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Shein Might Be Laying the Groundwork for a Growth Spurt

Shein’s embroiled in another game of “will it, won’t it.”

The Chinese e-tail phenom is planning to invest 15 billion yuan ($2.4 million) to build a global supply chain center in the southern Chinese port city of Guangzhou, the South China Morning Post reported on Friday, citing construction plans published by the provincial Development and Reform Commission last week. But the document has since vanished from the government website, throwing the development into question. A representative from Shein told Sourcing Journal that it had “no information to share.”

News of the project, which is supposed to span three football fields, comes amid revived rumors of an impending IPO, which Shein (pronounced “she-in”) has repeatedly refuted. Reuters wrote last month that Chris Xu, who founded the company in Nanjing in 2008, is considering a citizenship switch—Singapore, allegedly—to sidestep China’s strict rules on offshore listings. Again, Shein, which insiders say hit 100 billion yuan ($15.7 billion) in sales last year, has demurred on the matter.

“Shein’s process is a total mystery and I don’t think anyone really knows how it does what it does,” Sucharita Kodali, a retail analyst at Forrester, told Sourcing Journal.

Playing things close to its chest is par for the course for Gen Z’s favorite brand, which pumps out some 6,000 new styles of clothing and shoes a day–averaging $7.90 a pop—and displays more than 600,000 products on its online storefront at any one time. Shein sources its crop tops, cami dresses and denim cutoffs from roughly 1,000 facilities in Guangzhou, its main production hub, where it employs digitally responsive, on-demand manufacturing to adapt to quick-change trends. The new center, the plans said, will sit in Zhongxin town in the city’s Zengcheng district.

“Shein’s supply chain strategy is closely connected with its unique business model,” Sheng Lu, associate professor at the University of Delaware’s department of fashion and apparel studies, told Sourcing Journal. “For example, different from conventional fast fashion companies like Zara and H&M, Shein doesn’t seem to care much about replenishment.”

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According to Lu’s calculations, H&M and Zara replenished between 45 percent and 55 percent of its U.S.-bound apparel items “at least once,” compared with 12 percent to 14 percent for Shein. “In other words, Shein chooses to keep launching new products rather than replenishing them, which somehow offers the company more flexibility and agility in managing its supply chain,” he said.

While Lu isn’t surprised that Shein is likely plotting to expand its supply chain base, its continued focus on China goes against conventional wisdom regarding diversification.

“What’s interesting to see is unlike most other fashion companies, which are eager to reduce their ‘China exposure,’ Shein does not seem to mind ‘putting all eggs in one basket,’” he said. Then again, China remains “one of the most competitive sourcing destinations for companies seeking a great variety of products and a small minimum order quantity,” Lu said. “That’s why Shein prefers to maintain a China-heavy supply chain base.”

One thing’s for certain: Shein, which accounts for nearly 30 percent of the U.S. fast-fashion market, according to Earnest Research, isn’t done eating H&M and Zara’s lunch. (Though it might want to keep an eye on TikTok and other copycats.)

“With supply chain expansion on the cards, it is clear that Shein believes demand will continue to rise over the next few years as it gets the attention of more consumers, takes a bigger share of consumer wallets, and grows internationally,” Neil Saunders, managing director of retail at GlobalData, told Sourcing Journal. “This confidence suggests it will pose a threat to more established players like H&M and Zara—especially if consumer demand tightens and people start to cut back on the volumes they buy.”

With clothing prices projected to rise by an average of 3.2 percent, according to the State of Fashion 2022 report by the Business of Fashion and McKinsey & Co., Shein could win big despite courting controversy for unsafe labor conditions, toxic chemical use, copyright infringement, consumer manipulation and exploitation of the de minimis threshold.

Shein has tried to shore up its image by hiring Adam Whinston, a former Disney, JCPenney and SGS executive, as its global head of environmental, social and governance in November. The following month, it touted the Shein Cares Fund, a $10 million commitment spanning multiple years to support international nonprofits dedicated to “empowering entrepreneurs, supporting underserved communities, ensuring animal health and welfare and promoting recycling and the circular economy.”

But most of its customers either aren’t aware of—or choose not to care about—such issues, Saunders said.

“That Shein is expanding in China underlines its low-cost roots are integral to its future success,” he added. “This is something that despite ethical and sustainability concerns will play well among more cash-strapped, inflation-hit consumers.”