Throughout the entire garment industry, there are no more than three types of companies that can cross the time cycle: a) “more price increases” ∩ “less styles”, such as LVMH, whose selling point is “brand awareness”, and accurately locate high-quality people through high premium and manufacturing scarcity. b) “Less price increase” ∩ “less style”. For example, UNIQLO’s selling point is “fabric”. Through a large number of research and development, improve the quality of fabric, prompt high price, and cover the whole population. The research and development of products such as “fleece” and “HEATTECH” means that UNIQLO is actually a technology company. c) “Less price increase” ∩ “more styles”, such as Zara, the selling point is “fast fashion”, and the huge designer team captures the latest popular elements, Brand penetration into specific groups (20-25-year-old global fashion youth who are highly sensitive to fashion but have limited spending power). As a company with a valuation of more than 100 billion, Shein belongs to another benchmark of this track: extremely fast renewal speed to meet consumers’ requirements for style richness; extremely high sex price ratio to form a long-term attraction to consumers; almost perfect small batch and multi frequency inventory management Manage and run through the profit model under low gross profit. Focusing on Shein’s core competitiveness, this paper attempts to answer two questions: as a fast fashion track clothing company, how does Shein build its own moat around the supply chain? As a cross-border e-commerce company with strong Internet attributes, how does Shein reconstruct traditional industries?
1. As a fast fashion clothing company, how does Shein build its own moat around the supply chain?
1. Fast enough to solve the efficiency pain of the garment industry: the biggest reason why the P / E ratio of the garment industry is not high is the high inventory risk. Take profits to cover price reduction & dumping inventory. 60% of vipshop’s revenue CAGR in 2011-2020 reflects the problem of excess inventory in the garment industry, “oversupply” is the norm. The layout of Shein’s supply chain ecology maximizes the three capabilities of fast fashion brands: “shangxinkuai” (40000-50000 pieces a week, only 14 days from product design to shelves), “many styles” (660000 + SKU, statistics on October 11, 2021), “less price increase” (the price band is in the range of USD 5-25), which improves the efficiency to a new level. Compared with the inventory turnover rate, the inventory turnover rate of Shein in 2019 is as high as 4.62 times, exceeding the industry leader INDITEX (Zara parent company) 4.2 times and fast retailing (UNIQLO parent company) 2.7 times, and far exceeding the inventory management level of China’s textile and clothing (1.85 times). I. It is flexible enough , the small order quick reaction greatly improves the supply chain elasticity: relying on the garment industry cluster in the Pearl River Delta, Shein forms a natural competitive advantage. South China is an important manufacturing town of China’s garment industry, and the dense garment factories bring Shein a high-level supply chain network. Massive SKUs (40000-50000 new SKUs per week) with small single quick reaction (100-500 pieces / order). The supply chain efficiency is driven by front-end orders and backward production. Small batch orders can be shipped quickly, with both efficiency and flexibility, low trial and error cost and high positive price sales rate. The scale advantage brought by the increasingly abundant customer base also makes Shein form a strong bargaining power against upstream suppliers and reverse the weak position of general garment companies in the industrial structure.
2. As a cross-border e-commerce company with strong Internet attributes, how does Shein reconstruct traditional industries?
1. Seizing every Internet traffic bonus, Shein enjoys the first mover advantage in the layout of traffic ecology and achieves the ultimate: during the bonus period from Google SEO to short video marketing, Shein has a deep understanding of overseas Internet playing methods, and early layout of Internet platforms such as Facebook and instagram and online Red economy to promote social fission. Vertical and horizontal comparison of Shein’s fans on various platforms and competitors. As of April 2021, the daily active users of Shein app reached 22 million, a year-on-year increase of 175%, the daily download volume increased by 239.8% year-on-year, and the market share exceeded 50%. It is difficult to be surpassed in the short term. At the same time, the founder of Shein started with search optimization and is naturally sensitive to Internet marketing. The combination of China’s supply chain efficiency and overseas Internet marketing capabilities makes Shein’s competitive advantage surpass its competitors both in China and abroad.
II. The product iteration efficiency enabled by the Internet will reduce the dimension of traditional industries: the decision-making process of product development is short and the subjectivity is weak. The design based on Internet data and a / B testing can hit 50% of the burst funds, with an average of 40000-50000 pieces online every week. A large number of updates can help Shein collect a large number of user behaviors for analysis, generate explosive funds, and then quickly add orders. The continuous precipitation of first-hand data can realize faster trend capture and more accurate algorithm recommendation.
3. Only use the e-commerce sales model to break through the time and space constraints, further release the profit space, and further maximize the “fast”: compared with Zara’s rental cost of 10% in 2018 and UNIQLO’s rental expenditure of 2.9% in the middle of 2021, Shein further reduced this cost. At the same time, due to the lack of stores, Shein is allowed to make every effort to regulate the inventory after saving the rental cost. Online stores can display SKUs without upper limits and update SKUs at almost zero cost, which is more suitable for the fast and fashionable rapid update mechanism. Compared with Zara, it takes about 21-33 days from design to product arrival, and the data needs to be fed back from the store, which has many links and takes a long time.
Risk tips: macroeconomic growth is declining, market competition is intensifying, industry growth is less than expected, regulatory risk, policy risk, insufficient working capital, earnings are not up to expectations, and market liquidity is insufficient. Some data quoted in the report are from third-party personal platforms, which have not been objectively verified, and there is a risk of deviation from the actual situation
