How to Compete with Major Online Fashion Players to Sell in America  

Shein, the global textile giant outpacing brands like H&M and Zara in America, is pushing fashion companies to focus even more on brand identity

The Chinese online fast fashion giant has built an empire thanks to unmatched speed to market and rock-bottom prices. To compete, others must play a different game

Key Insights

• Shein is rapidly gaining shares in mass apparel, surpassing both H&M and Zara in U.S. sales; 
• Ultra Fast Fashion: retailers trying to compete with Shein are at a great disadvantage in terms of price and speed;
• Brands that successfully defend against Shein's advance focus their efforts on their rival's weaknesses: brand codes, customer service, and product quality. 

 Founded in 2008 by Xu Yangtian, Shein has, in just under a decade, come to compete with global fast-fashion giants like H&M and Zara. With a turnover of $10 billion, the Chinese e-commerce is one of the most downloaded shopping apps in the world, and it is the most downloaded app in the USA. Almost 70% of Shein's revenue is generated between the United States and Europe, and in 2021 it is expected to reach a record figure of $20 billion. Analysts estimate that it will surpass Zara in 2022. Unlike its competitors, Yangtian had no experience in clothing production and distribution but comes from the tech sector, with experience in search engine optimization. 

The Chinese e-commerce is second only to Amazon in America for shopping apps in the United States and first in the world for web traffic in the fashion category. What are its main strengths?

Shein offers a shopping experience carefully tailored for American Gen Z girls, earning it the title of the most downloaded app in the United States, beating a record previously held only by Amazon. The brand only sells online to quickly test American consumer preferences and swiftly refine the production of the most requested items. Additionally, by selling merchandise directly from its factories without intermediaries, it can eliminate costs. The production pace is described as ultra-fast-fashion, with an average of 4,000 new items uploaded on the site every day (compared to Zara's 10,000 annually), of which only 100 are produced in small quantities. According to a recent article by data analysis company Apptopia - Shein is so far ahead of its direct competitors that it's hard to even compare them. – The Chinese giant is essentially defining its own category. 

Given the low-tech sector, Shein has stayed out of trade disputes between China and the United States. Despite the rapid rise that leads some analysts to value the Chinese giant around $15 billion, to date there is no news on the company's profitability, and the management is reluctant to issue statements on the matter, so much so that even Chinese media call it the 'mysterious unicorn'. Despite its Chinese origin, Shein does not sell in China, but only abroad, a strategy that allows it to avoid competing with local industry giants like Alibaba and Taobao.

What are the marketing strategies of the Chinese fast fashion brand that drives American Gen Z crazy

The Made in China brand that appeals to the U.S. Gen Z bases its marketing activities primarily on social campaigns on Instagram and Tiktok, with about 70% of sales concluding through the app. The brand's social strategy relies on micro-influencers who are sent free clothes and a discount code for their followers. The same method is used for YouTube, where so-called haul videos (live unboxing of purchases to show followers) are reposted on Shein's site in every language and country. The brand's Instagram page (23.5 million followers) is populated with user-generated content (social content generated by users) featuring selfies of real customers, making the brand's narrative more authentic and, above all, its products more desirable. A similar strategy is used on TikTok, where the hashtag #sheingals, collecting all the videos of girls in Shein outfits, has 924 million views, highlighting the strength of Gen Z and its centrality to the brand's success. 

The site design and functionality are intended to encourage continuous and increasing purchases, with a customer loyalty system that involves collecting points that guarantee discounts, even minimal ones, on the next purchase, and is constantly fueled by markdowns, promotions, and discount codes, on already unbeatable prices: T-shirts for $8, swimsuits for $16, bags and shoes similar to branded ones for $15, etc.

What positioning strategy can compete with the online fashion giant that makes brands like Zara and H&M pale in comparison

Shein's rapid rise from an anonymous fast fashion brand to the largest digital fashion retailer in the world, took both large brands and smaller companies in the fashion system by surprise. And now, whether in court, on Instagram, or in shopping malls, the rest of the industry is fighting to compete.

