Two months ago, SHEIN acquired one-third of the equity of SPARC Group, the parent company of fast-fashion women’s clothing brand Forever 21. Recently, it made another move.
According to “LatePost,” SHEIN has acquired the fast-fashion brand Missguided and all its intellectual property rights, which are owned by the UK fashion retail group Frasers Group. The specific acquisition amount was not disclosed in this round.
Missguided, headquartered in Manchester, was founded in 2009 and is one of the largest online fashion retailers in the UK. In its peak year of 2020, it had an annual revenue of £300 million and was known globally for its “young, fresh, and aspirational” brand image, reaching more than 4 million young consumers worldwide.
Frasers Group is known for its continuous acquisition of retail enterprises and owns several well-known fashion brands, including Sports Direct, House of Fraser, and Jack Wills.
According to the cooperation agreement between the two companies, Missguided’s products will be manufactured by SHEIN’s flexible supply chain and sold on the SHEIN platform in the future.
In addition, SPARC Group’s joint venture company, Authentic Brands Group (ABG), a global brand development, marketing, and entertainment platform, has also recently reached a long-term strategic cooperation agreement with SHEIN regarding the Forever 21 brand. SHEIN will design, manufacture, and sell a range of Forever 21 brand clothing and accessories products, including casual sportswear and swimwear, and will also be responsible for selling these products online in the United States, certain European regions, and the Australian market.
Recently, SHEIN set up its first pop-up store inside a Forever 21 store at the Ontario Mills shopping center in California, attracting more than 7,000 consumers in four days and driving a 62% year-on-year increase in Forever 21’s turnover.
Jamie Salter, the founder, chairman, and CEO of ABG, said in a recent interview, “If you can’t beat them (SHEIN), join them.” He expects that this cooperation between the two parties will bring in sales of several billion dollars. ABG owns more than 50 brands and can work with SHEIN in a broader range of categories, including furniture and home goods, based on the cooperation with Forever 21, which is just the beginning.
For SHEIN, the continuous investment in and acquisition of fast-fashion brands not only allows them to sell these brands’ products and expand their user base but also enables them to apply their flexible supply chain capabilities to a wider range of global fashion brands, improving brand production and circulation efficiency, injecting new vitality into these brands, and enhancing SHEIN’s brand influence.
In the challenging times for overseas fashion brands, SHEIN’s concentrated acquisition opportunities.
After the outbreak of the pandemic in 2020, fast-fashion brands faced different risks and opportunities. That year, Inditex, the parent company of Zara, announced the largest store closure plan in history and reported a net loss of €4.09 billion (approximately $4.32 billion) in the first quarter.
Meanwhile, SHEIN, which focuses on online sales, saw its annual revenue double from the previous year to nearly $10 billion, with a valuation of $15 billion. Another rapidly growing brand in the same year was the UK-based Missguided. Founded in 2009, the company was one of the fastest-growing e-commerce platforms in the UK in the years leading up to its founding.
In 2018 and 2019, the company opened offline stores in several core shopping districts in the UK, increasing its operating costs. In 2019, the company closed all its offline stores. While its growth was slowing down, the pandemic led to the closure of offline stores for other brands, and Missguided, through collaborations with internet celebrities, saw a 7-fold increase in sales of home and activewear, with annual sales increasing by 50% to £300 million.
Many of Missguided’s clothing items were directly inspired by celebrity outfits but were much more affordable—£1 for a bikini, £5 for a dress. While it takes Zara 5 weeks from design to market for a product, Missguided only requires 2-4 weeks.
As revenue rapidly increased, so did the losses. Since some of the company’s supply chain came from China, the cost of sea freight increased significantly in 2020, with the founder of Missguided stating that it was “ten times higher than usual.”
By 2021, other brands had reopened their offline stores, Missguided’s growth slowed down again, and its inventory increased, leading to significant debts to suppliers. In December 2021, the struggling Missguided sold 50% of its shares to Alteri Investors, a well-known investment company in the European retail industry, which claimed it would “help the brand realize its enormous potential.” Just six months later, Missguided couldn’t repay its debts and had to file for bankruptcy. Just before the bankruptcy liquidation, Frasers Group acquired the former star company for £20 million.
