Investors Await Sales Results from Zara and H&M as Shein Emerges as a Major Threat
As Zara-owner Inditex and H&M prepare to disclose their most recent sales results, investors are eager to see how these fast-fashion giants are responding to the rise of Shein, a rapidly growing online retailer. Shein, which is currently poised for an IPO, generated approximately $23 billion in global revenue in 2022, accounting for nearly one-fifth of the global fast-fashion market. With its low prices and online presence, Shein has outpaced Zara and H&M, attracting shoppers who are seeking affordable clothing options.
Shein’s Strength Lies in Adaptability and Rapid Production
According to Rui Ma, an analyst and founder of the newsletter Tech Buzz China, Shein’s strength lies in its ability to quickly adapt to consumer demand. Unlike Zara and H&M, Shein acknowledges that it cannot predict what consumers want to wear. Instead, it focuses on its ability to rapidly ramp up production based on customer preferences. This flexibility allows Shein to produce and deliver products at a faster pace than its competitors.
The Threat Posed by Shein
For Inditex and H&M, Shein has emerged as a major threat in the market for cheap clothing and accessories. On December 6, Deutsche Bank analyst Adam Cochrane downgraded Inditex and H&M to a “sell” rating, citing challenges such as price deflation within the clothing industry and pressure from Shein and its fast-growing competitor, PDD-owned Temu. While H&M declined to comment on Shein’s market share, Zara has not yet responded to requests for comment.
Shein’s Controversial Practices
Shein has faced criticism for its alleged intellectual property infringement. It has been accused of using artificial intelligence and a proprietary algorithm to scrape the internet for design ideas, resulting in plagiarism. However, Shein’s unique business model sets it apart from Zara and H&M. Shein primarily relies on a network of China-based suppliers that accept small initial orders and scale up based on demand. This approach allows Shein to operate with an ultra-flexible supply chain, which contributes to its ability to quickly deliver products to consumers.
Advantages of Shein’s Direct-to-Consumer Model
Shein’s direct-to-consumer model gives it an advantage over traditional brick-and-mortar retailers. While shipping times can vary depending on the product and location, Shein typically receives orders within five to seven days and can directly ship products to customers via air freight. In contrast, brick-and-mortar retailers must distribute apparel across a global network of stores, which can lead to longer delivery times. Patricia Cifuentes, a senior analyst at Bestinver’s securities division, noted that Zara aims to be the fastest in delivering products to customers to reduce the likelihood of returns.
Shein’s Vast Product Range
One striking difference between Shein and its competitors is the vast number of products it offers. From November 2022 to November 2023, Shein introduced 1.5 million products, while Zara and H&M only brought 40,000 and 23,000 new items to the U.S. market, respectively. This highlights Shein’s emphasis on variety and adaptability to cater to a wide range of customer preferences.
Production Bases and Supplier Networks
While Inditex and H&M have diversified their manufacturing bases across different countries, Shein’s recent import records show that the majority of its products are still imported from China. In 2022, 98% of Inditex’s production was based in 12 countries, including Portugal, Morocco, Turkey, and Spain. H&M, on the other hand, counts Bangladesh and China as its largest production markets.
Conclusion
As the sales results of Inditex and H&M are eagerly awaited, the rise of Shein as a major competitor in the fast-fashion market cannot be ignored. Shein’s ability to rapidly respond to customer demand, its wide range of products, and its direct-to-consumer model have positioned it as a significant threat to the established players in the industry. Only time will tell how Zara and H&M will adapt and respond to this challenge.
[Original Article](https://www.reuters.com/markets/us/zara-hm-face-shein-threat-ahead-results-2022-12-13/)
Original Story at www.reuters.com – 2023-12-13 08:04:00
