The Shein effect: disrupting e-commerce and shaping the future of retail

Colleen Coulter offers insights into how Shein's unique approach is influencing consumer behaviour in the industry.

Luke Martin July 30 2024

The rise of Shein, a fast-fashion retailer, has dramatically reshaped the e-commerce landscape, particularly affecting industry stalwarts such as Amazon.

Known for its vast selection of low-cost clothing and rapid production cycles, Shein has captivated younger demographics and disrupted traditional retail models.

Colleen Coulter, SVP of Customer Success and Experience at Route, offers insights into how Shein's innovative approach is influencing consumer behaviour, logistics, and the broader retail industry.

Disruptive business model and supply chain innovation

Shein's business model leverages proprietary digital supply chain management technology that allows the company to test new products in small batches and quickly respond to consumer feedback.

“This type of technology has allowed the brand to produce thousands of new products daily, and work to meet demand for specific designs while retiring unpopular products,” Coulter explains.

By evaluating customer reactions in real-time and adjusting inventory accordingly, Shein can meet specific demands while phasing out unpopular items.

Coulter highlights that Shein’s model is particularly appealing to younger consumers who, influenced by social media, prefer a continuous stream of new fashion options at affordable prices.

“Because Shein can test thousands of products at a time, its website mirrors the never-ending supply of content that younger consumers have come to expect, all at prices young people can afford,” says Coulter.

Furthermore, Shein’s ‘Global Integrated Marketplace’ offers other retailers access to its supply chain technology, allowing them to gauge demand and optimise their own product offerings.

“Brands like Skechers have been using the Marketplace to sell products already, showing the outsized impact Shein’s fast-fashion-now-and-slow-production-later approach has had on the retail industry,” adds Coulter.

Impact on consumer behaviour

Shein's approach to offering a wide array of designs at low prices has had a notable effect on consumer buying habits.

Despite facing criticism for product quality and labour practices, the brand’s popularity continues to surge.

“Our data shows that from June 2023 through June 2024, Shein’s order volume increased 106% YoY [year-over-year], pointing to a dramatic increase in sales,” says Coulter.

“The company’s cheap prices, combined with extensive social media and influencer marketing offering discount codes, has drawn consumers in, despite the concerns highlighted above.”

Logistics and delivery challenges

Fast fashion relies heavily on efficient supply chains, and Shein's model is no exception.

“Shein’s supply chain involves working with 5,000 third-party supplier partners to manufacture its products,” explains Coulter.

“But, it has faced allegations related to labour practices and import strategy, which allows Shein to bypass taxes on imports that are worth less than $800 and shipped direct to individuals, like consumers.

“Shein’s import strategy is just another way the company is able to reduce its costs.”

While Shein’s longer shipping times - averaging around two weeks - are less convenient than Amazon’s rapid delivery, many consumers are willing to trade speed for lower prices.

This extended supply chain presents logistical challenges, including late, damaged, or lost packages.

Route plays a crucial role here, helping brands manage package tracking and protection services to ensure customer satisfaction.

Competition with established retailers

Amazon, a dominant player in e-commerce, is feeling the pressure from Shein’s rise.

Coulter highlights: “Route’s data shows that Shein is beginning to take a larger slice of the pie from behemoths like Amazon. When comparing Shein orders and Amazon orders by those Shein customers, there was a 34% decrease in Amazon's share of orders over the past 18 months. Whereas Amazon orders made up 71% of orders in Jan[uary] 2023, they made up 47% of orders in June 2024.”

As Shein and other fast-fashion competitors such as Temu and TikTok Shop gain market share through savvy social media marketing and significant discounts, Amazon’s dominance is being challenged.

To compete, traditional retailers must adopt strategies that leverage direct-to-consumer (DTC) websites, social media marketing, and supply chain innovations.

“Having a direct-to-consumer web store is the best path for e-commerce players, as the middleman is often regulated out of existence or suffers the consequences: sellers that create items for Shein can only have so much success with cheap end-costs,” Coulter advises.

Looking ahead, the retail industry will continue to evolve with the influence of Shein and similar retailers.

Coulter foresees the emergence of more competitors offering low prices.

“If a retailer could find the magic medium between Shein’s cheap prices and fashionable items, and Amazon’s fast shipping and excellent customer service, that company would be unstoppable,” she predicts.

However, achieving this balance presents significant barriers and challenges, including meeting consumer expectations for quality and customer service.

TikTok Shop is another rising competitor.

“Route’s data shows that Amazon’s share of combined Amazon and TikTok orders for users who shop on TikTok Shop went down from 65% in [fourth quarter] Q4 2023, to 61% in Q1 2024,” reveals Coulter.

“Since TikTok Shop launched in the US in September, those who have used the app have been slowly moving away from ordering on Amazon.”

Sustainability and transparency

Fast fashion’s environmental impact remains a significant concern.

Despite Shein’s $63bn valuation and plans for an initial public offering, the company faces criticism for its unsustainable practices.

“Shein’s filing on the London Stock Exchange comes after the US denied the company from filing in New York for several reasons, including environmental concerns,” says Coulter.

“I see this as an opportunity for other retailers to promote their environmental standards and values and take charge in making tangible sustainability improvements in the industry.”

According to Coulter, the e-commerce sector contributes approximately 102 million tonnes of carbon to the atmosphere annually.

Route addresses this by offering carbon offsetting services, promoting carbon-neutral shipping, and advancing sustainable e-commerce practices.

Shein’s disruptive influence on the retail industry is undeniable.

Through innovative supply chain management, aggressive social media marketing, and competitive pricing, Shein has captured a significant market share, challenging established players in the market, including Amazon.

As the e-commerce landscape continues to evolve, traditional retailers must adapt and innovate to remain competitive.

Emphasising sustainability, enhancing customer experiences, and leveraging DTC models will be crucial strategies in this rapidly changing environment.

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