Shein’s digital-first supply chains set the stage for fashion retail chains: Will others follow suit?

Shein’s supply chain model is a departure from the usual fashion retail production. They center on agility, precision and customer demand. Unlike the conventional supply-driven approach, Shein employs an on-demand business model that tailors its offerings to real-time consumer preferences.

At the heart of Shein’s on-demand business model is its digital supply chain technology, which tracks user engagement on its platforms to identify demand signals. This data-driven approach ensures that products align closely with what consumers want, when they want them. According to Shein Group, initial product launches start with a limited number of batches. Initial launches usually range around 100 to 200 items. This enables Shein’s suppliers to gauge market interest and scale production accordingly. This minimizes overproduction, lowers unsold inventory rates and reduces waste.Moreover, the technology evaluates customer feedback in real time and aids in restocking products that are in demand. This highly automated process ensures that small and medium-sized suppliers within Shein’s network benefit produce products that are in demand. This benefits suppliers in minimizing overproduction, while making prices more affordable for customers.With access to their suite of supply chain technology solutions, suppliers have unlimited access to insights to capacity, inventory levels and other information. This can help them make better manufacturing decisions. Shein also invests in their supplier’s technology to make them compatible with their digital model.This enables Shein’s supply chain to respond to increased demands or market changes with agility and speed. This system is the ability to perfectly match demand with supply, which reduces costs at multiple levels of the business and ultimately drives prices down for consumers. It also enables Shein to create products that stem from emerging trends in an instant.Shein produces an average 314,877 new styles per year. By comparison, the more “traditional” fast fashion brand H&M creates an estimated 4,414 products per year.

The cross-border e-commerce and fast fashion sectors are seeing intense competition, especially with platforms like Temu and Zara making waves in contrast to Shein. While Shein has rapidly grown its global footprint, Temu and Zara offer unique advantages in supply chain operations, customer strategies and production models.

Temu’s key differentiator lies in its logistics cost optimization strategy, which combines lightweight and heavyweight goods to maximize cargo space. This helps reduce freight costs and provide more competitive pricing, especially for its low-cost lightweight products like jewelry and accessories.As the United States is the platform’s main region, Temu’s use of tail-end flights and strategic warehouse placements in Mexico offer a cost-effective edge in cross-border logistics. This enables Temu to offer lower-cost shipping, which becomes crucial when competing with Shein.Mexico’s tax authority, SAT, announced new tariffs on December 31 aimed at enhancing the monitoring of goods imported from Asia. This measure is expected to affect prominent online retailers such as Shein and Temu.According to SAT, goods arriving in Mexico through courier services from countries without an international agreement with Mexico will now incur a 19% duty, as stated in a press release shared with the media.Shein, on the other hand, has successfully leveraged rapid production and a more extensive range of fashion products. While Shein is known for its aggressive pricing strategy and quick turnarounds, Temu’s ability to mix product types beyond fashion and optimize its logistics network helps it maintain a level of agility that allows for a competitive edge in cross-border e-commerce. Despite Shein’s well-established position in fast fashion, Temu’s strategic focus on logistics efficiency and cost optimization could help it carve out a significant niche, especially in the US market. Both Temu and Shein also capitalize on the U.S. de minimis customs rule, which allows shipments valued under $800 to enter the country duty-free with minimal customs scrutiny. By leveraging this rule, both platforms are able to “escape” tariffs on low-value goods, further enhancing their ability to maintain competitive pricing in the U.S. market.

Zara and Shein both thrive in the fast fashion market, but their approaches diverge significantly. Zara’s supply chain model centers on just-in-time (JIT) production and in-house manufacturing, providing unmatched agility and speed to market. By controlling a significant portion of its production and focusing on small, limited runs, Zara avoids overproduction and creates a sense of urgency among shoppers. This approach contrasts sharply with Shein’s heavy reliance on outsourced manufacturing and its ability to churn out massive quantities of styles very quickly, often with less emphasis on exclusivity.While Shein uses advanced algorithms and a vast global network of suppliers to track trends and respond rapidly, Zara’s advantage lies in its more controlled environment, where most production is housed close to its Spanish headquarters.Zara’s focus on a curated, trend-driven inventory and demand forecasting, enables the brand to stay ahead of trends while maintaining operational control. In contrast, Shein’s vast range and extremely low pricing attract a broad audience but often sacrifice the control that Zara is known for.In terms of competition, Zara’s ability to control production and introduce new styles at a faster pace than Shein has given it an edge in both inventory management and customer satisfaction. However, Shein’s massive inventory and data-driven design processes allow it to capture a large chunk of the global market, especially among younger, price-sensitive consumers.

According to letters to Tang Investment Group, Shein is planning to offer its small batch, on-demand manufacturing model as a service to other fashion retailers. This marks a pivotal shift in the retail supply chain landscape.By leveraging its agile supply chain, Shein is able to produce fashion items in small batches, minimizing overstock and allowing for rapid production that can be closely aligned with consumer demand. Offering this manufacturing model as a service means that other fashion brands can access Shein’s supply chain infrastructure, including its data-driven production processes and logistics capabilities. This on-demand model reduces the risks associated with large-scale inventory and offers retailers the ability to react quickly to changing market trends, thus shortening the time-to-market for new collections.This change highlights Shein’s growing influence in shaping supply chain operations and presents new opportunities for fashion retailers to streamline their processes and improve flexibility.As Neil Saunders from GlobalData Retail points out, Shein is expanding its reach by evolving from just a low-price fashion retailer to an established service provider. For smaller retailers or brands that lack the resources to manage complex supply chains, Shein’s offering becomes an attractive option to streamline operations while maintaining flexibility and responsiveness in a fast-moving market. This not only represents a new revenue stream for Shein but also positions it as a key player in the broader fashion retail supply chain.

This shift towards a hub-and-spoke model enables Shein to consolidate various retail services under one platform. By leveraging this ecosystem, Shein is challenging traditional retailers to rethink their own supply chain models, which could force competitors to either innovate or face the risk of falling behind in an increasingly digital-first environment.

Success in the industry is not exclusive to Shein. Competitors like Temu and Zara are also carving out paths to success, each leveraging unique strategies to enhance their supply chain operations. From Temu’s rapid growth in e-commerce to Zara’s mastery of agile inventory management, these players are shaping the industry in their own ways.Yet, Shein’s disruptive influence reverberates throughout the entire supply chain landscape. With its ambitious plans to expand its innovative digital supply chain into a service for other retailers, the implications for the industry are huge. The question to be asked now is this: How will competitors adapt to this new reality, and can they rise to meet the challenge posed by Shein’s bold evolution?

Recent changes to U.S. trade policy, specifically the removal of the de minimis exemption for low-value imports from China, have recently disrupted the platforms like Shein and Temu. While Temu has struggled with steep sales declines and slashed prices to regain U.S. market share, Shein has managed to maintain growth by adjusting pricing strategies and reinforcing its digital-first supply chain.This policy shift is reshaping fast fashion’s logistics models, pushing retailers to adapt both their supply chain technology and cross-border operations.