Fast-fashion retailer Shein, known for its $5 tops and $10 dresses made in China, has raised prices by more than a third on some key products, in a move likely aimed at boosting revenue ahead of the its planned IPO, according to an analysis of its pricing strategy.
Shein’s average price increases outpaced those of rivals H&M and Zara, according to data from London-based research firm EDITED, which compared prices as of June 1 with those of a year earlier.
Shein declined to comment.
The company operates an online marketplace that sells a range of products, although its main business is the production and sale of Shein’s own brands, mainly women’s clothing.
Shein uses a network of suppliers, largely based in China, who deviate from traditional manufacturing processes, taking small initial orders and scaling up based on demand. Most of the clothing Shein sells is produced in Guangzhou, China, by its approximately 5,400 suppliers.
Although Shein does not publicly disclose financial data, Coresight Research estimates that Shein’s revenue will reach $50 billion this year, a 55% jump from last year’s figure.
Making its core lines of women’s clothing more expensive and getting more outside brands to sell on its site can help Shein reach this sales figure and increase profits.
“Shein has seen very strong momentum recently, which could play in favor of its IPO plans,” said Erik Lautier, ecommerce expert at consultancy AlixPartners.
As Shein prepares for its initial public offering (IPO), it faces the highest costs of a publicly traded company. It also has to comply with new EU regulations on online platforms, which could increase its expenses, putting pressure on profit margins.
In the United States, Shein’s main market in terms of sales, the company increased the average price of women’s clothing by 28% in the year to June 1, to $28.51, according to EDITED data.
While still well below the average of an H&M dress ($40.97) or a Zara dress ($79.69) in the U.S., Shein raised prices by a greater percentage than its rivals in the same period, according to the data.
On Shein’s UK site, a suit cost an average of £24.12 ($30.97), 15% more than a year ago, while the average suit in France, Germany, Italy and Spain was more expensive than 36%.
Shein wants to prove it can sustain its recent growth and sell more high-priced products before its stock market listing, retail experts say.
“If they can demonstrate that these prices hold, then the valuation will increase significantly,” said Alex Romanenko, head of retail at pricing consultancy Pearson Ham Group.
Shein is seeking a valuation of around £50 billion in a listing in London, Sky News reported. The company declined to comment on its IPO plans or its valuation.
Having gained market share with rock-bottom prices, Shein’s price increases are also aimed at increasing profit margins before the listing, Romanenko said.
In the United States, Shein’s largest market, the biggest price increase was in footwear, with the average pair of shoes on its site selling for $40.7, up from $25.3 a year ago .
This partly reflects the fact that Shein has brought other brands to the platform, such as sneaker brand Skechers, which sells shoes from $32 to $174 on shein.com. Skechers declined to comment on its sales performance on Shein.
Overall, Shein’s growth is likely to slow in more established markets such as the United States and the United Kingdom, said Louise Deglise-Favre, apparel market analyst at GlobalData.
“Globally, Shein may be able to sustain similar levels of growth if it continues to enter and develop in new markets, strategically increasing some of its prices or through acquisitions,” he added.
According to GlobalData estimates, the United States will account for 28% of Shein’s sales in 2023, while Germany and the United Kingdom will be the second and third largest markets. Shein also generates significant revenues in Brazil and Mexico, and is growing rapidly in other emerging markets.
However, the price increase may only go so far as to boost Shein’s revenue, AlixPartners’ Lautier said, as higher prices typically impact the share of site visits that turn into purchases. To further drive sales growth, Shein will need to bring more people to its platform and convince them to visit it more frequently.
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