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The Wall Street Journal reports Shein is exploring a marketplace model. Here are key questions about its growth.
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.
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.
The cuts amount to 4% of the ecommerce platform's workforce.
On ebay's campus. (Photo by Flickr user Kazuhisa OTSUBO, used under a Creative Commons license)
eBay is set to become the latest ecommerce platform to conduct layoffs.
The company announced plans on Tuesday to lay off 500 employees, which amounts to about 4% of its workforce. Layoffs were set to take place over the next 24 hours, the company said Tuesday evening.
In an SEC filing, CEO Jamie Iannone said the decision to make layoffs came after consideration of the macroeconomic environment and where the company could best invest for the long-term.
Iannone said the moves “are designed to strengthen our ability to deliver better end-to-end experiences for our customers and to support more innovation and scale across our platform.”
“Importantly, this shift gives us additional space to invest and create new roles in high-potential areas — new technologies, customer innovations and key markets — and to continue to adapt and flex with the changing macro, ecommerce and technology landscape,” Iannone wrote. “We’re also simplifying our structure to make decisions more effectively and with more speed.”
eBay is one of the oldest ecommerce platforms, and remains an active marketplace for both new and resale items. The San Francisco-based company has yet to report results for the fourth quarter of 2022. In the third quarter, the company said gross merchandise volume was down 11%, and revenue was down 5% year-over-year.
Yet the company has also continued to invest. In 2022, it acquired collectibles platform TCGPlayer and myFitment, which provides parts and accessories for automotive and powersports. It also opened a secure vault for trading cards, and launched livestreaming.
eBay is also seeing a boost from advertising, with revenue driven by promoted listings up 19% in the third quarter.
With the layoffs, eBay joins other tech companies that provide the infrastructure of ecommerce in making layoffs. Amazon, Shopify, Salesforce, BigCommerce and Wayfair have all recently announced layoffs. Technology giants like Meta, Google and Microsoft have also made job cuts.
It comes as inflation is weighing on consumers’ discretionary spending, and the return to more in-person shopping throughout 2022 led to a correction following aggressive hiring during the pandemic.