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Source: Inside Retail

Online fashion retailer Shein is undergoing a significant transformation as it moves from selling its own apparel to becoming a marketplace platform. This shift would allow third-party sellers to directly offer a wide range of products to consumers, expanding beyond Shein's traditional focus on fashion, beauty, and lifestyle categories. The company has begun to roll out the marketplace in Mexico, Brazil, and the United States, with further plans to expand into Europe soon.

Shein wants to create direct competition with e-commerce giants like Amazon. To get to this level, the company announced they are offering incentives to 100,000 sellers to achieve annual sales of $100,000, with an additional for 10,000 sellers who reach $1 million in annual sales within three years.

Source: WSJ

Shein has demonstrated its ability to quickly detect and capitalize on trends within the fashion industry, often by stealing small artists designs and producing at a lower cost. Using its efficient supply chain, ability to keep products cheap likely due to unethical work conditions, and its ability to target younger consumers. The fast-fashion brand believes it has the capability to be a viable competitor to Amazon.

Shein's marketplace shift is part of its broader localization strategy, which includes global hiring initiatives and building supply chain infrastructure outside of China. By establishing a stronger local presence, Shein aims to enhance its operations and cater to the unique demands of different markets.

However, the transition to a marketplace model presents its own set of challenges for Shein.

Source: WSJ

Effectively managing third-party sellers, ensuring seamless logistics, and onboarding a multitude of new products will require careful planning and execution. This is an area that Shein has little experience in as they have only ever sold their own products. Additionally, Shein faces competition from other rising players in the market, particularly Shanghai based company Temu, which follows a similar business model and focuses on niche items.

Temu is an online-shopping megastore that sells nearly every product, like how Amazon does. The company is known for their cheap prices, similar to websites like Wish and Aliexpress, except their key difference is they do not allow drop shipping. These products are likely made cheap through poor labor practices and by collecting user data, and as such the company has come under some scrutiny.

Still, Temu has seen unprecedented growth in its short lifespan and has already surpassed the sales of Shein. According to a recent Bloomberg report, Temu's US sales were 20% higher than Sheins. This move to a marketplace platform is likely largely in response to seeing Temu's success in selling low-priced products in the states, and Shein is hoping to be able to earn back some of its dominance beyond just fashion.

While competing with each other, Both Shein and Temu seem to also be chipping away at Amazons chokehold on the marketplace platform industry already. Even with the recent "Prime Day" event which typically attracts more Amazon users, a report by GWS showed a significant drop in users on the app. GWS showed that since April, the number of daily U.S. users has “crashed,” falling from 54 million to 46 million.

In addition to this Temu, which only just launched in the U.S. in September, added nearly 10 million new daily users since the beginning of the year, seeming to be taking away some of Amazons market according to GWS. Daily time on the retail apps also show Temu and Shein taking control, with daily time per user being clocked at 20 minutes and 14 minutes respectively, compared to Amazon's 12 minutes.

Despite its ambitions, Shein must address certain concerns, including consumer skepticism and potential regulatory scrutiny, particularly regarding clothing imports. Policymakers are increasingly scrutinizing sourcing practices and supply chains, particularly concerning the use of cotton from China's Xinjiang region. Shein has stated that it does not work with suppliers that source cotton from Xinjiang, but several independent investigators have claimed the opposite.

Shein's marketplace transformation signals its determination to become a major player in the e-commerce market and a significant competitor to established giants like Amazon. The company's dedication to innovation, adaptation, and addressing potential challenges will be pivotal in maintaining its growth trajectory and solidifying its position within the industry.

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