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FOCUS-China's turbo-charged online fashion takes on Zara and H&M

Fri, 16th Oct 2020 07:00

(Repeats story for additional subscribers)

By Sonya Dowsett and Sophie Yu

MADRID/BEIJING, Oct 16 (Reuters) - China's Shein may be the
biggest shopping site you've never heard of.

The fast-fashion player is encroaching on the territory of
more established rivals like Zara and H&M. It has become the
largest, purely online, fashion company in the world measured by
sales of self-branded products, according to Euromonitor.

Nanjing-based Shein, founded in 2008, is aiming squarely at
the "Gen Z" social-media generation, using influencers on
Instagram and TikTok, and discount codes, to attract younger
shoppers in an increasingly crowded fashion market.

It offers low-cost styles, uploading hundreds of new designs
to its app every week. The price for a dress is around half that
of Zara, according to a recent Societe Generale price survey.

"You can save money, which is important when buying clothes
as the fashions change so quickly," said Rebeca Rondon, a
23-year-old student in Valencia, Spain, whose Instagram page
compares dozens of styles from Shein and Zara head-to-head.

The COVID-19 pandemic has boosted online sales at retailers,
giving online-only players like Shein, Britain's Asos
and Germany's Zalando an edge over Inditex-owned Zara
and H&M which have big city-centre stores.

In September, the Shein app saw 10.3 million downloads
globally from across the App Store and Google Play, Sensor Tower
data shows. In comparison, H&M's mobile app hit about 2.5
million, and Zara saw 2 million.

To date, Shein has reached 229.4 million downloads, versus
H&M's 123.5 million and Zara's 90.6 million, the data shows.

In the week of Sep. 27-Oct. 3, Shein was the most downloaded
shopping app globally on iPhones, according to analytics
platform App Annie. It ranked in the top 10 in the United
States, Brazil, Australia, Britain and Saudi Arabia.

Privately-owned Shein, which also sells on Amazon, does not
publicly disclose sales or other financial figures. The company
did not respond to emails or phone calls.

It has backing from investors including IDG Capital and
Sequoia Capital China, according to PitchBook capital market
data. The funds did not respond to interview requests.

Inditex and H&M declined to comment for this story.

UNKNOWN QUANTITY?

Although Shein is gaining more followers, it has limited
visibility compared with the likes of Zara and H&M. It has no
domestic presence in China, where online shoppers go to
Alibaba's Taobao and to Pinduoduo for clothes at bargain prices.

Meanwhile, some consumers say the quality of items can be
variable and delivery times erratic.

Unlike Zara and H&M, which have detailed background on the
sourcing of their clothing and the working conditions of
employees on their websites and annual reports, Shein gives no
details about the manufacture of its products.

Inditex revolutionised the fashion industry in the 1990s by
responding quickly to trends and speeding designs to stores
using factories close to its headquarters in Spain.

Shein also works with hundreds of factories in close
proximity to its Nanjing HQ, according to a China-based industry
source with knowledge of the company's business practices.

The Chinese company aims to get designs ready for shipping
in three days, according to the source who wanted to remain
anonymous because of sensitive business practices.

Three days is a significant compression of Inditex's lead
time, from drawing board to store, which is around 3 weeks
according to the Spanish company.

AMBASSADOR'S CODE

Nonetheless Shein faces a tough task to make inroads in a
crowded online market where both Asos and Zalando have reported
surges in sales this year.

One way Shein is looking to grab attention is though a
network of influencers and "brand ambassadors".

"I have to promote the outfits on my social-media
platforms," says Laura Illanes, a 22-year-old student at the
University of South Carolina Upstate.

"They provide me with a discount code of 15% off - I need to
share that with my followers," said Illanes, a college athlete
with 36,000 Instagram followers, who gets six free Shein items
per month in return for promoting the clothes on her account.

Inditex and H&M have also reported big jumps in online
sales, but that's a minority proportion of their overall sales.
Shares in both have fallen over 20% since early February, which
analysts have partly attributed to their big networks of stores.

Hong Kong-based fund Anatole Investment Management presented
the idea of a short sell on Inditex due to the rise of the "new
breed" of online players from China at the Sohn investor
conference streamed from Hong Kong on Sept. 9.

"Zara is a legacy player which is going to be crushed by
fast fashion 2.0," Anatole Chief Investment Officer George Yang,
who declined to be interviewed, told attendees.

($1 = 0.8485 euros)
(Reporting by Sonya Dowsett in Madrid and Sophie Yu in Beijing;
Additional reporting by Alun John in Hong Kong and Anna
Ringstrom in Stockholm; Editing by Pravin Char)

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