Shein is an ultra-fast fashion retailer that sells vast quantities of very cheap clothing, primarily to western consumers. The company was launched in China in 2008 and is now headquartered in Singapore. Shein was recently valued at $66bn.
Shein’s business model is based on amassing vast amounts of data on consumer demand, and using this data to quickly develop new clothing styles. The firm lists tens of thousands of different items of clothing on its app - up to 6,000 new items per day - and then gathers data on the demand for each of these items. This data is used to determine orders for new inventory, and also to develop new clothing styles. The firm has pioneered the use of AI to analyse consumer preferences and develop styles on this basis.
The success of this business model rests on Shein’s relationship with its vast network of suppliers. In 2022, the company had a network of 3,000 suppliers, all located in Guangzhou, China. By 2023, the firm had expanded to Brazil, where it has at least 100 suppliers. These suppliers are responsible for manufacturing items of clothing to Shein’s specifications. They also warehouse and ship the items of clothing, reducing costs for Shein itself.
Shein will order small batches of clothing and advertise these on their website to determine customer demand. Only if an item is popular with consumers will the firm then place a larger order. This purchasing strategy is the foundation of the firm’s profitability, as it allows Shein to keep small inventories and respond quickly to customer demand.
The firm’s profitability also rests on its ability to avoid tax thanks to its complex corporate structure. Because Shein’s suppliers warehouse and ship packages to consumers, the firm is able to avoid paying import and export taxes. In the UK, the company has been accused of avoiding paying VAT.
Social media is also a key part of the retailer’s success. It is known for partnering with fashion influencers with large online followings to market its designs. And the firm has made extensive use of targeted advertising on platforms like TikTok, Facebook and Instagram. The firm has been particularly successful at targeting young consumers through TikTok, where influencers bulk buy items from the firm to direct their followers to the app.
What's the Problem with Shein?
Workers Rights Abuses
Shein’s business model places immense pressure on its suppliers, which are forced to compete with one another to produce vast quantities of output at extremely low cost. Shein dictates the terms of this relationship, leaving suppliers forced to respond to the firm’s demands or go out of business. As Labour Behind the Label puts it, ‘all the liability [is] held at the bottom of supply chains, while SHEIN extracts all the profit.’
This pressure is pushed from the suppliers themselves onto their workers, who work extraordinarily long hours in terrible conditions. One Swiss NGO found that workers manufacturing Shein clothing were working 12 hour days, with one day off per month. When the NGO returned to the same supplier, a year after its initial investigation, it found that the workers were still working 75-hour weeks with no breaks.
Even more shockingly, Shein has been accused of making use of forced Uyghur labour within its supply chain. Researchers at Bloomberg found that the cotton used in Shein clothing was sourced from the Xinjiang region of China, where the Chinese state has been accused of ‘horrific abuses’ against the Uyghur people. Investigators have alleged that over a million people have been placed in forced detention in Xinjiang, with many forced to work in factories or fields.
As a result, the US has banned imports of cotton and other products from Xinjiang. But Shein is not subject to the same level of scrutiny as other importers, as its suppliers deliver items directly to consumers, allowing the firm to sidestep questions as to the origins of the cotton used in its clothing.
Environmental Impact
According to Labour Behind the Label, ‘Shein’s business model relies heavily on overconsumption’. The company works with influencers - particularly on TikTok - to encourage them to purchase large ‘hauls’ of clothing that they then unpack in videos they share with their followers. Many of these items of clothing will be worn once or twice and then disposed of. Shein is the pinnacle of ‘throw away’ fashion.
The clothes that are thrown away by western consumers are shipped to some of the poorest countries in the world - countries like Ghana. Ghana imports nearly 15 million items of second hand clothing every week. Small local traders bid for packages of imported second hand clothes to find items of resalable quality. The remaining items - generally about 40% of the average package - is thrown away. Many of these products end up in illegal dumps, which has created an ‘apocalyptic hellscape’ of discarded clothes in some parts of the country.
Shein clothing is made of cheap, fossil-fuel derived fabrics like polyester, the production of which requires 70 million barrels of oil each year. One calculation of Shein’s environmental impact revealed that its emissions had increased by more than 50% in 2023, and it now emits more than some small countries. These fabrics are not only produced in unsustainable ways, they also add to the hundreds of thousands of tonnes of microplastics released into the sea each year. Microplastics are devastating marine life, and also threatening human health in many parts of the world.
Tax Avoidance
Shein's business model also rests on avoiding tax. The company is able to minimise its costs, and maintain extremely low prices, by circumventing import and export taxes. Because its packages are shipped directly to consumers from Shein suppliers, these packages fly under the radar of customs duties.
Launching an initial public offering (IPO) is often a critical step for allowing firms to access the investment they need to grow. Shein reportedly submitted a prospectus to the Financial Conduct Authority in early June, which must now decide whether to approve the company’s bid to list on the London Stock Exchange (LSE). By launching on the LSE, Shein would become a publicly traded company, which would mean that any investor would be able to buy the company’s shares.
Shein’s move comes after US lawmakers resisted the company’s plans to float on US stock markets. Last year, US legislators called for an investigation into Shein over accusations that the company made use of forced labour in China. The resistance to Shein’s listing in the US must be situated in the context of mounting tensions between the US and Chinese governments - and questions of national security are likely to have motivated much of the resistance to Shein listing in the US.
In contrast, UK lawmakers have welcomed Shein’s advances. The Chancellor, Jeremy Hunt, met Donald Tang, the boss of Shein, several months ago to encourage the firm to consider a London IPO in the wake of the problems it had faced in the US. The talks between Hunt and Tang were reportedly ‘productive’ and Shein moved quickly to explore the potential of a London listing.
Before the election, the UK Labour Party also met with Shein to offer its support for the company’s plans to list in London. In its manifesto, the Labour Party committed to protecting workers’ rights, building supply chains across the UK, and protecting the natural environment. Shein’s business model directly contravenes many of these commitments.
The IPO market in London has been quiet recently, given the depressed UK economy and the complications associated with the country’s decision to leave the European Union. UK IPOs raised just $1bn last year, the lowest amount in decades. In contrast, US financial markets have been booming and many companies have chosen to list in the US rather than the UK. Some UK-listed companies are even considering moving their primary share listings to the US.
UK politicians are clearly worried about the declining attractiveness of the City as an IPO destination. If Shein did choose to list in the UK, it would create a huge amount of business for financial institutions and professional services firms in the City. Some politicians and financial bosses are clearly also hoping that it could help to revive London’s ailing reputation as an IPO destination.
But permitting Shein to list in London would also come with risks. As the Financial Times recently reported, many senior figures in the UK finance sector have reservations about the listing. Some fund managers have warned that asset managers will ‘struggle to support’ Shein due to concerns over its record on workers rights, and its environmental and social impact. The growing importance of ESG (environmental, social and governance) criteria when it comes to making investment decisions means that many asset managers will be unable to touch Shein’s shares.
Other senior figures in the finance sector questioned the wisdom of allowing Shein to list on the LSE, especially given the firm encountered so much resistance in the US. One UK fund manager suggested that allowing the listing could create ‘collateral brand damage’ for the LSE. Another said that the move ‘smacked of desperation’.
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