Event Sneak Peak

Momentum Academy together with 01VC, a Shanghai-based VC fund, conducted “Off the Record: Behind SHEIN’s Success and Global cross-border trends” to discuss SHEIN, cross border ecommerce from China, and the crowded fashion space. Momentum Works’ CEO Jianggan Li and Ian Goh, Managing Partner of 01VC, spoke with close to 300 participants about SHEIN, the reasons behind its success, how cross-border ecommerce has evolved over the years and what’s next for the space. 

In this recap, we share a selection of Momentum Academy’s insights on SHEIN’s strategy and the future of cross-border ecommerce. For the full insights, reach out to Momentum Academy at [email protected].

1. Back in 2017-2018, many investors thought that SHEIN was growing too slowly… 

Back then, companies like JollyChic, ClubFactory etc. were popping up and raising millions from investors. Everyone was also interested in Wish, which was powered by Chinese sellers and was at the height of its growth in 2017.

Growth was easy to achieve back then because of cheap capital, customer acquisition costs and cheap logistics. They were acquiring customers and expanding very fast. 

However, Ian mentioned that he heard from fellow investors, “SHEIN is growing too slowly and the founder is prioritizing the wrong things – supply chain instead of growth.” 

2. What was SHEIN’s strategy? 

In hindsight, they were doing the right thing. SHEIN paused their focus on growth to get their supply chain right. Was it a deliberate strategy? Partly. 

What SHEIN has done is very different from the early guys. SHEIN gained experience in selling wedding dresses, and slowly built infrastructure and their own supply chain. Instead of continuing to grow – they concurrently built up their flexible supply chain with the focus on the “small order, quick reorder” mechanism – quickly testing out winning designs before scaling production. To do that it requires strong trust with the factories as well as an information system that allows full visibility/control of the entire manufacturing process.  Once you have that, you have the advantage/ability to obtain/retain customers through a vast number of new designs.

Ian mentioned that in the past, online sellers were selling products’ images. They don’t necessarily have the products in hand – and SHEIN did that.  He said, “First SHEIN sold images of products, then they sold products, and now they are selling their brand.” 

3. In 2021, the investors’ sentiments are very different. Now SHEIN’s massive success has investors hunting for the next SHEIN in every category

Many investors claim that they just invested in Company X, which is the SHEIN of X industry. Many startups also claim to be the next SHEIN of industries such as maternity, consumer electronics, etc.

4. But can SHEIN’s success be replicated?

Cross-border is not really easy and there are a lot of factors to be considered. Replicating SHEIN’s success in cross-border is not for the opportunistic. It requires patience, painstaking work with the supply chain, as well as perseverance. 

It is not always easy to operate with patience when a company is venture-funded, since the investors want to see rapid growth. Thus, long-term cross-border success requires investor-founder dynamics that focus on the right decisions for the long term.

5. Cross-border ecommerce from China has been booming, even before SHEIN came on the scene. How big is it exactly? 

Out of the third-party sellers on Amazon, 40-50% are Chinese by origin. 

Jianggan and Ian discussed a few factors that contributed to the surge in cross-border ecommerce:

• The surge in cross-border ecommerce happened after China joined the WTO. It helped China build a massive and robust supply chain. 
• Over the years, there have been significant logistics and payment improvements, making it easier for cross-border ecommerce. In recent years, Chinese companies can do door-to-door delivery from Shenzhen to Latin America in 10 days (used to take more than 2 months), and it is reliable. 
• The ease of access and increase in ecommerce and marketing platforms also spurred this, which was further accelerated by the pandemic. 
• Moreover, the manufacturing capacity in China has reached a tipping point. Manufacturing is still growing while domestic consumption has hit a plateau in recent quarters, so it naturally spills over to other parts of the world.

6. Finally – it’s not an easy game… 

This is a snapshot of the results of publicly listed cross-border ecommerce companies as at Q1 2022. Whilst Q1 is usually a slow quarter for ecommerce companies (sales usually pick up in Q3/4) and the growth during Covid period had been very high – it does give an indication of how challenging the market is. You need a lot of grit to survive and thrive in this space.

So what does the future hold? 

7. The consensus is that… cross border ecommerce will continue to grow.  

Albeit with tougher conditions. And not all the companies that are in this space have what it takes to be the next SHEIN. Intense competition and rapidly-changing trends make it a tough market.  Companies that want to thrive in this space and/ or become the “Next SHEIN in the XX space” requires strong leadership and people, as well as agile organisation and products that can adapt to this space. Perhaps that is what Pinduoduo is thinking of when expanding into the US. Investors that are looking into this space will also need to have patience, a strong gut and able to play the long game.