How Shein's Fast Fashion Business Model And ESG Concerns Are Affecting Its Valuation

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by Zara Ali

In the fashion industry, think of cheap, trending fashion and perhaps you think of stores like H&M, Forever 21, Cotton On, then perhaps ‘luxury’ brands such as Louis Vuitton which are widely emulated further down the ladder for mass market access. However, one online fashion store overtakes all those fast fashion stores even without a ‘bricks and mortar’ storefront. Shein, an online fast fashion retailer in China, hit the internet like an avalanche. Although the business model of Shein is most primarily online (no physical stores), it occasionally has physical popup retail events. However, Shein's growth prospects are dimmed by growing concerns over ESG.

Shein is the world leader in fashion e-commerce, but how they have achieved this without sacrificing sustainability or not is an important question. Despite offering incredibly affordable clothing that doesn't mimic luxury styles or cut corners with suppliers as they claim, Shein is trying hard to prove their commitment to ESG (environmental, social and governance) efforts. We need more fashion companies leading the charge for responsible fast fashion if we as society want to collectively meet our net zero targets in the near future.

In a move to stay ahead of the curve, Shein is taking on its own challenge by committing $15 million for factory improvements and hiring industry veterans. Its goal? To raise global standards while also addressing long-standing allegations regarding labour exploitation. This project entails physical upgrades spanning 300 factories over four years with an additional focus given towards enforcing weekly work hours (estimated at 75 max). A bold initiative that aims to make style accessible through responsible means!

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Shein, the booming online fashion retailer with a projected $30 billion in GMV this year, is revolutionising China's clothing industry. With orders that are both large and stable for its network of contract manufacturers across southern China, Shein has become an invaluable ally to factories seeking reliable business - especially since it supplies generous payouts of $50k per factory! This influx of funding brings newfound prosperity and improved working conditions resembling those seen with Apple's hardware success; already watchdogs from the West have noticed bright futures unfolding as a result.

Shein has built a reputation for keeping their suppliers happy by paying them on time, even despite the thin profit margins and tight deadlines. Faced with growing investor focus on ESG standards ahead of an eventual public listing bid, Shein is determined to transform its ethical approach - introducing strict compliance regulations in line with ILO core conventions and local laws. With these measures in place it looks likely that Shein will be ready when the IPO moment does arrive. In this financial market climate, however, when that actually is would be anyone's guess.

Shein is striving to be a responsible and ethical business, and has pledged that all its contracted suppliers meet the company's stringent code of conduct. This commitment encompasses alignment with International Labour Organization core conventions in tandem with regional laws and regulations. In an official statement, the company announced that all contracted manufacturing suppliers must comply with Shein's Code of Conduct which is consistent with International Labour Organization core conventions, local laws and regulations.

The renowned 'fast fashion' merchant is making a valiant effort to marry its inexpensive pricing and speedy product cycles with ethical production, and this creative, determined spirit speaks volumes about their ambition. It has rolled out a feedback system where employees can voice their concerns anonymously through email, phone, or WeChat – further augmenting this initiative are plans for a recycling platform aiming towards greater sustainability, despite consumerism's inherently wasteful nature. Can Shein make these competing forces work together? Only time will tell…

Despite the increasing consumer concern for ethics in fashion, Shein's quick success reveals that price and speed remain some of the most important factors when it comes to how people shop.

Fast fashion giant Shein plans to cut down emissions by 25% by end of this decade

Given its commitment to environmental sustainability, Shein pledged to work with its suppliers to transition to renewable energy sources and implement carbon reduction plans. Shein has announced a plan to reduce greenhouse gas emissions by a quarter by 2030. These targets represent one of the first public actions taken in the United States in the direction of reducing carbon emissions of its products. This growth carries huge carbon footprints. Last year, Shein’s production was 6.4 million tonnes. “Today we're taking a significant step forward, announcing a new set of 2030 goals that will help us accomplish emissions reduction targets for our entire supply chain over the next seven years,” said Adam Whinston, Global Head of ESG at Shein.

According to an official release, the company would focus on energy purchased to power Shein owned facilities, and pledged to purchase renewable energy certificates for all of the electricity used in Shein operations and supply chain by 2030.

We are wholeheartedly committed to the 17 Sustainable Development Goals (SDGs), and these guide our initiatives, objectives and reporting. Signing onto the United Nations Global Compact (UNGC) has enabled us to further this commitment through backing their ten core principles: human rights, labour practices, environmental responsibility and anti-corruption measures.

In an attempt to reduce greenhouse gas emissions by roughly 10% per facility, the Apparel Impact Institute is helping roll out energy-saving programmes spanning most of the Shein's partner facilities. These measures are expected to result in a reduction of 1.25 million metric tons of emissions each year - making our air cleaner and healthier.

However, there is still a long way for Shein to go before achieving ESG-related targets and commitment, and we could see some changes in Shein's ESG-related disclosure. Despite the positive steps that Shein is taking to promote sustainability, there is still a way to go before they can truly be considered an ethical fashion company. Many consumers are sceptical of the fast fashion industry as a whole, and questions remain about how committed companies like Shein are to their ESG initiatives. Only time will tell if Shein is able to prove its critics wrong, but we have a feeling that they'll succeed. We applaud Shein's effort and hope that other companies follow suit in prioritising sustainable fashion. In the meantime, let's all do our part by shopping responsibly and supporting companies that prioritise the environment and human rights.

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