It makes £2bn selling garments from just £3.39! How does Shein do it?

As fast fashion giant Shein edges closer to a £60 billion flotation in London, rather than New York, scrutiny is growing over the strategies of the controversial business.

Other retailers are asking: How does Shein do it? 

They are less interested in its reasons for seeking a listing than in the marketing, ordering and other strategies that have propelled its growth. 

In 2023, Shein which was founded in China but it is now headquartered in Singapore, sold $45 billion (£35 billion) of clothing for a $2 billion profit.

This issue is of interest to British investors too as they may become indirect shareholders in the business through index-tracker or passive funds, on whichever market it makes its debut this summer. 

A firm this size would be an automatic holding in such funds. Shein has disrupted fast fashion in Europe and the US – its largest market. Its UK rivals – Asos, Boohoo and Primark – are said to be rattled. But Shein has also sparked mid-market anxiety. 

This week the Japanese group Fast Retailing, owner of the Uniqlo chain, announced it was launching a low-price brand Gu in the US to appeal to younger cash-strapped consumers who shop with Shein.

Swedish-owned H&M has already taken action by going more upmarket and appointing a new boss.

Shein, which does not sell products in China, owes its success to a mix of geography and the use of algorithms to indicate customer interest and preferences. 

The firm can produce new items rapidly thanks to the concentration of button, garment and textile makers in China’s Pearl River Delta, the area around the cities of Dongguan, Guangzhou and Shenzhen.

These supply chains let Shein immediately order more if a garment starts to sell, rather than placing advance orders for large quantities in the hope of demand.

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Shein says this limits wastage: the incineration of unsold clothing is a common practice in the sector. But the environmental impact of production in the Pearl River Delta will deter ethical investors.

The retailer used to rely on social media influencers, but is now able to grab customers’ attention more directly with targeted marketing thanks to its IT systems.

Sceptics wonder how the business can retain the Gen Z clientele that has powered its expansion as they enter their 30s, progress in the workplace and begin to require smarter and more timeless pieces.

Shein is dealing with this with its Motf premium brand. A Motf cocktail dress may cost £94.99, way above its typical prices.

But questions as to how and why any garment can be made and sold at a profit for £3.39, however efficient the process, will continue to circle around Shein after its flotation, be it in New York or London.