Inditex, H&M, Next VS Shein

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In the past few years, we have been admiring Inditex’s flexible business model that has allowed it to consistently outperform its peers in a challenging consumer environment. Inditex takes only 4-6 weeks from design to shelves. The emergence of SHEIN, a Chinese fashion e-exporter, has not only matched but exceeded the industry-leading efficiency of Inditex. SHEIN was founded in Nanjing, China, in 2008 and has particularly gained momentum in Europe since 2015, with North America and Europe now contributing over 80% to the company's revenue.

SHEIN has created “
Ultra-fast fashion” that has swiftly captured the attention of young Western consumers through rapid product launches (over 5,000 new pieces/day), an extensive array of collections and competitive pricing. With an already-staggering 75 million active users on SHEIN's apps worldwide, the company poses a substantial threat to the Western fashion markets, especially for pure e-retailers, intensifying the competition in an already-crowded market.

Unequal fast fashion outcomes 

Inditex, Next, Asos, H&M and Zalando stock price performance 

Data-driven ultra-fast fashion

SHEIN strategically targets the European, American, Middle Eastern and Southeast Asian markets. The company's "small orders and quick returns" operational model involves testing the market with minimal initial runs (100 pieces) and based on the consumer response and, above all data, scaling up production nearly overnight for products with a positive early response.

SHEIN's supplier base, initially small and concentrated in Guangzhou's Panyu district, has expanded to nearby areas like Dongguan and Foshan as order volumes have increased.
Augmenting its own design team with artificial intelligence, SHEIN analyses extensive consumer data (including consumer shopping data on the SHEIN app and large databases like Google Trends), to inform its design decisions. This data-driven approach allows SHEIN to reduce the time from design to product availability to an astonishing 24 hours to 3 days, eclipsing the industry standard. This "real-time" and "demand-driven" production model minimizes stock levels, while providing consumers with an extensive selection on the website. 


One step away from Inditex in terms of revenue?  

Having swiftly overtaken H&M and Japanese Fast Retailing, SHEIN currently ranks as the second-largest fashion retailer globally in terms of market share, trailing only Inditex. 

The company's strategic acquisitions of
Forever 21 and Missguided, and its potential interest in Topshop, reflect an ambition to consolidate its position in the Western market. However, concerns arise regarding potential brand overlaps and the effectiveness of these acquisitions in elevating SHEIN's positioning. 


Cash shortage

While SHEIN is targeting substantial revenue growth by 2025, reaching $58.5 billion from $22.7 billion in 2022, financial challenges loom large. Significant marketing expenses and investments have led to its operating profit margins trailing behind the competitors.  

The cash-burning model of driving accelerated growth led SHEIN to look for $3bn in financing earlier this year. This in turn has led the group to accept a sharply reduced valuation of $64bn, down by more than a third from last year's $100bn valuation. This current (unlisted) valuation puts SHEIN behind Japan's fast retailing as the world's third largest fashion retailer. 

New rules for the fashion world 

SHEIN's unparalleled lead time from design to shelves has upended traditional fashion industry logic, by making production volume and collections contingent on real-time consumer demand data. Clearly this efficient business model with competitive pricing poses a significant threat to the fashion industry. However, we believe that SHEIN has so far mainly captured a share of the unbranded, low-priced product segment, especially from online retailers.  
The evolving dynamics of the fashion world suggest a delicate balance between embracing innovation and safeguarding established brand reputations. As SHEIN is bound to break the rules, the European industry must be preparing for a storm. A fair bet is that AI-assisted marketing may well lower the value of retail POS/distribution channels as fashion buyers will order their own design & shape with 48h delivery and no returns. Fast fashion may become a race for AI-aided design and frontier AI-aided manufacturing where the humble market place website is left stranded. Nothing that Inditex and H&M cannot do. Fingers crossed about margins though. 
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