Later, under the management of Frasers Group, Missguided’s supplier debt problem was alleviated. SHEIN’s acquisition of Missguided from Frasers Group allows SHEIN to introduce a fashion brand familiar to young consumers in the UK and the US, helping to build a brand portfolio with global names like Forever 21 and continuing to expand SHEIN’s brand influence worldwide.
Over the past two years, SHEIN has made efforts to acquire established retail brands. In early 2022, SHEIN offered £3 billion to acquire the British fashion retail group Arcadia, which owns multiple brands including Topshop, Topman, Miss Selfridge, but the final buyers were the leading UK fast-fashion e-commerce platforms ASOS and Boohoo.
In August of this year, SHEIN acquired a one-third stake in SPARC Group, the operator of the American clothing brand. SPARC Group also holds a small stake in SHEIN. SPARC Group owns several clothing brands, including fast-fashion women’s clothing brand Forever 21, outdoor brand Nautica, and mid-range men’s clothing brand Brook Brothers.
At its peak, Forever 21 had annual sales of over $4 billion, employed over 43,000 people in hundreds of stores worldwide. However, it gradually ran into difficulties after the 2008 financial crisis and declared bankruptcy in 2019. It was then acquired by SPARC Group and returned to its peak in sales last year.
All these fast-fashion brands have been impacted by SHEIN over the past few years. Founded in 2012, SHEIN quickly became one of the world’s largest fashion brands, with sales reaching $29 billion in 2022, surpassing ZARA’s annual sales for the first time. SHEIN’s frequent acquisitions around the world will expand its brand influence as a “self-operated brand + platform” and accelerate its penetration into multiple markets. From the end of October to December 2022, SHEIN had a market share of 1.7% in the UK, and GlobalData predicts that SHEIN’s market share will increase significantly to 2.2% in 2023, entering the top ten in the UK for the first time. Acquiring local brands will help expand the market share in the UK. In the United States, SHEIN was selected as one of the most popular shopping websites and clothing brands for young people by Piper Sandler.
In the global arena, mergers and acquisitions are a common path for many domestic brands to become giants. A typical example is ANTA’s acquisition of Amer Sports, a Finnish high-end sports goods giant. Amer Sports owns several brands, including Salomon and Arc’teryx. Amer Sports’ revenue increased by 21.8% year-on-year, contributing CNY 280 million in profit to ANTA for the first time since the acquisition.
However, some domestic companies have faced challenges after acquisitions. Shandong Ruyi Group acquired a majority stake in the French fashion group SMCP in 2016, which owns luxury brands such as Sandro, Maje, and Claudie Pierlot. Since then, Ruyi Group also acquired a Swiss luxury company, Bally, and a 51.38% stake in Hong Kong’s advanced menswear retailer Lycra. However, the extensive acquisitions and the impact of the pandemic resulted in financial difficulties for Ruyi Group. The number of brands under its umbrella decreased from over 40 to just a few, and the company suffered a loss of CNY 154 million in the previous year.
Whether a single acquisition can succeed depends not only on the quality and cost-effectiveness of the target itself but also on whether the acquirer can use its operational capabilities to take the target to the next level. SHEIN’s deep roots in the clothing industry, industry-leading flexible clothing supply chain, and large user base can all help the acquired brands with their long-term development.
Penetrating the flexible supply chain and reshaping more SHEIN inventory is one of the most challenging issues in the clothing industry. The sales cycle for fast fashion clothing is only 30 days, and once it exceeds this cycle, the clothing becomes inventory, tying up the capital of the businesses. Businesses then have to factor in inventory costs into the clothing prices, which consumers ultimately end up paying for. Zara was the first to change this model. It reduced inventory by using a model with minimal spot goods, quickly following up on orders, and then using IT systems to digitize the production process, improve response times. Zara could complete clothing production in as little as 14 days and deliver it globally within 48 hours with its self-organized air transport team.
