Would becoming a marketplace force ultrafast Shein to slow down?

The Wall Street Journal reports Shein is exploring a marketplace model. Here are key questions about its growth.

clothes hanged on brown wooden hanger
Photo by Kai Pilger on Unsplash

Shein is exploring opening up its platform to other brands and retailers as a third-party marketplace. Will it slow down to get bigger?

The news:The Wall Street Journal reports that Shein is exploring the introduction of marketplace sales, which would make its platform a destination where other brands and retailers can sell directly to customers. This would allow Shein to expand assortment, and offer additional shipping options, an internal memo states.

Third-party marketplaces are growing, as ecommerce platforms realize that the model offers the best of two worlds: They can add more items from more labels to their platform, while leaving order fulfillment and delivery arrangements to the brands themselves.

It comes as the retail world is marveling at Shein's fast fashion machine. It is able to quickly source new styles, largely from viral trends. It produces clothing at lightning speed and prices its items low. In the end, it is able to add thousands of new styles a day, and applies social marketing acumen to help them go viral through TikTok, Business Insider reports. Proprietary data and software is a big part of the equation.

Shein harnessed this model to reach a $100 billion valuation in its latest funding round. Shein grew sales 568% during the pandemic period of March 2020-March 2022, and came to hold 40% of the fast fashion market, according to Bloomberg Second Measure.

The Current's view

Introducing a marketplace holds out the potential for another wave of growth. The introduction of a third party marketplace was key for Amazon, as the growth in assortment brought by third-party sellers also unlocked advantages that kept prices low. Soon, Amazon provided its own fulfillment to third-party merchants, making its logistics business a massive growth area of its own. At this point, the Amazon third-party seller community is its own ecosystem.

This year, more brands and retailers are stepping up third-party marketplace activity. Macy's has a new marketplace, and Walmart's is gaining sellers. Edge by Ascential forecasts that marketplaces will account for 60% of ecommerce globally by 2027. It is also the chosen format of China's top ecommerce companies, including Alibaba, Pinduoduo and JD.com.

But for Shein, there are open questions: Would a marketplace slow down the ultrafast model that propelled its rise? Additionally, how would other brands function in what seems to be a very well-tuned system, and would Shein provide access to any part of its operations? The marketplace will require Shein to create a unified experience between its own first-party model and that of third parties. Whether other brands will be able to operate within the machine is a big test.

As it explores the marketplace and expansion more generally, Shein is facing down a number of forces:

International expansion: Shein wants to reach more of the world and deliver faster to areas where it has operations. On the first-party model, this could require more localized operations, as indicated earlier this month by the introduction of a US distribution center in Indiana. WSJ says it also wants to diversify away from Chinese manufacturing and is opening more facilities in Europe, with manufacturing in Turkey and distribution in Poland. A third-party marketplace would allow for this geographic growth through merchants that reach these areas, without requiring the company to set up massive amounts of infrastructure in every region.

Growth has also brought scrutiny of Shein's business practices. A recent UK documentary exposed low pay and long hours at the company's factories, and it faces questions about sourcing cotton from the the Xinjiang region where there are concerns about the Uyghur Muslim population, WSJ reports. It has also been ramping up environmental, social and governance (ESG) amid longstanding concerns about the environmental footprint of ever-faster fashion.

The first party model led Shein to explosive growth. The consideration of a third-party marketplace shows that it may need to change to become truly sustainable.

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