Dolls Kill, an online boutique known for its niche style specializing in festival outfits, is just the latest brand to sue Shein last week for plagiarism, claiming that the Chinese company copied dozens of its products, even replicating the same pairings in promotional campaign images. However, the accusation of copying other designers' collections is common for Shein: since 2019, Shein's parent company, Zoetop Business Co., has faced at least 25 lawsuits in U.S. federal court. - Shein respects the intellectual property rights of others, - simply replied a Shein spokesperson in an email statement: When legitimate claims are raised by valid IP rights holders, Shein promptly intervenes to address the situation.

But the 'Shein threat' goes beyond imitating branded products - said Dolls Kill CEO, Bobby Farahi. The industry hasn't found a response to the newcomer's ability to relaunch trends at an incredible speed and at astonishingly low prices. In 2020, Shein recorded a turnover of $10 billion, more than double the previous year, ranking 12th among apparel retailers in the USA for sales. Just in 2019, it was ranked 47th, according to Euromonitor data. In terms of market share, Shein managed to surpass H&M and Zara, other fast fashion giants. With a turnover expected to reach $20 billion in 2021, analysts estimate that it will surpass Zara in 2022.

Shein is taking market share from everyone, from independent designers to the Walmarts and Targets of the world, - said Farahi. Retailers trying to compete with Shein on price and speed face a huge competitive disadvantage. Brands like Abercrombie & Fitch and Gap in the United States and Next in the UK have tried, mostly without success, when Zara and H&M were still their biggest threats; but now it's those same brands that changed the rules of fashion that are on the defensive. Shein has additional advantages that its predecessors didn't, including a tariff loophole that allows the brand to avoid U.S. import duties, which its competitors have to pay, and which, according to some experts, would be the most plausible explanation for maintaining such low prices.

Brand codes, product quality, and customer service: the only weapons to combat Shein's advance in the American fashion market

From independent designers to global brands with billion-dollar revenues, companies that successfully defend themselves against Shein's advance focus their efforts on their rivals' weaknesses: brand codes, product quality, and customer service. - Anyone who follows Shein's exact recipe will likely end up in second or third place, - said Allen Adamson, co-founder of Metaforce, a marketing consultancy, – but by investing in building the brand, you're not attacking them on the same level, but in areas where they're not focused. 

Shein, in fact, does not have a true stylistic identity, nor a recognizable aesthetic, but simply intercepts trends and best-sellers at an incredible speed. For this reason, a strong brand identity becomes the best defense against the Chinese giant, said Ana Andjelic, a branding and communication consultant in New York and former chief brand officer of Banana Republic. Ana asserts that luxury brands like Chanel, whose brand codes have been established for decades, or like Rick Owens with its peculiar aesthetic, are relatively Shein-proof. The same goes for smaller and independent labels like Telfar, so recognizable thanks to its distinctive style and very focused on listening to the community. All other brands are vulnerable, especially mall retailers positioned in the middle, she added. - You're either a trendsetter or a fast follower, - Andjelic added. - If you're neither, there's no place for you in the American fashion industry.

Traditional brands still stand out in terms of uniqueness. - Gap's collaboration with Kanye West, for example, is a marketing activity focused on cultivating corporate prestige, - said Rick Evans, strategic director of branding agency R/GA. - Shein can 'appropriate' designs and style, but it will never have the seal of approval from Yeezy or Balenciaga, - he added.

To succeed in the American fashion market, you either set trends or swiftly and cheaply imitate current trends

The winning recipe is to support the continuous flow of the most requested products (micro-collection after micro-collection) with the 'see now buy now' model, rather than the big promotional launch of a single collection, which is no longer able to generate significant sales or attract new customers. When thinking of a prestige promotional activity that will make news, you must ask if it 'could convince customers to stay' - Farahi continued. 

