With Zara-owner Inditex and H&M set to disclose their most recent sales results, investors will be focused on one major question: how are the two fast fashion pioneers responding to the current market leader Shein?
Shein has a huge valuation and is primed for an IPO. With sales almost entirely online, the retailer generated about $23bn (R436.7bn) in global revenue in 2022, according to research firm Coresight.
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Shein accounted for nearly one-fifth of the global fast-fashion market in 2022, outpacing Zara and H&M. Shein’s low prices — $5 (R95) T-shirts and $10 (R190) sweaters — also draw shoppers who might have otherwise shopped at clothing discount stores.
“Shein’s strength is acknowledging they have no idea what you want to wear,” said Rui Ma, an analyst and founder of the newsletter Tech Buzz China.
“What they have confidence in is their ability to ramp up production very quickly.”
For Inditex, which reports results on Wednesday, and H&M, which reports quarterly sales on Friday, the China-founded e-tailer has emerged as a major threat in the market for cheap clothing and accessories.
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On December 6 Deutsche Bank analyst Adam Cochrane downgraded Inditex and H&M to a “sell” rating, citing challenges including price deflation within clothing, and pressure from Shein and its fast-growing competitor, PDD-owned Temu.
H&M declined to comment on Shein’s market share. Zara did not immediately respond to a request for comment.
Shein has some features in common with Zara and H&M, which are often credited with spearheading the concept of replicating runway looks and bringing them to shoppers for less, also known as “fast fashion”.
All three retailers have faced criticism for allegedly stealing designs from other brands, but some critics said Shein’s super-fast production cycle makes it an especially egregious offender.
A lawsuit in July for intellectual property infringement alleged Shein uses artificial intelligence and a proprietary algorithm to scrape the internet for design ideas, sometimes resulting in direct plagiarism.
However, Shein’s key strategy, according to analysts and investors, is to tap a network of largely China-based suppliers that buck traditional manufacturing trends by accepting small initial orders and scale up based on demand.
That ultra-flexible supply chain allowed Shein to create a fundamentally different business model than established fast fashion players like Zara and H&M, which pioneered shorter production timelines but largely relied on predicting what styles shoppers will buy.
“For the most part, a Zara or an H&M is anticipating fashion trends, pre-ordering that product between three to 12 months ahead of sale, and committing to fairly large order volumes,” said Simon Irwin, a former Credit Suisse analyst who has researched Shein’s pricing strategies.
One 2022 study found Shein typically receives orders within five to seven days and can send the products directly to consumers via air freight.