Investors Love Fast-Fashion Shein — at Least For Now

Bloomberg Opinion , April 08, 2022

Earlier this week, Shein Group Ltd., a Chinese fast-fashion startup, announced a funding round that would value the company at $100 billion. That's more than the combined valuation of Hennes & Mauritz AB and Inditex SA’s Zara, and speaks to the degree to which the e-commerce retailer, which lacks physical stores, has accelerated and revolutionized fast fashion. It's a shift that has implications for global supply chains, sustainability commitments, and the future of how clothes are made.

Here, Bloomberg Opinion columnists Virginia Postrel and Adam Minter discuss these implications. Both are longtime observers of the apparel trade, with Postrel focusing on the history of textiles and Minter on the secondhand trade.

Adam Minter: In the fast fashion world, a brand like Zara might ask manufacturers to turn around an order for 2,000 pieces in 30 days. To keep up with fast-changing demand created by TikTok and Instagram, Shein developed software that enables it to be profitable asking manufacturers for as few as 100 pieces in 10 days. When you look back at the history of textile technologies, where does this kind of technology fit in? Is it really something new?

Virginia Postrel: Cheaper materials and faster fashion cycles go back at least as far as "new draperies" that replaced heavy broadcloths and velvet brocades beginning in the late 15th century. These wools and silks drove a huge expansion of European commerce and funded the Renaissance, but they had their detractors. A Venetian ambassador complained in 1546 that these fabrics "cost little and last less."

In the 19th century, the big disruptor was the department store, as chronicled in Émile Zola's novel “The Ladies’ Paradise.” Department stores used buying power to offer fabrics and ready-to-wear items in an unprecedented combination of abundance and affordability. Behind this organization innovation were textile technologies including power looms, synthetic dyes and sewing machines — not to mention railroads and steamships.

But, as you suggest, Shein has done something altogether new. Its model isn't based on mass production but on smaller batches, still made the old-fashioned way in low-wage cut-and-sew operations. But it seems to have achieved the Holy Grail of apparel makers — consistently finding fashion trends before they're widely recognized. Thanks to social media, this doesn't require sending cool hunters out to the streets or buyers to runway shows. Shein does it with software.

What interests me about their model is how directly it challenges the conventional wisdom that young consumers care intensely about sustainability. Environmental concerns drive a huge amount of product development in today's textile industry and account for an overwhelming amount of fashion and apparel press coverage. But Shein’s instantly disposable fashion suggests that actual apparel consumers couldn't care less. What's your take?

AM: Apparel industry surveys are quite clear that young consumers care about sustainability. But I think they care even more about value.

For example, Patagonia has a very public commitment to sustainable sourcing, but it comes at a price: It sells a simple cotton T-shirt for $39. Shein sells T-shirts for as little as $6. That's one reason Shein sells $10 billion in product per year, and Patagonia, a niche retailer with a decades-long history, does around $1 billion.

Patagonia isn't the only way to shop sustainably. There's also thrifting. But a 16-year-old doesn't forsake a commitment to value when she shops at Goodwill. She's likely there in search of it. Goodwill executives tell me their stiffest competition comes from low-cost retailers of new apparel like Ross Stores Inc. and Walmart Inc. So at Goodwill, at least, they operate on the assumption that a consumer deciding between a $6 new T-shirt, and a $3.99 used one, will opt for the new one. Shein, with its up-to-the-minute fashion, will almost always win that battle.

Where does that leave sustainable fashion? This morning I found Shein on the racks at a suburban Minneapolis Goodwill. Most was in excellent condition, likely worn only once or twice, and then replaced. In that sense, it's “disposable fast fashion.”

Yet whoever donated Shein felt compelled to avoid the trash, so perhaps the sustainable fashion journalism and marketing had an impact. Will that consumer ever take the next step and avoid buying fast fashion altogether? Not until the price gap between sustainable fashion and Shein narrows considerably.

Nonetheless, as we both know, the history of apparel is filled with unexpected cost-saving innovations. And with Shein still reliant on traditional cut-and-sew operations, I wonder if it's vulnerable to some of the innovations you've explored elsewhere, from AI to recycled fibers.

VP: In other words, young consumers care about sustainability as long they don't have to pay for it. It's cheap talk. So any environmental advances will come from production cost savings, niche markets like Patagonia's or government regulations, which would likely raise prices whether consumers like it or not.

As you suggest, the industry's pursuit of cost savings is driving some innovations that could be twofers, giving consumers more of the small-batch production Shein has shown they like while reducing resource use. My favorite, because it's already happening, is the development of increasingly sophisticated computer models for textile and fashion design.

We're starting to see simulations that start with specific yarns to show how a textile will behave once it's made into a garment. These systems allow apparel makers to eliminate samples that would otherwise consume materials and require shipping. There are some software compatibility issues, but it's also possible to go from the computer screen to seamless 3D knitting, whether for garments or sneakers. That works well for small batch or on-demand production.

The big barriers to major fiber recycling efforts are collection and mixed-fiber garments. Spandex is a particular problem, and it's everywhere. Stretchable polyester, which people are working on, would go a long way to making fiber recycling easier. Polyester, which accounts for more than half of global textile fiber, lends itself to a circular approach if — and it's a big if — you can collect and separate it at a low enough cost.

On another subject, I wondered whether Shein's business might be hit hard by container shipping delays, especially with Shanghai's port seriously restricted because of the Covid outbreak. But it turns out Shein’s shipments rely on postal services, both in China and customer destinations.

It reminds me of visiting Amazon in the early days, when their warehouse and headquarters were located next to a major postal depot and their book sales were big in Guam because postage everywhere in the U.S. cost the same. And, of course, subsidized postal deliveries, especially in rural areas, were critical to the growth of mail-order houses in the 19th and early 20th century.

You see complaints from brick-and-mortar retailers, especially small-town general stores, in turn-of-the-century issues of trade magazines like Dry Goods Reporter. Any thoughts on this angle?

AM: One of the more overlooked achievements of the Donald Trump administration was an agreement with the Universal Postal Union allowing the U.S. to boost international shipping fees, beginning in 2021. The goal was to level the playing field — or, at least, stop subsidizing Chinese e-commerce logistics to the U.S. As a result, the costs of exporting small parcels from China to the U.S. are expected to increase 164% between 2020 and 2025.

Shein's other costs are low enough that it can manage that 164% just fine. But I don't think they can be too comfortable, either. The pressure for the U.S. and Chinese economies to decouple is intensifying.

A future presidential administration might look at the continued success of Shein and other Chinese e-commerce players, and decide that postal rates — and other measures — still aren't high enough. A big enough hike could decelerate at least some of the speed associated with the newest fast-fashion champion.