By offering dresses starting as low as Rs 199, billionaire Mukesh Ambani-led Reliance Retail has now sparked a fast fashion war in India by relaunching Shein and taking an online-first approach to challenge both Tata Group’s Trent-owned Zudio and Nykaa Fashion.
While India’s overall fashion market grew just 6 per cent in FY24, the fast fashion segment recorded a growth of 30-40 per cent year-on-year and can be worth $50 billion by FY31, according to estimates by RedSeer Strategy Consultants.
“With trendy fashion choices, attractive price points and partnership with RIL (help leverage RIL’s distribution network), we find Shein well-positioned to gain traction in the market…We see upside risks to RIL’s retail revenue and EBITDA estimates on the back of the Shein launch and likely traction, helping re-accelerate retail growth,” BofA Securities research analyst Sachin Salgaonkar said.
Shein has a good brand recall in India and before it was banned about 5 years ago amid Indo-China tensions, it got 20,000-50,000 daily orders.
Will Ambanis disrupt fast fashion?
Ever since Reliance Retail re-launched Shein India fashion app on February 1, investors have been assessing the likely impact on the industry as Shein has pioneered ultra-fast fashion where new designs are introduced at a very fast pace, leveraging data analytics and lean manufacturing.
“Using automation, AI & supply chain dynamics, Shein made its offerings cheaper & faster. Shein’s strong relationship with its suppliers has also enabled it to place orders in small quantities at a shorter lead time. A product only gets to be mass produced when it becomes viral or popular through product views and buying patterns. Globally, Shein does not own their supplier’s factories, but operates a traditional 1P model where they design items, take ownership of inventory and handle the logistics,” Salgaonkar said in a report.
Nykaa, Trent under pressure
While BofA has warned that Shein’s launch increases competitive intensity for Nykaa, the impact of Shein’s launch was also felt on Trent as its shares fell over 6 per cent on February 4.
Shein has a shortened manufacturing cycle of 5-7 days vs 1-2 weeks of other fast fashion retailers but Goldman Sachs analysts believe that online-only value fashion retail does not have healthy unit economics.
“Average transaction value of a typical value apparel retailer is typically around the Rs 1,000 mark or below and is very sticky at those levels, and typical gross margins are 30-40 per cent , and the delivery costs are typically Rs 120-130/order irrespective of order value. That leaves an online-only value fashion retailer with Rs180-280 per order to cover for all other operating costs…Even in a best-case scenario for operating costs, this would lead to poor unit economics,” said Goldman’s Saurabh Kundan.
Arguing that any meaningful scale up of a value fast fashion business requires several years of supply chain investments, he said the scale up of any new competitor is likely to be gradual and not disruptive.
Shein’s online-first strategy is in contrast to most of India’s fast fashion firms like Zudio, Intune, StyleUp and Yousta, which are strategically present via extensive store network.
“With its online-first approach, Shein may face challenges, such as increased competition in eCommerce, customer trust in product quality, higher order return and lower unit economics. A swift design-to-inventory model requires an efficient supply chain, which may take a prolonged time for Shein to establish,” said Elara Capital’s analyst Karan Taurani.
The brokerage believes that it will be a tall task for Shien to manage product assortment compared to dominant incumbents like Zudio, in terms of navigating price tags and sustaining unit economics.
“For Shien, establishing a reliable pan-India supply chain and delivery model will take 1-2 years, which is subject to brand traction; we expect Zudio to capture market share further and
strengthen its recall. Shein’s product assortment, styling resembles Zudio but also has price quotes above at Rs 1,000,” Taurani said.
While Zudio operates mostly below Rs 999 price point, Nykaa Fashion has a higher average order value of Rs 4,000-5,000.
Inditrade’s Sudip Bandyopadhyay says the strength of Shein and Zudio are completely different.
“Zudio is completely offline and their success was on the back of the offline store expansion and getting the hinterland to buy fast fashion through offline stores. Whereas Shein globally and in India is supposedly going to be completely online. So, these are two worlds and not necessarily these always collide,” Bandyopadhyay said.
