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Shein Explained: Why is India Letting it Re-Enter?

Created on 27 Jul 2024

Wraps up in 9 Min

Read by 46.7k people

Updated on 20 Sep 2024

Shein and Reliance Retail: Transforming India's Fashion Market

Is Shein Back? Looks like it.
For those of you who have been living under a rock, here's a recap:

  • Shein is a fast fashion brand.
  • It is headquartered in Singapore.
  • It was banned in India 4 years ago.
  • Most people remember the last point. Right?

On 29 June 2020, the Indian Government banned many Chinese apps. Shein and 58 other Chinese apps were booted from India due to national security concerns.

Shein’s comeback raises many questions—the hows and the whys—but the one that bugs the most is, "Another fast fashion brand in India, so what? What's the big deal?"
Well, the big deal is Shein’s popular "on-demand fashion" model.

It's a nice concept, especially for a fast fashion brand. Shein uses real-time data to determine which styles are in trend and turns them into affordable clothing lines faster than we can finish saying, "shopping spree".

India is a great market for clothing brands like Shein, with booming internet usage and a growing middle class hungry for affordable fashion.

The grapevine suggests that Reliance Retail signed a partnership agreement with Shein over a year ago.  
A partnership between Reliance Retail and Shein might eradicate the security concerns that led to the app's ban and benefit the consumers. It might also come with sustainability costs that come hand in hand with fast fashion brands.

Let's find out…

Why is Shein Coming Back?

Shein is coming back because we missed it! (Obviously, there’s more to it.) Apparently, Shein is an expert in producing trendy, affordable clothing, and we Indians love a good deal. It's clothes are cheap for two main reasons:

  1. Economies of scale (they produce clothes in bulk)
  2. Low quality (It’s all polyester now.)

Fast-fashion brands like Shein target middle-class customers with cheap and trendy collections. The Indian market is very attractive for fast fashion brands, as evidenced by the success of Zara, H&M, and Uniqlo.

The Indian middle class has welcomed these foreign brands with open arms, so it’s not surprising that Shein wants back in the game. We love to shop online, and the rising number of active internet users, expected to reach 900 million by 2025, is another reason why India is a big potential market for fast fashion. .    

A question for Shein is, 'Is the fast fashion industry viable?' Yes, the industry is doing well, as you will learn in the article.

But, with the rising demand for sustainability, fast fashion’s survival is at stake.

How is Shein Coming Back?

Shein might be shaking hands with Reliance Retail. It looks like a strategic decision, for sure!

There are a lot of advantages to this supposed alliance for Shein:

  • Access to Reliance's Extensive Retail Network: Reliance has a massive network of physical stores and a very popular e-commerce platform, Ajio. By collaborating with Reliance Retail, Shein's distribution in India will be immediate and widespread. Imagine trying on Shein’s clothes in a Reliance Trends store. 
  • Leveraging Reliance's Expertise and Infrastructure: Reliance Retail has market expertise and strong logistics. Shein can use Reliance's infrastructure, supply chain, and operational know-how to its advantage.
  • Regulatory Approval and Compliance: Reliance is a big wig, a market leader. It is entirely possible that Reliance will help Shein secure the necessary regulatory approvals from the Indian government for its re-entry.
  • Localisation and Adaptation: Shein is not a homegrown brand. Obviously, it will need to localise its products and strategies for Indian consumers. Reliance's understanding of Indian consumer preferences and market dynamics can help Shein.
  • Data Sovereignty and Control: Shein was banned because it was accused of sharing user data without consent, putting our information at risk. The best part of this to-be deal is that Shein will have no direct access to sensitive customer data. Everything from the platform, data, and operations will be owned and controlled by Reliance's subsidiary. Data security and Shein in the same sentence; wow!

Shein's technology and trademarks are now licensed to Reliance. Together, they're launching an exclusive e-commerce platform for Indian customers featuring Shein's popular products.

This platform, managed by Reliance's fully Indian-owned subsidiary, ensures data security by keeping Shein's Indian app separate from its global one.

Shein's Business Model

Shein's business model is centred around providing trendy and affordable fashion items to a global customer base through an on-demand, data-driven approach. Here are the aspects of Shein's business model:

a. Trend Identification

What Shein does is it identifies the current fashion trends on the go. It uses real-time data analytics and monitors demand to adapt. Although fashion trends are fickle, Shein has managed to keep up with the latest consumer trends with this approach.

Who knew the masses wanted cottagecore or dark academia core before Shein did? Did the people even know? The below costume designs will shed some light on it:

Cottagecore
Cottagecore Designs
Dark Academia core
Dark Academia Core Designs

b. Design and Development

For Shein, design and development is the same as Research & Development for any other company. The catch is that Shein must rely on something other than in-house designers like traditional retailers. What is the solution, then?

Shein replicates designs from individual designers and produces in-trend clothing. This is a kind of theft of intellectual property. Do you think it's ethical? Let me know your thoughts in the comments. 👇

c. Production

Shein follows an on-demand production strategy. It manufactures small batches of 100-200 items. Then, based on real-time customer feedback, in-demand products are restocked. The highly automated process ensures supplier partners produce what customers want.

Shein's Business Model
Source: Finology Insider's Instagram Page

Shein outsources the production part to third-party manufacturing units that quickly turn designs into finished products. This on-demand production strategy reduces production costs, allowing Shein to offer its products at low prices.

d. Inventory Management

Shein uses the lean inventory method. It uses real-time data on sales, consumer behaviour, and trends to optimise its inventory. Thanks to the lean inventory management system, Shein's unsold inventory rate is only 10%. That means it sells 90% of the products it produces.

Shein's "small orders, fast returns” strategy lets it quickly test new products and ramp up production on bestsellers, slashing waste from unsold inventory. With AI-driven warehouse management and delivery scheduling, Shein supercharges the efficiency and accuracy of its logistics, ensuring faster and smarter operations.

