As competition in full custody intensifies, will SHEIN's globalization continue to be smooth?

SHEIN has become one of the most popular clothing brands among American consumers.

According to the latest data from Consumer Edge, a global consumer transaction data provider , SHEIN has become the largest fast fashion consumer brand in the United States with an absolute market share of 40%. It is reported that SHEIN 's annual revenue in 2023 has exceeded 30 billion US dollars.

Behind the impressive results is the result of SHEIN's more than ten years of supply chain construction. " Small orders , fast returns" and " flexible supply chain " have changed people's understanding of China's supply chain model and are the benchmark for Chinese brands and supply chains to go global.

2023 is also the year of SHEIN's massive expansion. LatePost reported that in the early years, Xu Yangtian's plan for SHEIN was to expand from a single category to multiple categories, from self-operated to platform, and from cross-border to localized.

From SHEIN 's several major initiatives in 2023, it can be seen that SHEIN is working hard to realize its " original ideal ". On May 4, SHEIN announced the global promotion of the platform model SHEIN Marketplace, allowing third-party merchants to settle in and operate their own stores and brands on the platform; under the wave of full trusteeship, SHEIN also launched the agency operation model; in Latin America, SHEIN established its first supply chain factory to empower the local supply chain; at the same time, SHEIN also acquired overseas fast fashion brands such as Forever 21 and Missguided.

Looking at these initiatives, we can see SHEIN's ambition to transform from a DTC brand to a platform and build a global brand.

However, 2023 is also a year of intensified competition. Temu and TikTok Shop are accelerating their efforts in overseas markets, setting off a wave of " everyone going overseas" in the supply chain. The overseas market is getting bigger and bigger, but for SHEIN , which has always been a hidden champion , it has to face direct challenges from competitors on the road to globalization .

A year of increased investment

Many sellers can feel that the overall growth of cross-border e-commerce has slowed down in 2023. With the market saturated, more and more merchants want to pursue brand premium, and brand going overseas has become one of the most discussed topics, and SHEIN is a model of Chinese brands going overseas.

In 2022, SHEIN surpassed Nike and Adidas to become the most searched clothing brand on Google; in 2023, SHEIN , along with Apple, Gucci and other brands, was shortlisted for the Brandz Top 100 Most Valuable Global Brands list.

According to the "2024 Mobile Market Report" released by data.ai on January 15, SHEIN once again won the global shopping APP download championship in 2023. Temu, Amazon and Aliexpress ranked second, third and ninth on the list respectively.

In the second half of 2022, Temu was officially launched, setting off a wave of full-hosted overseas expansion. Faced with the strength of its competitors, SHEIN had to speed up the process of platformization. SHEIN , which started as an independent clothing website, has a longer-term vision for overseas expansion, not limited to selling goods, but focusing more on globalization and branding.

Latin America is an important market for SHEIN to promote its platform model. The Latin American market is characterized by a large population and great consumption potential, but the development of e-commerce is lagging behind, making it a hot emerging market. SHEIN has always performed well in Latin America. According to data from Brazilian investment bank BTG Pactual, SHEIN's sales in Brazil are estimated to be approximately US$1.56 billion in 2022, a year-on-year growth rate of 300% compared to 2021.

The consumption preferences of the Latin American market are similar to those of the United States, but the consumption level is lower. After the account ban in 2021, many American sellers sold American goods to Latin America to clear their inventory. But at the same time, Brazil is a market with very strict local protection, and heavy taxes are imposed on cross-border fans. In 2023, the relevant policies on whether to increase import taxes on cross-border e-commerce have undergone several changes. Localization is an inevitable path to the Brazilian market, and it is also a process that overseas companies must go through sooner or later.

At the end of 2022, SHEIN chose to open a third-party platform in Brazil on a trial basis. Local sellers can open stores in SHEIN and be responsible for their own operations and logistics. According to public information, SHEIN has established partnerships with 330 factories and logistics providers in Brazil . It is expected that in 2026, 85% of sales in Brazil will be made up of locally produced products. To this end, SHEIN plans to invest 750 million reais (about 150 million US dollars) in Brazil , which shows SHEIN's determination to bet on emerging markets.

As the brand's global influence increases, SHEIN has moved towards the dual-mode route of " self-operated brand + platform". In May 2023, SHEIN announced the global launch of the platform model SHEIN Marketplace, allowing third-party sellers to enter in the form of POP or agency operation. Platformization will help SHEIN enrich its product categories and expand its growth ceiling.

At the same time, SHEIN also launched " global shopping ". In August 2023, SHEIN announced the acquisition of SPARC Group, the parent company of the American fast fashion women's clothing brand Forever 21, and obtained one-third of the group's equity; in October, SHEIN acquired the British fast fashion brand Missguided and obtained all the intellectual property rights of the brand. The characteristics of these two brands are that they both have brand effects and mature offline store experience in their own countries.

