturn across global financial markets in 2022 and expectations of a full-blown recession. In October, the Financial Times reported that Shein’s valuation was somewhere in the $65 billion to $85 billion range.