What You Need To Know
Shein, the fast-fashion giant known for its affordable clothing, is planning to sell its supply chain as a service to other brands as it faces mounting challenges. By offering its supply chain technology to other brands, Shein is looking to diversify its revenue and tap into a new market. This move follows a similar strategy employed by rival H&M in 2020, although H&M discontinued the service due to disappointing growth.
Shein, an ultra-fast fashion giant, has been accused of copying designs, but its supply-chain service could help it stand out and generate additional income, diversifying beyond a retail-only consumer.
The company's supply-chain backbone is its biggest strength, similar to Amazon's. By outsourcing production to thousands of Chinese factories and using algorithms to identify popular designs, Shein can quickly analyze sales performance and order more of the best-selling items. This allows the company to save on storage costs and avoid inventory pileups.
In the United States, Shein is facing hurdles and increasing competition. Lawmakers urged the SEC to pause Shein's IPO due to concerns about forced labor in China. Despite filing to list in the US in November, the company has not yet received a response from the SEC. Additionally, Chinese e-commerce rival Temu is gaining market share in the US and has become the second most popular shopping app after Amazon.
Fast-fashion giant Shein eyes London for potential IPO
Overall, Shein's plan to offer its supply chain as a service highlights the value of a strong and efficient supply chain in the e-commerce industry. The company's success relies on what happens behind the scenes rather than just what is visible on-screen.
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Why This Is Important for Retail Investors
Diversification of Revenue: Shein's move to sell its supply chain as a service showcases the company's ability to diversify its revenue streams. For retail investors, this is important as it indicates Shein's commitment to expanding its business model and exploring new avenues for growth beyond its core fast-fashion offerings.
Increased Market Opportunity: By offering its supply chain technology to other brands, Shein can tap into a larger market and potentially attract new clients. This expansion could lead to increased market share and revenue potential, which can benefit retail investors who hold Shein stocks.
Innovation in E-commerce: Shein's supply chain as a service approach demonstrates innovation within the e-commerce industry. This development highlights the importance of efficient and streamlined supply chains in the digital retail landscape, providing retail investors with insight into emerging trends and opportunities in the sector.
Competitive Advantage: Shein's strong and efficient supply chain network has been a key factor in its success. By sharing this expertise with other brands, Shein can solidify its competitive advantage and potentially attract more customers. This is significant for retail investors as it underscores the company's ability to maintain its market position and potentially deliver long-term value.
Response to Challenges: Shein's decision to diversify its revenue through supply chain services may be a response to mounting challenges and competition, particularly in the US market. By adapting its business model, Shein shows its resilience and commitment to navigating obstacles successfully. For retail investors, this demonstrates management's proactive approach and ability to address challenges effectively.
How Can You Use This Information?
Here are some of the investing ideas that can be explored using this information:
Growth Investing
Shein's plan to sell its supply chain as a service demonstrates its focus on expanding its business model and tapping into new revenue streams. This growth-oriented strategy may attract investors looking for companies with potential for revenue and market share expansion.
Growth investing focuses on stocks of companies expected to grow at an above-average rate compared to other stocks in the market; learn more in our article titled 'What is Growth Investing?'.
Defensive investing
Shein's move to diversify its revenue through supply chain services can be seen as a defensive measure to mitigate risks and navigate challenges in the highly competitive retail industry. This could attract investors seeking stability and companies with strategies to adapt to changing market conditions.
Defensive Investing focuses on securing a portfolio by choosing companies that are less sensitive to economic downturns.
Thematic Investing
Shein's foray into "supply chain as a service" aligns with the theme of innovative disruption in the e-commerce industry. Investors with a thematic investing approach focused on technological advancements and transformational business models may find Shein's strategic shift appealing.
Thematic Investing selects assets based on projected trends or themes believed to offer growth opportunities.
Sector Rotation
Shein's expansion into supply chain services represents a shift in its business model and potential exposure to the broader supply chain management sector. Investors utilizing a sector rotation strategy may consider opportunities in companies related to retail, e-commerce, or supply chain services.
Sector Rotation is the practice of shifting investment capital from one industry sector to another to take advantage of the economic cycle.
Diversification
Shein's move to diversify its revenue through supply chain services showcases its commitment to expanding beyond its core fast-fashion offerings. Investors focused on diversification and seeking exposure to various sectors or industries may find Shein's strategic move intriguing.
Diversification spreads investments across various assets to reduce risk and volatility in a portfolio.
Read What Others Are Saying
FT: Is time running out for fast fashion?
The Guardian: Fast fashion: the French are bringing Shein and Temu to heel. Can Britain follow suit?
Vogue Business: Shein wants to sell its supply chain to brands. Here's why that matters
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Popular ETFs
Some investors prefer to invest in stocks via an exchange-traded fund for ease and reduced risk. Some popular ETFs include the following:
SPDR S&P Retail ETF (XRT) - This ETF aims to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Retail Select Industry Index. It includes exposure to apparel retailers, making it a relevant choice for investors looking to tap into the fashion sector.
Vanguard Consumer Discretionary ETF (VCR) - VCR tracks the performance of the MSCI US Investable Market Consumer Discretionary 25/50 Index, which includes companies from the consumer discretionary sector, such as those in retail, apparel, and luxury goods.
Consumer Discretionary Select Sector SPDR Fund (XLY) - XLY seeks to provide investment results that correspond generally to the Consumer Discretionary Select Sector Index. The ETF includes companies from industries like apparel, hotels, restaurants, leisure, and other consumer discretionary services.
First Trust Consumer Discretionary AlphaDEX Fund (FXD) - FXD employs an enhanced indexing approach to select stocks from the Russell 1000 Index. It includes companies from the consumer discretionary sector, which typically features fashion and apparel brands.
Global X E-commerce ETF (EBIZ) - While not exclusively focused on fashion, EBIZ invests in companies positioned to benefit from the increased adoption of e-commerce as a distribution model. This includes online retailers and marketplaces for fashion and apparel.
Amplify Online Retail ETF (IBUY) - IBUY offers exposure to global companies that derive significant revenue from online and virtual retail sales, including those in the fashion and apparel sector. This ETF is geared towards capturing the growth of online shopping.
ProShares Online Retail ETF (ONLN) - Similar to IBUY, ONLN focuses on companies that principally sell online or through other non-store channels, and includes a number of fashion and apparel retailers among its holdings.