The acquisition of a well-known fast fashion brand means that SHEIN is one step closer to its globalization goal, and it also means that SHEIN is no longer limited to its own brands. Under the platform model, more brands will be introduced to enrich the platform ecosystem. Some industry insiders believe that these fast fashion brands lack innovative supply chains, and SHEIN 's flexible supply chain model will empower traditional fast fashion brands and promote changes in the fashion industry.

Overseas, SHEIN has been developing platforms and acquiring well-known brands. Domestically, SHEIN has been working hard to attract third-party sellers, promote full-hosting services overseas, and is still strengthening the construction of its own supply chain. After the launch of SHEIN full-hosting services in May , it attracted a large number of sellers to join.

Attracting third-party sellers and expanding the platform SKUs is part of SHEIN's move towards a global platform, but the external competitive environment has also affected SHEIN's original pace. In 2023, Temu, TikTok Shop and AliExpress are all doing full hosting, and major platforms are actively sending people to various industrial belts to attract investment and grab goods and traffic.

Fierce competition will cause subtle changes in the ecological environment. Although the platform models are independent of each other, they influence each other due to the involvement of the supply chain and the market. SHEIN has to adapt to the pressure brought by competition.

How is SHEIN's full custody service going?

In the past few years, SHEIN has been an invisible giant. It was not until the past two years that SHEIN came into the spotlight. People had to sigh at its calmness and low-keyness. It was able to take root in the long-termism in the hottest and " impulsive " years of cross-border e-commerce, and was committed to upgrading the supply chain of " small orders and fast returns " and promoting the transformation of the industrial belt.

Low-key, down-to-earth, committed to cooperation and healthy development, SHEIN has left a good impression on many people. However, SHEIN , which has always focused on " working hard " , may feel the intensified competition in 2023.

Some sellers told Yien.com that in the second half of 2023, SHEIN also started to " roll ".

"SHEIN was fine in the first half of the year, but in the second half of the year its overall model began to imitate Temu. I think the specific reason is that Temu's prices are very low and they carry a lot of goods, so SHEIN 's overall traffic cannot catch up with Temu. So in the second half of the year, SHEIN also went to many places to hold investment promotion meetings to attract sellers. After attracting sellers, the next step is to select models and then lower prices. " said a seller who does full hosting for both SHEIN and Temu.

Another seller of electrical products, Xiaoliang, told Ennet that he did well with SHEIN in the first half of 2023. Competition was not so fierce, and the profit was much higher than Temu. " Since the second half of the year, SHEIN 's price cuts have been even more ' ruthless' than Temu 's , and orders are also declining. So I think SHEIN 's traffic is not as good as Temu's, so it is also lowering prices . " Xiaoliang said.

As for the specific changes, Xiaoliang said that the first is that SHEIN 's price has become more " ruthless ", and the second is that the link will be removed from the shelves. If the sales volume of the product does not reach the weekly sales target, the platform will remove the link, no matter how much stock is in stock. " We used to have a gross profit of more than 20%, but now the unit price is lower than the cost." Xiaoliang said.

According to a report by LatePost , SHEIN requires that the price of some of the same products cannot be higher than that of Temu. If the price is too high, SHEIN will change suppliers or provide subsidies. However, SHEIN 's subsidies are limited. If the same product reaches an absolute low price on Temu, SHEIN will choose to remove it directly.

The rise of Temu is undoubtedly SHEIN's biggest crisis. Before the Super Bowl ad was released in February 2023, Temu's monthly marketing expenses were about 100-150 million US dollars. Industry insiders estimate that by the second half of 2023, Temu's monthly advertising expenses have exceeded 300 million US dollars. In the past year, Temu has become one of the most downloaded apps in the United States and has long been ranked first in the download list in app stores in various countries. It is reported that Temu is ready to lose money for three years.

SHEIN decided to increase the proportion of categories other than clothing, competing with Temu in all categories and all age groups, and the battlefield came to " full hosting ". Many sellers will compare which of the several full hosting platforms on the market is better.

Supply chain advantage is the first and foremost prerequisite for full-service. Several sellers said that the main reason for doing SHEIN full-service is to get a low price. Xiaolin, a seller from Guangzhou, sells home products. He started with Temu, but because the platform's price was lower than the cost and there was no price advantage, he chose to give up temporarily. So he started with SHEIN , which was not doing well at the beginning. Later, after he had products with price advantages, sales began to rise.

Xiao Lin said that SHEIN has also severely suppressed prices, and some of his products may be sold at a higher price on Temu. But for now, Xiao Lin can maintain a profit of more than 20% on SHEIN . He said that participating in platform activities and obtaining traffic support are very important parts of SHEIN .

Another Shenzhen seller, Shui Ge, who sells auto parts and car accessories, has both a SHEIN POP store and a full-hosting store. Shui Ge can now do more than 1,000 orders a day, with a monthly profit of about 200,000. However, he believes that the SHEIN platform itself is suitable for clothing and accessories, and the traffic of auto parts on SHEIN is relatively small. Temu has a larger traffic, and he can do more than 10,000 orders a day, but the profit margin is not as high as SHEIN .

