Ever since Adam and Eve, people have been wearing some type of clothes and that has been a driver of the economy ever since. People are needed to sew the clothes, distribute the clothes, sell the clothes and generally there is a healthy markup or the ability to make a profit selling the clothes. All of these elements, investors are constantly examining how to make money in all these areas and it is possible to innovate. One of the latest companies on the rise is called Shein.

In an article by Katherine Masters of Reuters, Shein accounted for 1/5 of the global fast fashion market in 2022 outpacing Zara and H&M.

Shein’s actual strength is acknowledging that they have no idea what you want to wear, according to Rui Ma, an analyst and founder of Tech Buzz China. What Shein has is the confidence in their ability to ramp up production very quickly.

Shein’s ability is to tap a network of largely China-based suppliers which accept small initial orders and scale based on demand. This makes Shein have an ultra-flexible supply chain.

In contrast, Spanish based Zara or Swedish based H&M which pioneered shorter production timelines rely on predicting what styles shoppers will buy. For the most part, the companies still anticipate fashion trends, preordering the product between 3 to 12 months ahead of sale and committing to fairly large order volumes, says Simon Irwin, a former Credit Suisse analyst.

One 2022 study found Shein typically receives orders within 5 to 7 days and can send the products directly to consumers via air freight. Shipping can take up to 2 weeks, depending on the product and a shopper’s location or this a direct-to-consumer model.

Zara and H&M has a brick-and-mortar retailers who must distribute apparel across a global network of stores and keep those locations stocked. Of the 2 companies, Zara has the fastest speed according to Patricia Cifuentes, senior analyst at Bestinver’s securities division.

One thing to notice is how much are returns and can the chain put the clothes back into the system to maximize the chances it will receive full price?

Linking to dividend paying stocks, in every company there is the ability to innovate and have new competition into the marketplace, in all likelihood the next few years of how AI works, the barriers will change again. It is important to do your homework which includes access to industry journals to see what is going on in your investments. Why are those barriers to entry or moats still enough for the company to raise prices and keep their margins?

There are more questions than answers, till the next time – to raising questions.