Shein's Revenue Model

Back when it was in India, Shein was popular. All the girls I knew were ordering Shein's cheap and trendy products left and right.

Shein's global revenue in 2022 was $22.7 billion (₹1,90,059 crore). In 2023, it took a huge leap of 43% to the tune of $32.5 billion (₹2,72,025 crore).

Did it ever occur to you, itna sasta hai to profit kaha se kama raha hai?

Shein's Revenue Streams:

a. Online Sales: Shein's revenue is majorly thanks to its online sales. With a direct-to-customer sales model, the brand sells its products directly to its customers via its online platform. No retailers, no intermediaries and no costs that come hand in hand with them.

b. Affiliate program: An affiliate program is when a company pays people, mostly influencers, to help sell its products. If the influencers promote the product and their followers buy it, the company gives them money. Shein's Insta famous affiliate program is a win-win situation. The influencers get a commission, and Shein gets more traffic and new customers.

These are some of the main streams of revenue for Shein. The company also earns advertising money by taking advantage of its high web traffic.

Retail Industry Overview

Shein’s re-entry can have an impact on the Indian retail industry and on Reliance Retail’s parent company as well.

Did you know that 10% of the GDP comes from the Indian retail industry? It's one of the fastest growing and the largest. The Indian retail industry is divided into many parts, such as the apparel market, food & grocery market, electronics etc.

Wish to know which other industries are growing speedily in India? Click on this link for a detailed article.

There are 2 parts to the Indian apparel market as well:

  1. Independent local stores
  2. Organised retail segment

Just imagine how many local stores there are. The sheer quantity of independent local stores is the reason why it covers 90% of the trade in the Indian apparel market. The organised retail segment includes retail stores like Reliance Trends, Pantaloons, Max, etc.

The organised sector has a lot of catching up to do. With many large corporations like Reliance backing up these chains and the ever-growing love of e-commerce platforms, the organised sector may not stay behind for long.

In 2024, the revenue from the apparel market in India is projected to reach an impressive $105.50 billion ( ₹8,83,035 crore), with an annual growth rate of 3.81%. This market consists of online as well as offline clothing stores.

That brings us to the question of who or what is contributing to the growth of the Indian apparel market.

  • The growing middle class
  • Rising incomes
  • Changing consumer preferences
  • Urbanisation

The market is dominated by the women's apparel segment, with a whopping volume of $51.05 billion (₹4,27,348.5 crore) in 2024. In the same year, India's per-person revenue is close to $73.19 billion (₹6,12,780.3 crore).

The Indian apparel market is expecting much bigger numbers in the future. It is expected that the volume will reach an astounding 40.1 billion (4,010 crore) pieces by 2028 and a projected volume growth of 3.7% in 2025. (More people or more clothes? You tell me).

It is anticipated that in 2024, the average volume per person will be 24.2 pieces, and 99% of sales will come from non-luxury items. A big reason for the surge in the Indian market is consumers’ bleeding hearts. Consumer demands have shifted drastically towards sustainable and ethically sourced/produced things, even when it comes to clothing. When it comes to ethics and sustainability, many brands have been victims of the cancel culture.

Shein's Financials: Is It Steady?

Shein is all over Instagram. Even though the app is banned in India, second-hand exposure to the brand cannot be banned—at least not entirely. Just because it's banned in India doesn't mean it's also banned in other countries. In fact, Shein currently operates in more than 150 countries.

Guess how many active shoppers Shein has. In 2023, the number was around 88.8 million (8.88 crore), of which 17.3 million (1.73 crore) were from the US alone. There’s no denying that the brand has a customer base that is not only humongous but also diverse.

Shein was the most downloaded fashion app of the year, with over 238 million downloads in 2023. A sure proof that Shein is popular and in-demad. Shein's revenue increased from $0.61 billion (₹5,105.7 crore) in 2016 to $22.7 billion (₹1,89,999 crore) in 2023, surpassing even H&M. It's even projected to surpass Inditex (flagship brand: Zara) in 2024.

Shein is leaving world-renowned brands like H&M and soon Zara in the dust. Is this a sign of the brand's dominant position in the fast fashion industry?

Profitability

On the other hand, Shein's net income dropped to $700 million (₹5,859 crores) in 2022 from $1,100 million (₹9,207 crores) in 2021, but it bounced right back in 2023 with a net income of $2,000 million (₹16,740 crores).

Peer Comparison

If and when Shein re-enters the Indian market, its competitors will be H&M, Zara, and Uniqlo. It might also affect e-commerce platforms like Myntra, Flipkart, Amazon as well as Nykaa Fashion.

Shein's Peer Comparison
Source: Finology Insider's Instagram Page

Shein's re-entry might cause a market disruption. Brands like H&M and Zara have a very strong presence in India and robust customer loyalty. However, they might be more loyal to affordability. With Reliance's backing and its agile fashion production, Shein might gain the upper hand really fast.

The Bottom Line

It has been over a year since the deal between Reliance Retail and Shein, and yet we haven't seen any Shein products back in India. The question that keeps popping up is, “Do we really need more fast-fashion brands?

Fast fashion contributes 10% to global carbon emissions—more than international shipping and flights combined! Fast Fashion encourages overconsumption and has grave environmental impacts. Words like “landfill," "toxic," and "microplastic” come to mind.

Yes, Shein had quite a fan base in India before it was banned, but did we really miss it? 

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A book-lover who adores everything fictional, Preeti has undertaken the life mission of tasting every flavour available in the pantry. A science student with a Master's in Mass Communication, she now wishes to conquer the Finance world as a writer. With the power invested by the randomly chosen music, she is here to make Finance fun for you.

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