When it comes to trendy clothes at low prices, you’ll find a seemingly infinite number of options scrolling through Shein, the online retailer that has become one of the world’s most popular fashion brands in just the last few years.
The China-founded fast-fashion giant has confidentially filed to go public, the Wall Street Journal reported Tuesday. The initial public offering could be one of the biggest in years: Shein was valued at about $66 billion in a fundraising round in May.
A public offering could also bring renewed scrutiny for Shein, which has fielded criticism from lawmakers, watchdogs and activists alike who say that the company’s business model — and the sheer enormity of its selection — pose serious ethical and environmental risks.
Some shoppers, it seems, also have concerns. Some of the most-searched questions related to the term “Shein” include “How does Shein sell so cheap?” and “Is it OK to buy from Shein?,” according to Google.
The search engine’s trends data also showed that searches for the query “Is Shein ethical” increased 140% from Nov. 29 to the following day.
‘I feel bad but I’m broke’
A quick search on TikTok for the reasons that people continue to buy Shein reveals a stream of videos from users sharing that they’re aware of the criticisms of the company, but can’t seem to pass up the website’s low prices.
“I feel bad but I’m broke,” one user captioned a video posted in 2021.
Consumers’ good intentions about purchasing ethically-produced goods may be even harder to stick to during a time of high inflation that has driven up prices and stressed household finances.
Shein, now based in Singapore, has grown rapidly in the last few years, winning over hundreds of millions of shoppers across the globe with an ever-expanding selection of fashion-forward clothes at ultra-low prices. It follows a similar business model to other fast-fashion brands such as Zara or H&M, focusing on rapid, low-cost production of clothing — though Shein’s sales now far exceed their competitors’ in the U.S.
In response to a request for comment, a Shein representative directed MarketWatch to a section of the retailer’s website describing its business model. The website states that Shein’s “on-demand” model produces more choice for shoppers, more affordable prices and less waste by “empower(ing) thousands of small and medium-sized businesses” and “only producing what customers want.” Shein’s website also describes the company’s efforts to decarbonize its supply chain, and includes a 26-page document outlining the standards its suppliers must meet on issues such as child labor and workplace safety.
MarketWatch spoke with some experts to break down a few of the most significant factors that allow fast-fashion retailers like Shein to keep costs down.
1. Outsourcing labor
One of the key ways that Shein and other fast-fashion brands keep prices low is by outsourcing manufacturing labor to cheaper markets, said Dana Thomas, a Paris-based fashion journalist and author of “Fashionopolis: The Price of Fast Fashion and the Future of Clothes.”
“You’re looking for the absolute least expensive labor in the world,” Thomas said. “(These companies) have to squeeze costs down to the lowest minimum possible… That’s why the clothes cost so little.”
Most fast-fashion companies don’t own the factories that manufacture their clothes, Thomas noted. Shein works with a network of some 6,000 clothing factories in China, TIME reported.
The retailer has come under fire for the working conditions in some of those facilities.
Earlier this year, a bipartisan group of U.S. lawmakers called for the Securities and Exchange Commission to halt a Shein IPO until the company could verify that it doesn’t use forced labor in its production processes. Shein has denied allegations that it uses forced labor.
A 2021 report from the Swiss non-governmental organization Public Eye accused the company of violating Chinese labor laws, alleging that some laborers clocked more than 75-hour work weeks at some factories.
A separate documentary, from the U.K. news organization Channel 4, secretly filmed inside Shein factories and alleged that workers were pulling up to 18-hour shifts and making hundreds of garments each day.
Shein admitted in 2022 to breaching local labor regulations at two of its factories, but the company said the workers’ hours were still “significantly less” than what the documentary showed, the Guardian reported. The company also pledged to invest $15 million to improve standards at its supplier sites.
2. No retail stores
There are other aspects of Shein’s business that allow it to keep costs lower than competitors. For example, the retailer has no physical stores. Instead, customers shop solely on the company’s website and mobile app.
That’s similar to the model of online marketplace Temu, one of Shein’s primary competitors. The two companies have been in an ongoing legal battle.
Not having brick-and-mortar locations saves a lot of money the company would otherwise spend on real estate, salespeople and other overhead expenses, said Shawn Grain Carter, an associate professor in fashion business management at the Fashion Institute of Technology.
Shein has marketed its brand through in-person pop-up events, and has ventured into brick-and-mortar retail through a partnership with Forever 21.
But its digital-first model also helps the company more easily test and analyze the popularity of specific designs, Carter said, allowing the brand to quickly adjust inventory and clothing production based on demand.
“It’s unlike traditional retail, where you fill up a store and hope it sells,” Carter said. “It takes a lot of the guesswork out of it.”
3. Non-traditional marketing methods
Shein has also opted for non-traditional marketing methods that attract young shoppers to its site for a relatively low cost, Carter explained.
Shein’s popularity has grown rapidly thanks to influencer marketing, she said. The brand frequently works with content creators who post “haul” videos of the retailer’s clothes on platforms like TikTok or Instagram.
On TikTok, the hashtag #shein has 80.1 billion views. The hashtag #sheinhaul has around 13.9 billion views.
“They’re very big on influencer marketing,” Carter said, adding that this method is “absolutely” cheaper than traditional advertising.
That strategy hasn’t always worked flawlessly for Shein. In June, the fashion brand flew out a group of six influencers to Guangzhou, China, to visit one of its manufacturing facilities.
The content posted by those creators about the trip instead became the subject of backlash on social media.
Ethical concerns not deterring customers
Ethical and environmental concerns haven’t kept Shein from quickly scaling its business over the last few years.
The retailer recorded $23 billion in revenue and $800 million in net profit in 2022 and told investors it delivered record revenue and income in the first three quarters of this year, the Wall Street Journal has reported.
A public offering could shed some more light on those finances, and how Shein has achieved that growth — the company will have to disclose financial information and describe its business in public filings in order to start selling its stock.
The retailer’s popularity shows shoppers’ penchant for low-priced clothing, Carter said, especially in an age when many households already are feeling their budgets stretched thin.
“As a result, people are not going to use their discretionary income — if they have that much — to spend on higher price points,” Carter said. “That is where Shein can fill a void.”
But she also understands why other shoppers may have their doubts.
Take, for example, a $5 top, she said. Simple math shows that an item that cheap could have a production cost as low as $1.50.
“Where in the world can someone produce something for $1.50 that is ethical and sustainable?” she said.
