Shein 2024 update – Part 1: global growth, logistics, assortment and product development
Shein 2024 update – Part 1: global growth, logistics, assortment and product development
Original image phone: Shein. Original image world map: Yuri.
Contents
Things that caught our attention
Tech Buzz China’s Rui Ma was one of the experts sharing thoughts about the potential TikTok ban/forced sale in a panel conversation by ChinaFile. Other participants included Kevin Xu, Ivy Yang and Donald Clarke.
Introduction
It’s been a while since we last wrote about Shein in November 2022. So we thought it was high time for an update on the company's status, especially now that it is allegedly starting a road show for a London IPO.
As the company has expanded worldwide into new markets like the Middle East and Latin America, there are a lot of new insights to share. Moreover, Shein has also differentiated into various sales models that are worth exploring and comparing to those of its competitors. Finally, there is more information on the current profitability of the company.
We have decided to split this Shein update into two parts. In October, we will share all information on its global expansion into various regions, as well as insights into its approach to logistics and product development. In November, we will publish the second part, which looks into sales models, expectations and profitability.
Ed Sander, Research Editor
Markets
Shein's main markets include North America, Europe, the Middle East, Southeast Asia, Africa and Brazil, mainly selling fashion products such as bags, shoes and hats, household items, beauty products, toys, etc., especially those related to women and infants.
South American countries such as Brazil have doubled their sales in the past two years, while the growth rate of the European and American markets has dropped to about 50%.
Shein’s penetration in the US and Europe is about 50%, and in other regions it is more than 30%.
Globally, the number of registered users has exceeded 200 million.
In the US market, registered users reached 60 to 70 million.
The platform has about 8 million daily active users and about 27 million monthly active users. These figures are significantly higher than last year. Last year, Shein's daily active users fluctuated between 5 million and 7 million, while the monthly active users ranged from 23 million to 25 million.
The total transaction volume in 2023 was about 58 billion US dollars, and the goal for 2024 is to reach 75-80 billion US dollars.
In the first half of 2024, Shein's total transaction volume reached 30 billion US dollars, an increase of 50% over the same period last year.
Looking ahead, it is expected that the share of the US market will be 30%, the share of Europe may drop to 20%-25%, and with the growth expectation in the Middle East, it can reach 25%. Latin America is expected to account for a 10% share, and the rest will comprise Asia and other regions.
Shein has given the North American market the highest priority worldwide, and resource investment and growth expectations have also increased significantly. The company has relatively few competitors in the North American market. Although large companies such as Amazon have tried to enter the fashion field, Shein still has an advantage in scale through its self-operated and cross-border operation model. And although platforms such as TikTok have developed in North America, their overall scale is still not comparable to Shein.
In general, Shein has seen different performances in various regional markets; some markets are growing rapidly, while others are facing challenges. Overall, the company has maintained growth momentum in multiple regions.
In the Asian market, Japan and South Korea performed exceptionally well, with growth rates exceeding 110%. At the same time, the Brazilian market also performed well, with an annual growth rate of 35%. In the Oceania region, the Australian market has an annual growth rate of 40%, which is a considerable growth, although its share in the overall business is still low. The New Zealand market and the market in South Africa account for a smaller proportion of the overall business.
Shein does face various challenges and risks in different overseas markets. In the European and American markets, the company mainly encountered difficulties in product certification, taxation and intellectual property rights. In Latin America, the biggest challenge comes from policy instability. For example, Brazil's tax policies often change, which brings uncertainty to the company's operations.
Although populous countries such as India, Indonesia and Brazil have huge market potential, they also have high policy risks. Therefore, Shein's investment strategy in these markets is relatively cautious, and it needs to carefully weigh the market potential and policy risks and formulate targeted market strategies.
In the current complex global political and economic environment, Shein may adopt mergers and acquisitions or strategic cooperation to enter new markets in order to balance risks and opportunities. To survive in this environment, the company may cooperate with local groups with government backgrounds or close relationships, even if this may mean sacrificing some profits.
The company faces relatively low potential risks in the Middle East and Asia compared to the US market. The company has close ties with the Middle East and maintains good relations with local governments. In terms of the Asian market, although the company currently does not operate in Indonesia and India, it has lower risks in countries such as Thailand, Malaysia and the Philippines. These factors will affect the company's considerations when formulating its internationalization strategy.
