Why Shein’s London listing will rattle its fast fashion rivals

Online clothing retailers have given shareholders plenty to be concerned about in recent quarters. Asos (ASC) has had to resort to massive discounts to try to clear a years-old backlog of stock, while Boohoo (BOO) has been struggling to retain customers following its lockdown-era heyday. Now Shein – said to be the biggest global player in fast fashion – might float on the London Stock Exchange. Shein’s low-inventory model allowed it to offer fast fashion buyers new styles all the time and has taken it to the top of the tree in just a few years. Lord Dominic Johnson, a minister in the Department for Business and Trade, told CNBC this week it was an “amazing company”. “The way it’s achieved its scale in the last few years is incredible,” he added, confirming discussions between the government and the retailer over the listing. 

While its peers have been struggling to find their feet, China-founded and Singapore-headquartered Shein has only further consolidated its market-leading position. According to anonymous sources cited in the Financial Times, the group made $2bn (£1.6bn) in profit last year, against revenues of almost $30bn. It’s reportedly targeting some $59bn in sales by 2025. With growth ambitions like these, investors may struggle to justify continued exposure to Shein’s less prosperous peers. Asos and Boohoo have market capitalisations below £500mn, and growth prospects are not as strong as the new fast-fashion top dog. 

The potential release of a Shein prospectus will provide much more concrete numbers for comparison, however. Investors should keep in mind the reason for a UK listing: the discord between Beijing and Washington. While Chinese fashion exports have escaped punitive tariffs, little is off the table given the approaching US election.

Slower fashion

The battle for market share in youth-focused fast fashion is getting more intense, which is why Asos and Boohoo are also focusing on other demographics. On an earnings call this month, Boohoo’s chief executive, John Lyttle, emphasised that a number of the group’s portfolio brands are “very different” to Shein – citing former high-street fixture Debenhams as his first example. The group bought the department store out of administration in 2021 and transformed it into an online-only marketplace. Its core brands also include boohoo, boohooMAN and PrettyLittleThing, however.

Lyttle also pointed out that the group’s newly upgraded distribution infrastructure means it’s capable of getting products to many customers virtually overnight. “Seventy per cent of our deliveries in the UK are next-day. [Shein] can’t do that,” he said. “And similarly, in the US our warehouse is able to deliver to 50 states next-day or within two days.” The majority of Shein’s stock is located in China, meaning that buyers elsewhere in the world can often expect to wait a week or more for their orders to arrive.

Boohoo is now past the peak of an investment drive that saw it automate its Sheffield distribution centre and open its first North American warehouse in Pennsylvania. The former measure is expected to cut its full-year distribution costs by 20 per cent. Now, according to HSBC analysts, all that remains is for cost-conscious customers to start shopping again. “Boohoo stands to benefit from a discretionary online demand recovery, as and when that occurs,” they said on the release of the group’s annual results earlier this month. 

Not a must

Boohoo has attributed its struggles to a combination of cost of living issues and the post-pandemic return to the high street. However, the challenges facing Asos appear to run somewhat deeper than that. “In the last couple of years, it has just lost that ‘must have’ factor, if you like,” said Peel Hunt retail analyst John Stevenson. “It hasn’t been the fastest, it hasn’t been the cheapest and they haven’t had the [customer] engagement.”

Put simply, the company seems to have become less relevant in the eyes of its target audience of 20-somethings. At the same time, its inventory management strategy foundered, leaving it with over £1bn in excess stock just over 18 months ago. The result was what Stevenson refers to as a “spiral” of discounting. “Customers are coming in not for inspiration and product, but because they know they’re going to get a good deal,” he explained. “You become dependent on the markdown, to a degree.”

The company is now trialling a “test-and-react” model, in which it orders relatively small quantities of products with a view to ordering more if they prove popular with consumers. Boohoo is widely credited with inventing the strategy, although Shein took it to another level with what it dubbed its “large-scale automated test and re-order” model. While it might be keen to copy its rivals’ inventory strategies, management at Asos has insisted it won’t aim to outdo them on price. 

“We are not competing for the cheapest product and on that we have been very consistent,” said chief executive José Antonio Ramos Calamonte on an earnings call last month. “We want to bring consumers fashion at a fair price.” Unlike Shein, Asos sells third-party brands on its platform, some of which can command higher prices. Whether consumers are ultimately willing to pay for these premium products depends in part upon the company’s ability to reconnect with its audience. 

“I don’t think Asos’s ability to re-engage with customers is impeded by Shein,” said Stevenson. “If you want something that’s slightly better quality, chances are you’re not getting it from Shein.” Whether the group’s shares will come to be viewed as higher quality than those of other fast fashion groups remains to be seen.