"SHEIN 's system is relatively friendly. First, it is not so strict in terms of pricing, and second, the fines are not severe. But its disadvantage is that the sales volume of electronic products is not that large, while Temu's electronic product sales volume is larger." Shui Ge said.

Another home furnishing seller, Xiao Guo, also said that SHEIN ’s price-cutting is not as severe as Temu’s, but the traffic of SHEIN’s home furnishings is average and cannot compare with clothing products.

Under the " catfish effect " brought by Temu , SHEIN has also increased its requirements for low prices, but according to sellers' feedback, SHEIN 's price pressure is not as strict as Temu's, the platform rules are friendlier than Temu's, and the overall profit margin is higher than Temu's. But one dilemma is that SHEIN has a large flow of goods in the clothing category, and the flow of other categories is still increasing .

Competition continues to intensify.

Head-on confrontation

Temu's impact on SHEIN is obvious. Xiao Chen, a seller from Yiwu, told Yien.com that he has a friend who sells headwear at SHEIN . He used to have a monthly sales of about 1 million yuan at SHEIN , but after Temu's accessories became popular, his friend's orders dropped by nearly half.

" I can only make 500,000 to 600,000 yuan a month, and the profit margin of each order has been reduced by one third. This is because SHEIN requires him to participate in price reduction activities, otherwise he will not be able to clear the inventory. " Xiao Chen said.

A Temu seller told Een.com that Temu is more aggressive than SHEIN in terms of logistics and stocking . Temu has to stock up as long as the price is approved. However, SHEIN does not need to stock up immediately after the product is released. There is a pre-sale period of about 15 days. If the sales of this product are good, SHEIN will place a stocking order.

Temu is aggressively seizing the market. It is reported that SHEIN 's annual revenue in 2023 will exceed 30 billion US dollars, and Temu has set a GMV target of 30 billion US dollars in 2024, which will reach the size of SHEIN in just two years .

Overseas, the two platforms have formed a direct confrontational relationship and have sued each other in court many times.

As early as December 2022, SHEIN filed a lawsuit against Temu, accusing it of trademark and copyright infringement, as well as "false and deceptive business practices." In March 2023, SHEIN again submitted a new revised complaint to the U.S. court, involving multiple charges including Temu's trademark counterfeiting, trademark dilution, improper source identification and unfair competition, false advertising, commercial fraud, copyright infringement, commercial defamation, and unjust enrichment.

In July 2023, Temu began to fight back. Temu filed a lawsuit in the U.S. Federal Court in Boston, accusing SHEIN of violating U.S. antitrust laws in its transactions with clothing manufacturers, claiming that SHEIN forced clothing manufacturers to sign exclusive agreements with it, preventing them from cooperating with Temu, and hindering the "expansion of the U.S. fast fashion market."

The court battle lasted from the beginning of the year to the end of the year. In December 2023, Temu submitted a 100-page document to the U.S. District Court, accusing SHEIN of formulating a "desperate plan". It said that SHEIN forced fashion suppliers to sign exclusive agreements with it, detained and intimidated suppliers, and threatened and even detained Temu merchants. SHEIN responded that Temu has been copying SHEIN 's own-brand products and engaging in unfair competition, and will use legal means to protect its legitimate rights and interests.

The competition between SHEIN and Temu can be understood as a competition between brands and Internet giants. The former is a seller's mindset, while the latter is an Internet mindset. A senior industry insider said that cross-border e-commerce was relatively " simple " in the past, and sooner or later, SHEIN could not avoid being dragged into the " rolling method " of the domestic Internet. " The hidden champion was passively involved in the competition of Internet giants. " He said.

Li Hai, CEO of Chuhaizhe Technology , introduced to Yien.com that Temu is backed by a listed company with a market value of hundreds of billions and huge financial resources, and it relies on huge losses to seize the market, while SHEIN is an independent website seller and its advantage is its profitability and hematopoietic ability.

"SHEIN 's business model will be relatively healthy and will take profits into consideration, " said Li Hai.

In the field of clothing supply chain, SHEIN and Temu are two different models. SHEIN has carried out in-depth transformation and empowerment with the supply chain and signed a clear intellectual property contract. Temu only has a simple supply partnership with suppliers. This also means that SHEIN has established a very high moat in the clothing supply chain. "SHEIN is already profitable, while Temu is still making huge losses. Temu needs to make more investments to catch up with SHEIN . " said a senior person.

This means that in the clothing category, Temu will not be able to defeat SHEIN in the short term . But objectively speaking, in the fully managed category , Temu has more traffic than SHEIN . At present, SHEIN still focuses on its own brands, supplemented by third-party sellers. An insider said that SHEIN has been overseas for 15 years and its foundation is difficult to be shaken. In an environment of intensified competition, SHEIN 's approach is to protect its own business and strengthen its own moat.

In 2024, the platforms will still be in a melee. Who will have the last laugh?