Business Model of Shein - How Does Shein Make Money?

Shein has gained immense popularity among the youth. If you are a fashionista then you must have bought some trendy clothes from Shein at a very low price. The company has been very successful in the ultra-fast fashion market. Shein ships in 220 countries and provides clothes for men, women, and children.

According to research, it was found that in 2021 Shein's mobile app had over 7 million users in the US alone. The hashtag #Shein has generated over 6.2 billion views on TikTok. The estimated revenue of this company is $10 billion every year. Let's see the Business Model of Shein in great detail.

What is Shein?
Evolution of the Fashion Industry
Ultra-Fast Fashion
Business Model of Shein
Marketing Strategy of Shein
What’s Unique About Shein?
How Does Shein Make Money?

What is Shein?

Shein is a Chinese international B2C fast-fashion online platform headquartered in China. The company was founded by Chris Xu in 2008. The company sells clothes, bags, shoes, accessories, and other fashion items. Shein's target countries are Europe, America, and the Middle East. The brand is very popular among Gen Z.

Shein mainly works by targeting the audience who prefers western clothes. As for the target market, Shein mainly works for young people who want to be unique and socially acceptable.

Before we have a deeper look at the business model let's first understand how the fashion industry works. This will help us better understand the Business Model.

Evolution of the Fashion Industry

In the late 1990s and early 2000s, Zara and H&M introduced the world of fast fashion. Buying trendy clothes from the stores at a very low price was something new to the people.

Zara introduced this phenomenon to the people and made a lot of money. The key components that helped Zara become successful were shorter manufacturing cycles, following the fast-moving trends, just-in-time logistics, and big investments in flagship stores located in most city centers.

This enabled the stores to provide a wide variety of trendy inexpensive clothes that changed every week. Variety, speed, and convenience were the main factors of the fast fashion model.

Until the 2010s this business model worked pretty well. Since then, e-commerce has penetrated the market which led to the growth of mobile commerce. Due to this, the fast fashion industry changed completely.

Ultra-Fast Fashion

Over time many people started using mobile and mobile commerce grew rapidly. Due to the internet, people were able to get information instantly. Everything shifted online. Using social media and other online platforms people were able to understand fashion trends instantly in a very short time.

Fast Fashion evolved to ultra-fast fashion where only a few designs were created to test the likes of people. If the people demanded the clothes they were made in large numbers. The ultra fast-fashion retailer invested all its capital in capturing fashion trends even faster.

Clothes and other fashion accessories were manufactured at a very high speed. Massive money was invested in logistics to deliver products to millions of customers without operating physical stores. Now, as you have understood how the ultra-fast fashion industry works and how the fashion industry has evolved let's have a look at the business model.

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Business Model of Shein

To understand the business model of Shein let's first see how a fast food delivery company works. There are thousands of ghost kitchens everywhere. When you order food online the food delivery services take the food from these ghost kitchens and deliver it to your doorstep.

Your preferences and the number of orders you place dictate the opening and closing of these ghost kitchens. Shein's business model also behaves similarly. Shein does a partnership with these ghost factories and promises demand. They install their order system in these factories which helps them to track and deliver the orders efficiently.

Shein teaches them how to manufacture things efficiently. In this way, Shein produces fashion items at a much faster rate. The company understands what things are booming in the fashion industry, produces product pages, checks the engagement behaviour, and then tells the factories to produce the products.

Shein has a strong online presence. After reading about the evolution of the fashion industry and ultra-fast fashion you must have understood that a strong online presence and understanding the fashion trends quickly are necessary to be successful in this industry.

Shein advertises aggressively on TikTok and other social media handles. After working for so long in this industry Shein is able to understand the fashion trends much faster than other companies. The company has further shortened the manufacturing cycles.

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Marketing Strategy of Shein

Aggressive Marketing on Social Media

The company's marketing is majorly focused on social media. Shein has understood that social media has a great influence on youth. The company is the #1 brand for TikTok teens.

Shein has an army of fashion bloggers that constantly post content on TikTok using the hashtag Shein. In return, Influencers get free merchandise. On YouTube, people share their experiences with Shein. Since the company provides a large variety of products many YouTubers are interested in reviewing their products.

Affiliate Programs

Shein's affiliate program has helped the company to increase its conversions. In this program, people can earn a commission by recommending Shein products to others. If they place the order you get a small commission. Due to these affiliate programs, many teens have promoted their products on social media. This has increased the company's reach.

What’s Unique About Shein?

Shein is the most preferred fashion brand by the young generation. There are multiple things in Shein's business model that makes it different from other:

Model

To have the upper hand over its competitors the company uses the digital-first model. The digital-first model enables the customers to make a purchase by the means of a digital platform and get it delivered at their preferred locations.

Marketing Strategy

Shein uses a micro-influencer marketing strategy. There are several micro-influencers in coordination with Shein and the company provides them with gifts at the end of each month. This give-and-take relation makes a better marketing strategy for the platform.

Use of Social Media

Social Media users have noticed Shein on their screens while scrolling through social media platforms like YouTube, Tik Tok, Instagram, etc. The media influencers contribute majorly to the selling of Shein products at such mediums. This strategy enables Shein to directly showcase its product in the market.

How Does Shein Make Money?

Shein's revenue model is simple. The company earns money by selling products online. They sell a cheap version of trendy clothes and fashion items via their mobile app. The company uses the vertical integration strategy.

Shein earns its revenue in multiple ways. The most preferred method is by selling clothes. Shein purchases clothes in bulk quantity for a cheaper price and then sells them at a higher percentage.

Apart from this, Shein also replicates the high-end dresses to sell them at relatively lower prices. This practice also increases the sales of Shein and hence making an additional column in the money chart.

Apart from all the above money-making options, Shein also provides in-app advertisements on its platform and generates some revenue through it too.

Conclusion

Shein understood fast fashion better than other companies. As the company provides a large variety of products at a very low price many people love shopping through Shein. The company has a lot of Influencers on various social media platforms which helps them to increase its popularity.

In the west, many people prefer Shein over Amazon. This shows how much the company has grown over these years. To stay in this race for a longer period the company needs to identify the fashion trends quickly and provide those clothes to the people before it gets out of fashion.

FAQs

Who is the CEO of the Shein?

The current CEO of Shein is Chris Xu.

Who owns the company, Shein?

Shein is owned by a parent organization named Nanjing Lingtian Information Technology with four major shareholders named JAFCO Asia, IDG Capital, Sequoia Capital China, and Tiger Global Management.

Why is Shein so successful?

There are numerous reasons for Shein to be counted as a successful firm. Some of the factors responsible for making Shein successful are its effective marketing strategy, customer value, and brand model. Shein values customer satisfaction over profit and is in a give-and-take relationship with its influencers to advertise.

Is Shein a profitable company?

Shein does not provide many insights into its financial details. However, with the available information, one can easily estimate that Shein is a profitable company.