From the 1980s to the present, it took Zara 40 years to achieve this level of efficiency. However, since SHEIN started building its own supply chain in 2014, it has taken less than 10 years to create a faster supply chain than Zara’s. Over half of Zara’s supply chain factories are located in Spain, Portugal, Turkey, and Morocco, with a minimum of 500 pieces of clothing produced for Zara each time. However, SHEIN’s main supply chain is located in China, which has the most complete global clothing industry supply chain. Factories are willing to produce as few as 100 small orders for SHEIN, and smaller order quantities mean faster market testing. Testing 30 styles with 3000 pieces of clothing, Zara can only test one to six styles, while SHEIN can test 30 styles. This means that SHEIN has a higher probability of hitting bestsellers while minimizing inventory. A source close to SHEIN said that traditional clothing retailers have an inventory rate of 30%, while SHEIN has a very low single-digit inventory rate.
While SHEIN is investing over CNY 10 billion to expand its supply chain in China, it is also expanding its supply chain to Turkey and Brazil, with about 1000 manufacturers working with SHEIN in these two locations. By the end of 2023, 20% of SHEIN’s sales in the EU region will come from Turkish factories. A shorter supply chain distance to SHEIN’s core markets in North America and Europe will further reduce delivery times and better cater to local consumer needs. This sets the foundation for SHEIN to more extensively apply flexible supply chains in the fashion industry and reshape more SHEIN.
In the future, clothing and accessory products from Forever 21 and all products from Missguided will be manufactured by SHEIN. This undoubtedly brings more orders to SHEIN’s suppliers. Moreover, the originally high sea freight costs of Missguided, relying on the local supply chain in the UK with a design and production time of 2-4 weeks, will be shortened to one week by SHEIN’s supply chain. SHEIN’s large volume of transportation will help reduce the high sea freight costs of Missguided. This is one of the ways SHEIN is countering more intense competition and strengthening its defenses. Pinduoduo’s cross-border e-commerce business, Temu, has been online for a year and has already attracted 120 million people to browse products, with 9% of Americans shopping here.
In the quarter ending June 30th this year, Ali’s international digital business achieved a record year-on-year growth of 41%, including international wholesale business, international retail business Taobao, and Lazada. Temu, Taobao, and other platforms operate on a platform model, recruiting merchants in bulk, screening products with strong control over price and logistics, and allowing merchants to manage customer complaints, with a focus on department store standard products.
SHEIN, on the other hand, operates on a self-operated brand plus platform model, with a focus on women’s fashion-related clothing, home, and accessories. For its cooperating suppliers of self-operated brands, SHEIN strictly selects and manages them, from the source of raw materials, product planning and design, production, quality inspection, to logistics, all integrated into SHEIN’s supply chain, and suppliers manufacture products for SHEIN according to SHEIN’s standards and requirements.
Under the platform model, SHEIN’s platform sellers, in addition to providing sellers with operational cooperation, can operate their own stores and independently price their products on SHEIN’s platform. This platform model was first piloted in markets such as Brazil, the United States, and Mexico. It is known that SHEIN plans to achieve 85% of sales from local producers and sellers in the Brazilian market by 2026.
The development of the supply chain is SHEIN’s core barrier in the competition. SHEIN spent nearly 10 years transforming its system for over a thousand suppliers, allowing factory owners to accept orders in the background, see which process each piece is in, check for any deviations in that process, and discover losses in various production stages. SHEIN can also assess the overall operation of a factory and identify operational issues using an online scoreboard.
For example, if the shortage rate is high, SHEIN can precisely analyze whether it is due to raw material stocking or problems in the production process. For each piece of clothing, SHEIN provides detailed production and quality inspection requirements, such as limiting thread ends to no more than three, and lengths no longer than 2 centimeters. This strict quality control is difficult to achieve without a deep understanding of the factory.
To match orders more accurately, SHEIN binds a specific style to a factory. If sales reach a certain number for a style in one day, SHEIN binds the style to the factory. Factories that were initially producing small orders continue to handle subsequent large orders, rather than transferring them to larger companies. The original factory is more familiar with the production process and process of that style. The factory owner said that because of stable orders, the factory expanded from dozens of employees to 300 people over 8 years.
It is the long-term and solid construction of the supply chain that has allowed SHEIN to stand out in the previous round of competition. Facing this more intense competition, SHEIN hopes to help more local brands with its supply chain and online capabilities to build a strong brand matrix and reshape more SHEIN.