While it's true that production rates are increasingly fast-paced today, it's also true that in the past five years, fast fashion giants have invested heavily in their own creative vision. Instead of just chasing runway trends, Zara, for example, has started working with high-fashion photographers, like Steven Meisel or Willy Vanderperre, to create campaigns with a more refined style. More than interpreting trends, it seems to anticipate them, also thanks to the help of big data and technologies like AI. Some fast fashion consumers already see Zara as a brand in a superior category to Shein. - Even though Zara's clothes aren't made with the highest quality fabrics, you can recognize the care in design and production, - said Tamara Van Lesberghe, a 26-year-old film student and barista, and a regular customer of Shein, Asos, and Missguided.

Dolls Kill and Bailey Prado focus on product and brand value after the Shein imitation incident for the American market

As Shein continues to grow, Dolls Kill invests more in design, quality control, and storytelling around its products, according to Farahi. Some of its new items are harder to replicate due to the embroidered patterns and more refined handcrafted finishes. Bailey Prado, the designer of her eponymous knitwear brand (Bailey Prado), reported finding over 40 of her crochet designs imitated on Shein last summer. Although her sales didn't suffer much from this incident, the experience led her to focus more on her products' ethics, making almost all the pieces by hand, on order, with prices ten times higher than Shein's. - I've built a brand identity that is now immediately recognizable to the public, - Prado said. - My customers know everything is handmade because I show the production process.

What are Shein's weaknesses? And what opportunities open up for companies wanting to sell fashion in the U.S. market?

Tamara, who also regularly shops at Shein, said - some items like swimsuits are fantastic - she bought 20 - others not so much: denim and sweatshirts tend to have very thin fabrics, - she added. Although inexpensive, the low-quality items have become a problem for Tamara, due to what she described as Shein's 'too perfect' return policy, referring to the fact that she couldn't return some purchases because she had thrown away the plastic bags they came in. Her frustration becomes an opportunity for Shein's rivals. Brands can prioritize customer service, including quickly responding to customer inquiries via Instagram Direct Message or emails. - Customer service is not a strong point for Shein, - said Neri Sillaman, founder of brands Moda Métiers and Neri Karra, and professor of entrepreneurial strategy at Oxford University.

Retailing in physical stores can also increase the emotional connection with brand consumers. (Shein has opened pop-up stores in San Diego and Chicago, among other cities, but does not have permanent physical stores.) Sandra Habib, strategic director of Siegel+Gale, a branding agency, reports the example of Nike Run Club: Nike's app that uses coaching services to motivate athletes to run consistently or directly connects them with a running buddy through its community. This can be a valid example of how stores are used as indispensable places for building a community.

When Shein's imitations become an advantage for small fashion brands: the Run & Follow case

Just like Prado, Anna Butler also found an imitation of her brand's flagship product on Shein's site last year: a ruched white shirt with drawstrings. But Butler, whose brand is called Run & Follow, said she knows her target customer is very different from Shein's and that she is not in competition with the fast fashion giant, even if a range of similar blouses can be found on her e-commerce. - Shein is not an aspirational brand, we're not even in the same market segment, - Butler said - brands with my positioning in the American market must believe in their values. My customers find added value in the fact that our garments are made in the United States and all our products are made with high-quality fabrics. - For both Bailey Prado and Run & Follow, an unexpected positive aspect emerged from Shein's counterfeiting: the incident received a lot of attention on social media following the plagiarism accusation. After the intervention of Diet Prada (a famous fashion critique Instagram account with 3 million followers), which shared the news of Prado's shirt imitations reproduced by Shein, Prado's Instagram page gained 10,000 followers. - I know that in a way Shein stole from us... but on the other hand, it gave us publicity to an audience that didn't know us, - Butler said. - In the end, it gave us notoriety.. it's annoying, but also validating.