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A company many investors have never heard of is changing the fashion business by doing everything cheaper and faster. And the process is only getting started.
Bloomberg reported last week that Shein, a Chinese fashion company, achieved a private market valuation of $100 billion. Venture capital firms are racing for a piece of the influencer economy.
Regular investors should consider buying Meta PlatformsFB (FB) to take advantage.
Shein is not a name that rolls easily off of the tongues of most investors. The company is the product of Chris Xu, a search engine optimization expert. Xu began in 2008 by selling wedding dresses online under the name ZZKKO. Four years late the company got a name change to She Inside and branched out into general apparel. Today Shein, the latest incarnation, is an online-only global fashion empire with customers in 150 countries and $11 billion in annual sales.
The Nanjing, China-based company is now more valuable than Zara and H&M combined, its biggest brick and mortar fast fashion competitors. And Shein growing much faster.
The business model is based on predicting fast fashion trends in real-time, vertically integrated manufacturing, viral marketing through social media influencers, and a logistics network that bypasses container ships and trucks. Shein is fast-fashion in the digital era.
The company uses algorithms that track browsing activity on TikTok, Instagram, Google, and other digital platforms. This information is turned into limited production, on trend clothing in about three days. Items are then marketed online and by thousands of commission-based social media influencers. Customers get their dresses, blouses and earrings five to seven days later in the mail.
Letting the internet predict fashion trends can be messy.
Swastika necklaces produced in 2020 were a public relations flop. And smartphone cases sold in 2021 that depicted a handcuffed black man outlined in chalk missed the mark, too.
Shein makes up for the misses with big hits.
Tapping into the burgeoning influencer community to market its goods has been pure genius. And the company borrowed from TikTok’s experience by spending lavishly on digital ads to reach and remain top of mind with fickle 20-something customers.
General Atlantic, Tiger Global, and Sequoia are among the big name venture capital firms that lined up for a piece of Shein, according to the report at Bloomberg. The $100 billion valuation puts the Nanjing firm as the third most valuable private company in the world, behind only ByteDance, the parent company of TikTok, and SpaceX, Elon Musk’s rocket company.
The venture capital firms understand that Shein has hacked retail with data science and social media. It’s a powerful competitive advantage that will be difficult to replicate.
Meta Platforms is a big beneficiary of the rise of Shein. Let me explain.
These days it is popular for investors and analysts to dismiss Meta as a social media failed experiment. In fairness, a deluge of scandals at Facebook have helped this narrative gain traction. However, at its core Meta is a digital platform of gated communities. Its properties Facebook, WhatsApps and Instagram are critical addresses on the global social media scene.
Shein is ten times more popular on Instagram than TikTok, according to a June 2021 report in the South China Morning Post. When influencers post pictures of their latest Shein haul of new items “the gram” is the location of choice. Meta earns fees by selling ads around that content, as well as larger Shein brand campaigns.
Then there is Shops, a fledgling Meta program to help influencers and Mom and Pop businesses build digital storefronts inside Instagram and the other Meta platforms.
Retailing is evolving. Digital is what comes next. It’s cheaper and faster, and does not depend on ocean-faring vessels or malls shuttered by covid-19. Digital is direct to customer.
At $210 per share, Meta is in the process of building a bottom after falling in September 2021 from $382.50. The stock trades at only 14.5x forward earnings despite its premiere digital properties.
Longer-term investors can think about buying shares into the current weakness.