Chinese fast-fashion giant Shein's breakneck growth slows

Overall, annual revenue reached at least US$16 billion in 2021, up from US$10 billion in 2020. PHOTO: REUTERS

BEIJING (BLOOMBERG) - Shein, the Chinese fast-fashion giant that has quickly become the third-most valuable start-up in the world, is seeing a reality check with sales growth slowing from the lofty heights of the pandemic, just as it faces mounting pressure to live up to a US$100 billion (S$139.6 billion) valuation.

The online-only retailer of inexpensive clothes, beauty and lifestyle products has become a global phenomenon, with a following of mostly tweens and teenagers in the West making its app one of the most downloaded in the world.

Shein, however, saw annual sales growth slow to around 60 per cent in 2021, according to people familiar with the business. That is a steep plunge from an eye-popping 250 per cent growth in 2020, when the arrival of Covid-19 turbocharged e-commerce demand from consumers stuck at home.

Overall, annual revenue reached at least US$16 billion in 2021, up from US$10 billion in 2020, said the people.

While revenue last year was overall in line with company expectations, what worries Shein's top executives is that expansion was strong in the first half of the year but decelerated at a worse-than-expected pace in the second half, with the slowdown continuing into 2022, according to the people.

The trend is reflected in transaction data in the United States, Shein's biggest market. For the first quarter, sales growth fell to 57 per cent, down from a quarterly range of 105 per cent to 264 per cent in 2021, according to figures from Bloomberg Second Measure, a research firm that analyses US consumer transactions to measure revenue.

While sales growth in the high double digits still outstrips fast-fashion giants like Hennes & Mauritz (H&M) or Inditex's Zara, Shein's slowdown comes as it has persuaded investors including General Atlantic that it is worth about US$100 billion - more than the market capitalisations of H&M and Zara combined, and behind only ByteDance and Ant Group on Crunchbase's list of most valuable start-ups in the world.

That is despite having no network of physical stores and a myriad of challenges, including the threat of legislation in the US that would erode a cost advantage, which currently allows Shein to sell dresses, crop tops and bikinis for a fraction of competitors' prices.

Lockdown hit

"As one of the top online exporters in China, Shein's slower growth shows the increasing challenges suffered by the entire sector," said Ms Wang Xin, head of the Shenzhen Cross-Border E-Commerce Association, an organisation representing some 3,000 exporters. She cited the weakening renminbi and growing geopolitical tension with the US as other headwinds.

The deceleration also comes as the company gets caught between the polar opposite pandemic approaches of the US and China. While life in America normalises to pre-Covid-19 norms and shoppers venture out more, China's rolling Covid-19 lockdowns as the country continues to try and stamp out all infection have disrupted Shein's production and logistics operations in the southern province of Guangdong, its key sourcing hub, said the people.

Shein's concentrated supply chain there, key to its fast deliveries and ability to churn out thousands of new, on-trend items every day, is now at risk of paralysis whenever pandemic containment measures are applied in the area, said Ms Leng Yun, a Shanghai-based apparel sector consultant.

"It is the hardest time for China's exporters since early 2020, even more challenging than when the pandemic first started, as the supply chain has been significantly hit in recent months," said Ms Leng.

US listing, Singapore unit

Other data shows that the attention of the company's young consumer base may be shifting away from Shein. Web traffic to Shein.com, which more than doubled or even tripled during the first eight months of last year compared with the same period in 2020, dropped to low double-digit growth by late 2021, according to data provider Similarweb. Web traffic in April inched up just 8 per cent compared with a year ago.

Shein's rapid rise from low-cost Chinese apparel merchant to global fashion juggernaut in less than five years is a unique success story among consumer brands in the world's No. 2 economy. The company has succeeded despite avoiding its home turf, the globe's biggest consumer market, distancing itself from China to focus on Western consumers.

As part of its latest US$1 billion fund-raising round, Shein told existing investors including Tiger Global Management, IDG Capital and Sequoia Capital China that it is looking to list on a US bourse in as soon as two years, people familiar with the company's thinking said.

Shein is considering a shift of corporate domicile to Singapore to pave the way for a US initial public offering, the people said.

The company's Singapore-based entity, Roadget Business, is already its vehicle for signing contracts with customers, according to Shein's website.

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