In 2019, online businesses were noticing a fall-off in China's economic growth. Gross domestic product (GDP) dropped to 6.2 percent in the second quarter of 2019—down from the record high of 14.2 percent in 2007, to the lowest it had been since China began publishing quarterly figures in 1992. Some of this could be attributed to the tariffs ordered by President Trump. Last year, the President tweeted, "The United States tariffs are having a major effect on companies wanting to leave China for non-tariffed countries. Thousands of companies are leaving. This is why China wants to make a deal with the U.S., and wishes it had not broken the original deal in the first place."
Analysts argued tariffs were not the only factor slowing the Chinese economy. Chinese debt increased dramatically after a massive 2008 stimulus package. Later, limits on bank lending, unregulated lending (known as shadow banking), and consumer caution were among the numerous pressures China had on its economy. The focus is currently moving toward an economy driven by technology and services, and away from less profitable heavy manufacturing. One new player in this game is Shein Retail.
Chinese clothing label Shein is currently one of the biggest retailers of fast fashion. Based 8,000 miles from New York within the industrial Pearl River Delta, Guangzhou, Guangdong, it is able to take on U.S. competitors such as Target, J Crew, GAP, Banana Republic, and grow through a ruthless but effective marketing strategy. Shein sells fashion at pocket-change prices: tops are $4, dresses $6, and during sales, some things are less than $2.50. The target is teens and young adults, who are reached through social media that's besieging Facebook, TikTok, and YouTube users with ads for the brand. The U.S. website also runs a fashion blogger program to whip up its online popularity. (Currently 15.9 million followers on Instagram.)
Influencers are courted with prompts like, “Do you want clothing absolutely for FREE? Are you looking for long term sponsorship? Then don’t hesitate to send us an email to introduce your thought about fashion, your blog, website, or YouTube channel for us. You may get free clothing that is worth U.S. $40 to U.S. $200 every month!”
Young teens post themselves on Instagram or the Chinese-owned video-sharing app TikTok, displaying Shein embossed boxes crammed with purchases and calling them "Shein hauls." The hashtag sheinhaul has nearly a billion views on the app, while #shein has a further 3.1 billion.
If someone's post is liked by Shein, they can easily get half a million views and thousands of new followers and bloggers receive up to 20 percent commission on every purchase they help to sell by directing their followers to Shein’s website.
Influencers are used to get teens hooked on the products
American actress Madelaine Petsch, from the Netflix series Riverdale, shared a video last summer where she walked around a countryside estate wearing a series of Shein looks. Petsch has over 16 million followers on Instagram and she is not the only high-profile influencer schilling for Shein. Fashion shows feature high-profile musical artists like Rita Ora and Ellie Goulding. Shein also held events in support of Black Lives Matter. In May, they held a 4-hour online Covid-19 event called “Shein Together” featuring artists Katy Perry and Rita Ora.
Yet Shein, originally called “She Inside” is elusive. There is no phone number, no email, and no press contact listed online. According to fashion analyst Juozas Kaziukenas, from Marketplace Pulse, “They are very secretive as a company. They don't comment on anything or put out any press releases.” We know the company was founded in China by Chris Xu, also known as Yangtian Xu or Sky Xu, an American-born graduate of Washington University in the U.S. The slogan “Shine In Shine Out" was crowdsourced from an online competition. Each day the company is tripling its business, catering to around 2 million active daily users. It handles over 10,000 orders a day, clocking an average order value of $13-$20.
El Mundo reported that the company does not release its financial figures, but the Chinese media anticipate it will make over $11 billion in sales for 2020. Comparatively, Banana Republic’s 2019 net sales were $16.4 billion, at a time when Shein is a relatively new player in the U.S. market. The Shein app is significantly more popular than those of rival fashion retailers reaching 12 million worldwide downloads in November 2020.
Exploitation, powered by cheap labor
Recent investigations have revealed Shein's use of sweatshop labor and copying other designers to rush the release of new products. Reuters reported how Shein uses computer technology and low labor costs, to get new designs ready for shipping in just three days. At the same time, they use software to analyze internet searches to establish what colors, fabrics, and styles customers are looking for and adapting their ranges to target specific trends in individual countries accordingly. By going directly to the customer, Shein cuts out the middleman making it hard for other retailers to compete on price.
Others have investigated the heavily reduced postal charges that allow Shein to ship orders in small consignments through the ordinary post and take advantage of low international fees. This system was originally set up by the United Nations Universal Postal Union to help developing countries but is currently helping the second largest economy in the world. The U.S. would need to close shipping and tax loopholes in order to mitigate this kind of market manipulation.
Not all reviews are positive
Cost-cutting measures that affect quality have resulted in a high number of unfavorable reviews for the company. On Trust Pilot, one customer said, “When my package first arrived, I thought I had accidentally bought from a fraudulent duplicate website. The trousers came unhemmed, uncomfortably cheap, and vaguely close to the beautiful pictures they roped me in with. The pattern on the waistband was so ill-aligned, it looked like an outfit of two parts.” Others complain about parts of orders arriving separately—taking advantage of the U.N.’s postal perks. Forty-three percent of Trust Pilot users rank the brand as "bad" with fairly equal amounts of extremely negative and extremely positive opinions. Despite suspicious practices and poor customer ratings, tech-based promotional tools are giving a new generation of Chinese companies an easy way into the U.S. market.