Fast-fashion retailer Shein is exploring turning it into a marketplace that would allow other merchants to sell directly to customers, according to a memo to investors reviewed by The Wall Street Journal.

Launched in China in 2008, Shein has quickly grown into one of the world's top online fashion retailers. In 2021, its annual revenue came in at $16 billion, an increase of 60% from the previous year's $10 billion. 

By comparison, Zara's revenue increased by 35.8% in 2021 to €27.7 billion euros, and H&M recorded a revenue of $23.359 billion, an increase of 15.86% over 2020.

With China's strong and comprehensive manufacturing capabilities and supply chain, Shein provides global consumers with a large assortment of clothing, accessories, household items, etc. at ultra-low prices. 

Unlike Amazon or AliExpress, Alibaba’s cross-border e-commerce platform, which hosts a large number of third-party sellers, Shein sells directly to consumers. Here's how it works: Suppliers' only task is to manufacture products for Shein, while Shein is responsible for for selling products to customers, as well as for warehousing, fulfillment, after-sales service, etc,. In this type of partnership, the platform has more say on pricing.

Besides, by leveraging data and adopting supply chain management software, Shein can provide suppliers with real-time consumer insights to guide design and production, thereby enhancing production efficiency. The upstart's product cycle reportedly takes just a few days compared to competitors’ cycle of weeks.

Those strengths helped the company, which ships products from China to more than 150 countries, overtook Amazon as the most downloaded shopping app in the US Apple Store in 2021.

Shein has planned to explore opening up to third-party sellers to drive more growth for a while. Last Month, Chinese tech news outlet the LatePost reported that, the company was testing with letting third-party merchants to open stores and sell via its app in Brazil. A person familiar with the matter told LatePost that the pilot decision was made in 2021 and it was officially launched in March this year.

In early December, the company named Jessica Liu, the former co-president of Southeast Asian e-commerce giant Lazada, as vice president in charge of "global brand partnerships." Liu has extensive expertise in working with brands: Before joining Lazada, she spent seven years at Alibaba, running the e-commerce giant's online department store for big brands.

An increased focus on the marketplace model will pit Shein against Amazon more directly. It will be a huge challenge for Shein, as Amazon, the e-commerce behemoth, have been investing heavily in building a robust fulfillment network globally and opening it up to third-party sellers, making shipping services more standardized and shipping times more guaranteed. 

Currently, American customers need to wait 7 to 15 days to receive Shein orders from China, several weeks longer than Amazon and brands like Zara and H&M, which have enough warehouses in the US. 

To shorten the delivery time, Shein is speeding up establishing distribution centers in the country. Its distribution center in Whitestown, Indiana, is already up and running, cutting shipping times by up to four days. A second facility is expected to open in Southern California by the spring of 2023, the company said, and it’s considering a third such space in the Northeast.

Shein is raising its investment in warehousing in other major markets. It has announced plans to build a distribution center in Poland that will serve Europe, and on November 2 it opened a 170,000-square-foot warehouse in Toronto, along with corporate offices at the same location.

Budget-friendly retailers like Shein are winning over shoppers with affordable offerings as high inflation has made many people more price-sensitive. 

In the US market alone, teen value retailer Five Below plans to open up to 400 stores during next two years, while budget apparel brand Primark anticipates having 60 locations in the country by October 2026, up from 13 now. 

Recently, Temu, an online dollar store, has topped the App Store shopping category by offering a wide range of promotions and rock-bottom prices (even lower than Shein). Launched in the US on September 1, the app is owned by Pinduoduo, the Chinese e-tailer that primarily serves consumers with lower spending power.

In an economic downturn, the competition for customers' attention is bound to heat up as they become more price-sensitive. So, better watch out, Amazon, those competitors are eyeing to grab more share from you.

Shein is reportedly on track to generate $24 billion in revenue this year. The startup, backed by Sequoia Capital China and General Atlantic, moved its global headquarters from China to Singapore in February 2021.