How Shein’s fast fashion fell out of favour
Somewhere between a warehouse in China and a teenager’s bedroom in London, Paris or Los Angeles, a Shein parcel is making its way around the world.
Inside might be a £5 dress, a T-shirt, a phone case or a handful of accessories that cost less than a coffee. Multiply that by hundreds of millions of customers and more than a billion orders a year, and the scale of the operation becomes difficult to comprehend.
Shein’s draft public filings showed fulfilled orders rising above 1 billion, alongside 273 million active customers worldwide and revenue climbing 8 per cent to $41.8 billion.
For years, Shein was a curiosity: an online retailer with rock-bottom prices, an enormous array of products and a mysterious corporate identity. Consumers knew the name, but few knew about the company behind it, where exactly it was based or how its clothes were being made.
Then the pandemic arrived. Consumers stuck at home discovered an endless scroll of new, inexpensive clothes, pushed at them through TikTok, Instagram and an advertising machine that seemed almost impossible to escape.
Shein went from being an unknown outsider to a company capable of putting some of fashion’s biggest names under serious pressure. Zara, H&M, Primark, Boohoo and Asos all suddenly had a competitor that could launch thousands of products at extraordinary speed and sell them for prices the traditional high street found difficult to match.
Now, though, Shein is having its own reality check. In 2022, investors valued Shein at close to $100 billion, briefly putting it in the same league as some of the world’s most valuable fashion businesses and making it one of the most highly valued private start-ups anywhere. Today, as it prepares for a long-awaited listing, albeit in its third-choice location of Hong Kong, the company is targeting a valuation of about $25 billion to $28 billion.
It represents a dramatic fall from grace although some analysts argue it is not disappearing, it is simply a re-pricing.
Shein is still a business generating tens of billions of dollars in annual sales, but that has started to slow. Revenue rose from $32.1 billion in 2023 to $38.8 billion in 2024 and $41.9 billion last year. In the first quarter of the year, revenue grew by 1.1 per cent year-on-year, while the company recorded a $99 million quarterly loss.
Net profit peaked at about $3.4 billion in 2024 before falling to roughly $2 billion last year, with margins narrowing considerably. The business is therefore still making serious money, but investors are being asked to pay much less for each dollar of future growth.
“Institutional investors on the HKEX (Hong Kong Stock Exchange) will … zero in on the 2.9 per cent operating margin,” said Winston Ma, executive director of the Global Public Investment Funds Forum and a former managing director at the China Investment Corporation.
“Investors will re-price Shein away from a pure hyper-growth tech platform toward a physical retail and logistics player navigating high-friction global trade.”
That is partly because the rules of the game have changed. One of Shein’s biggest advantages is that it can make clothes cheaply. It can manufacture them in small batches, test what’s sold, then rapidly produce more. Rather than guessing what customers want months in advance, its data-driven supply chain can respond to demand almost in real time.
Furthermore, because individual orders could be shipped directly from China to consumers overseas, the model has also benefited from favourable customs treatment for low-value parcels.
However, in the United States that advantage has been substantially eroded. Washington removed the so-called de minimis exemption for low-value shipments from China, which had allowed packages worth up to $800 to enter without the usual duties. Shein’s prospectus explicitly linked the change to weaker US sales growth and higher costs. In the first quarter of the year, US revenue fell 14 per cent to about $2 billion.
The UK has been slower to act, but the direction of travel is similar. The government has decided to remove the current £135 low-value import relief, with new arrangements due to be introduced by March 2029 at the latest.
That matters because Shein’s appeal has always depended on the gap between what something costs to manufacture and what consumers are prepared to pay. Add duties, handling costs, more expensive air freight or local warehousing, and that gap starts to close.
British consumers spent an estimated £4.7 billion with ultra-low-cost overseas platforms such as Shein and Temu over the past year, according to research from Retail Economics and Barclays. Almost half of UK consumers surveyed had bought from one of these platforms.
The irony is that Shein is a victim of its own success. It became so large that governments could no longer ignore the implications of millions of low-value parcels entering their markets.
Nor is Shein fighting on just one front. Other players like Temu now offer elements of the same direct-from-factory-to-consumer playbook, offering shoppers another apparently endless stream of cheap goods.
Earlier this month, Shein suffered an especially bruising defeat when it lost a London copyright case against Temu. Shein had accused its rival of infringing copyright on an industrial scale. Instead, the court rejected the claims and upheld a counter-claim that left Shein liable for damages over the removal of listings.
It marked an uncomfortable twist for a company whose own rise has been accompanied by years of accusations that it had copied designs from other brands and independent designers.
Then there is the reputational problem. Shein’s supply chain has faced persistent scrutiny over working conditions, environmental impact and allegations concerning forced labour. Last year, a Shein representative appearing before British MPs declined to give a direct answer when asked whether the company used cotton from Xinjiang, a region associated with allegations of forced labour. Shein has said it prohibits forced labour and has described its supply-chain controls and auditing programme.
The company also disclosed two cases of child labour at suppliers in 2024, following two cases identified the previous year. Shein said it terminated relationships with the suppliers involved.
The environmental element is also hard to ignore. Shein’s business depends on persuading consumers to buy more, more often, while shipping large numbers of relatively small orders around the world. Its transport emissions rose 13.7 per cent in 2024, according to its sustainability reporting, with the company relying heavily on air freight.
Yet, none of this means the end of the road for Shein. Analysts remain wary of writing Shein off. RBC Capital Markets argues that Shein is now more of a threat to Primark and, to a lesser extent H&M and Zalando than to Zara and Next, reflecting differences in their customer bases. It also sees Shein gaining share in Europe even as momentum has stalled in the US.
Retail analyst Nick Found said Shein was “unlikely to disappear from wardrobes any time soon”. He explained: “Its product offering is particularly well suited to younger fashion consumers — combining very low entry prices and a constant newness, with social-led discovery, at a time when household budgets remain under pressure.
“Shein’s future will depend on the extent it can preserve its price advantage against rivals such as Primark and Inditex-owned Lefties, while absorbing higher trade and fulfilment costs, navigating greater regulatory scrutiny and finding growth beyond the US.
“International scale gives Shein room to manoeuvre, but the days when rapid sales growth could overshadow the underlying economics of the model are coming to an end.”
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