Think cheap, trendy fashion and you may think about retailers like H&M, Forever 21, Cotton On (at least in the recent past). However, one online fashion retailer has overtaken all these fast fashion retailers without any physical storefront.
Shein is a Chinese online fast fashion retailer that has taken over social media by storm. The hashtag #sheinhauls trends on YouTube, Instagram and TikTok. While Shein’s business model is predominantly online (they don’t operate physical stores), they do have occasional physical pop-up retail events.
Yet, as Shein looks towards a public listing, its growth story has been dimmed by ESG concerns.
Shein Is The Top App Download In U.S. (Not Just For Shopping)
In 2Q2022, Shein took the top spot for mobile app downloads in the U.S. with 6.8 million downloads, surpassing Amazon, according to a Sensor Tower report. While the U.S. is Shein’s largest market by lifetime installs, Shein also has more than 500 million worldwide downloads.
This mobile market dominance is likely a product of Shein’s effective social media marketing, or more specifically, social commerce. According to Marketplace Pulse, Shein has ten times more followers than Amazon on Instagram and TikTok. This overwhelming social media presence has translated to effective commerce revenue for the company.
Shein Is Valued Higher Than Zara, Uniqlo And H&M
According to Bloomberg, Shein’s latest funding valuation of $100 billion put it ahead of established fashion retailers like Inditex (parent company of Zara), Fast Retailing (parent company of Uniqlo) and H&M.
Source: Bloomberg
Company sales were $16 billion in 2021, up from $10 billion in 2020. Coupled with their expanding mobile app presence and social media success, there seems to be little to derail the growth story of Shein. Investors that have backed the company include Tiger Global Management, IDG Capital, and Sequoia Capital China.
Source: The Economist
Estimates by Zheshang Securities, a Chinese broker, puts Shein’s GMV in 2021 to exceed $20 billion, a tremendous increase from $2.3 billion in 2019. They forecast that Shein’s Gross Merchandise Value (GMV) would exceed Zara’s revenue in 2022.
ESG Concerns Have Caused A Backlash And Drop In Valuation
On the back of this rapid growth, Shein is reportedly seeking an initial public offering in the US as soon as 2024. However, the very nature of the fast fashion business that has given Shein its spectacular growth, is also threatening its chances for a successful public listing.
Fast fashion is an environmentally wasteful industry with consumers encouraged (and expected) to buy new clothes frequently to keep up with everchanging trends. Shein is one of the greatest offenders of this throwaway culture, releasing 6,000 fresh stock-keeping units (SKUs) every day. In comparison, Zara launches about 10,000 new products a year.
Additionally, the low prices are alleged to be a product of low-paid workers with long working hours in dangerous workplace conditions. A Swiss watchdog group, Public Eye, released a report accusing Shein of violating Chinese labour laws, including informal factories set up in residential buildings, some of which had barred windows and no emergency exits. Shein has also been accused of copyright theft. According to WSJ, Shein has been named the defendant in at least 50 federal lawsuits in the U.S for trademark or copyright infringement in the last 3 years. All, these ESG concerns have clouded Shein’s future prospects
Since its $100 billion valuation in April 2022, investors looking to cash out are looking at private bids with discounts of about 30%, implying a drop in valuation.
Read Also: What Exactly Is ESG Investing And How Does Greenwashing Come Into Play
Shein Is Actively Working To Improve Its ESG Performance
Since the release of the Public Eye report, Shein has launched its own investigation. In end-2021, they hired a global head of ESG. They have since published their first 2021 Sustainability and Social Impact Report.
According to Shein’s website, Shein is a signatory of United Nations Global Compact (UNGC) and support the ten principles focused on human rights, labor, environment, and anti-corruption.
Shein has also started the SHEIN Responsible Sourcing (SRS) evaluation system and conduct regular supplier audits. The lowest grade of Zero Tolerance Violations (ZTVs) include forced labour, serious environmental pollution, severe health and safety violations and underage labour. Suppliers that fail to remediate violations within an allowed timeframe, would face further action, including termination. About 12% of the audited suppliers were found to be graded ZTV.
Source: Shein’s 2021 Sustainability and Social Impact Report
Shein have also launched programs that improve their social impact. Their incubator program, SHEIN X, has helped nearly 1,500 independent designers launch their own brands and businesses in 2021. This is expected to increase to another 3,000 in 2022. Their philanthropic arm, SHEIN Cares, had raised over $1 million for important philanthropic causes through activations, monetary grants and product donations.
Criticisms about Shein’s ESG efforts often home in on the shifting of responsibility from the company to suppliers. Shein works with more than 6,000 suppliers to produce their goods, out of which only close to 700 were audited. An extrapolation of the 12% ZTV grading would mean that there are many hundreds of factories that could be working zero tolerance conditions.
Shein’s environmental sustainability attempts are also vague. In the 2021 Sustainability and Social Impact Report, one of the few projects that have clear sustainable impact include using thermal digital transfer and digital direct printing technology to save water during production. However, the report does indicate that Shein is looking at developing garment recycling programs, baselining energy consumption and establishing renewable energy goals. They also plan to announce a waste goal by the end of 2022.
Read Also: What Is The S&P 500 ESG Index, And Why Was Tesla Kicked Out After the 2022 Review
Only time will tell if Shein would move to a truly sustainable business model. However, it is encouraging that public concerns about ESG have motivated the company to strive for better ESG performance. For ESG investors, this is a positive sign that ESG investing does have an impact on companies’ behaviour. To truly have a genuine impact, investors and the public need to continue to scrutinise and hold companies accountable for their ESG goals
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