Shein faces fierce competition from well-known cross-border e-commerce platforms in the global market. Shein's main competitors vary in different regions. For example, in Latin America, Meikeduo is Shein's main competitor; in the Southeast Asian market, Shopee is its biggest competitor. Turning to Europe, Amazon has become the main challenge Shein needs to deal with. In East Asia, especially in the Japanese and Korean markets, Shein has to compete with Rakuten and Coupang. Despite facing these domestic cross-border e-commerce giants, Shein has remained competitive, mainly due to its unique pricing strategy.
At the start of 2024, Shein expected that production capacity in countries such as Turkey, Brazil, and Mexico would increase to 30% or more of the global clothing production capacity. In Latin America, the growth rate of new users in Mexico, Brazil, Chile, and Argentina was very fast, while in the Middle East, Israel, Turkey, and Egypt ranked second.
Asia
Shein expects to double its GMV in Asia in 2024. Currently, the company has a 3% market share in Japan, about 1.5% in South Korea, and even less in Southeast Asia. Shein has ambitious plans to increase its market share in Japan and South Korea to 10-12% in the next three years.
Shein is also facing some challenges in the process of expansion. Compared with the European and American markets, the average customer price in the Southeast Asian market is low, which leads to a relatively high proportion of various costs, thereby compressing profit margins. This situation may have a certain impact on Shein's profitability in the region.
India
Shein is planning to return to the Indian market and expects the total transaction volume of products to reach $4 billion in the first year. Looking ahead, the company expects the GMV in the Indian market to grow to $8 - $10 billion next year. The Indian market undoubtedly has huge development potential, but it also faces challenges such as policy risks and joint venture requirements. India has taken protectionist measures to require foreign companies to cooperate with local companies, which makes it difficult to transfer funds abroad even if there are profits.
Although it is currently necessary to operate through a joint venture (with Reliance Retail), it will not significantly affect the profit margin due to the low traffic and logistics costs in India. However, given the high risks of setting up a production base in India, the company remains cautious.
If India relaxes restrictions, the company is expected to quickly restore its early user base. To seize the market opportunity, the company plans to cover mainly college students and young women. Although competitors are also entering the Indian market, the company still has a competitive advantage. Overall, despite the challenges, the company is positive about returning to the Indian market and has set clear strategic goals.
Middle East
Shein's order volume in the Middle East declined in 2023, possibly related to political situations and logistics issues. Although the region's share has dropped, the absolute value is still increasing, with the year-on-year growth rate remaining between 18% and 20%.
There are several key points to Shein’s performance in the Middle East market. First, Shein sets up pop-up stores to allow customers to try on clothes and then place orders through online channels in the store while providing coupons and holding events to attract customers.
As we know, Shein's advantages lie in its fast speed of new products, unique category design and competitive prices. The company's daily new products reach an average of 6,000 items, of which about 7% are for the Middle East market, meaning there are about 400 new products for this region daily.
Shein also offers a full range of products, sharply contrasting with competitor stores focusing only on a single category. In terms of product lines, Shein's Middle East product lines cover plus-size women's clothing, accessories, home furnishings, beauty and other fields. This caters well to the needs of Middle Eastern consumers because Middle Eastern consumers like to update jewellery frequently and have very high requirements for the quality of consumer goods.
Shein's poor sales performance in the Middle East may be related to various local conditions. First, Middle Eastern consumers, especially those in Dubai, are not particularly sensitive to prices and prefer to buy high-quality goods. Shein’s low-cost products are often of poor quality and prone to fading. In addition, during traditional festivals such as Ramadan, although demand will increase, there has not been explosive growth. Cultural differences and the existence of taboo styles also lead to supply difficulties. Sometimes products may need to be taken off the shelves soon after launch.
On a more positive note, the average customer price in the Middle East is about $4 to $5 higher than in the European and American markets. Specifically, the average order value in the Middle East market can reach $130, while in the US market, it is $75, and in the Latin American market, it is between $45 and $50. The net profit margin in the Middle East market may be higher than in other markets, usually between 5% and 10%.
As for marketing strategies, Shein mainly uses social media and cooperation with Internet celebrities to increase brand awareness in the Middle East. In addition, Shein adopts game strategies, issuing coupons and live broadcast interactions to attract new users and promote repurchases of old users.
The rest of this article, including an in-depth look at Shein’s developments in Latin America, its logistics, assortment, and product development, is available to paid subscribers only.