Tag: fast fashion

What Do We Know about Shein’s Sourcing and Supply Chain Strategies from Its IPO Filing?

According to Reuters, Shein has received the necessary approvals to proceed with its Hong Kong IPO, which could take place as early as this fall. As part of the IPO process, Shein has disclosed detailed information about its business operations. The following analysis focuses specifically on the company’s sourcing strategies and supply chain practices.

Overview of Shein’s market and financials

According to the IPO filing document, Shein serves “more than 273 million active consumers in approximately 160 markets across the world.” In the first quarter of 2026, about 22.5% of Shein’s net revenue came from the US, down from 24.1% in 2025, 27.0% in 2024, and 29.4% in 2023. Over the same period, the EU (about 32.1% in Q1 2026) and the rest of the world (about 45.4% in Q1 2026) accounted for a larger share of Shein’s revenue.

Shein’s gross margin increased from 60.6% in 2024 to 67.9% in 2025 and 70.4% in Q1 2026. This increase partly reflects Shein’s growing third-party marketplace business, in which Shein generally records only “service fees” from third-party merchants rather than the full value of merchandise sold, and does not incur merchandise cost of sales on those transactions. Thus, the increase in gross margin reflects, at least in part, a shift in business mix rather than a comparable improvement in the merchandise profit margin.

Meanwhile, Shein’s net profit margin declined from 8.7% in 2024 to 4.9% in 2025 and a negative 1.1% in Q1 2026. The pressure is particularly evident in fulfillment costs, which increased from around 42% of revenue between 2023 and 2024 to 45.6% in 2025 and 47.7% in the first quarter of 2026. Shein subsequently recorded a net loss of US$99 million in the first quarter of 2026.

What is Shein’s LATR Model?

Behind Shein’s “ultra fast fashion” is what it calls the “Large-scale Automated Test and Reorder (LATR) operating model.” Under this approach, new products are initially produced in batches of approximately 100–200 units, and demand is evaluated using real-time customer data. Products that perform well are replenished rapidly, often within five days. Shein believes this system enables it to simultaneously offer an extremely broad assortment, rapid product refreshment, and low inventory levels, the three objectives that traditional apparel retailers often struggle to achieve.

Warehouses play a critical role in Shein’s LATR model and supply chain. According to the company, it has approximately 6 million square meters of warehouse space across Asia, North America, Europe, the Middle East, and South America as of 30 June 2026. Once Shein’s supply chain partners produce a small batch of products, that batch is shipped to one of Shein’s warehouses. Upon receiving customer orders, Shein packages and ships products directly from its warehouses to customers around the world. Shein has also been increasing its efforts to establish new warehouses around the world to be closer to the markets it serves.

Where are Shein’s apparel products mostly made?

As of 2025, Shein works with 7,500 contract manufacturers as well as “large numbers of merchants, independent designers and other suppliers.” Most of Shein’s partners are small and medium-sized enterprises (SMEs). This suggests that instead of relying on a small number of vertically integrated factories, Shein leverages a large, fragmented, and flexible supplier network. The advantage of SMEs is that they can specialize in particular products or production processes and have unused capacity that can be activated when demand suddenly increases.

Shein also admits that its supply network is “built on a distributed footprint of supply chain and fulfillment locations anchored by a central logistics hub in China.” “In 2025, products stored in our central warehouses in the Chinese mainland represented over 90% of our net revenues.”

Furthermore, unlike most Western fashion brands and retailers, which are pursuing a strategy of “reducing China exposure” and “sourcing diversification,” Shein’s IPO filing document does not indicate a large-scale shift of its production away from China.

What are Shein’s key supplier selection criteria?

Shein says its suppliers do not have to be exclusive. Instead, contract manufacturers are permitted to supply other companies. No individual supplier accounted for more than 10% of Shein’s total purchases, and the five largest suppliers together represented only 14.9%–16.4% of Shein’s purchases from 2023 to 2025.

Shein allocates sourcing orders in part based on each supplier’s expertise, not solely on price. According to Shein, “our cloud-based software solutions enable suppliers to be fully digitally integrated with our supply chain from end to end, giving us full-chain visibility. This allows us to automatically allocate orders to suppliers based on expertise, price, capacity and other factors, helping suppliers maximize capacity utilization.” Thus, Shein’s supplier network seems to be differentiated by production capabilities rather than treated as a pool of interchangeable factories.

Shein also expects its suppliers to be flexible and nimble, with the ability to produce small initial batches and rapidly scale up production when demand is demonstrated. According to the company, “because an initial production batch consists of approximately 100 to 200 items, we can quickly launch a large number of new products with minimal upfront commitment, inventory risk, and resource waste. If a product sells well, we can rapidly scale up its production to meet consumer demand. We can rapidly launch small initial batches, and restock products that are in demand in as few as five days.”

Overall, Shein’s business model means it needs a network of specialized factories with flexible capacity. Its technology essentially acts as the coordination mechanism connecting those factories to rapidly changing demand. Shein also says it connects with its suppliers closely and deeply through digital technologies. Shein argues that such integration helps its suppliers “enjoy more predictable order flow, improved asset utilization and higher returns on investment, even with small batch production.”

How have de minimis removal and tariffs affected Shein?

Shein acknowledged that the removal of the U.S. de minimis exemption has already reduced its U.S. sales, slowed company-wide revenue growth, and increased fulfillment expenses. Shein says it is also aware of the EU de minimis rule changes.

In response to the removal of de minimis, Shein says it “for products previously eligible for the de minimis exemption, we have transitioned from a simple customs entry process for de minimis packages to a customs clearance process that requires more extensive documentation and procedures. Amongst other things, we have adopted necessary protocols for the formal entry process to ensure compliance with the more stringent documentation and other procedural requirements”

Regarding tariffs, Shein says “As a result of the recent developments, our China-origin products have become subject to tax rates ranging from 10% to 87.5% (increased from 0-62.5% during the Track Record Period prior to the removal of the de minimis exemption and the Trump Administration’s recent imposition of additional tariffs).

To mitigate the tariff impacts, Shein has been “pursuing a wide range of options, including increasing our prices in the U.S. market to offset a portion of the increased.”

How does Shein see the impacts of environmental regulations? How does sustainability fit its business model?

Shein argues that its demand-driven production system reduces overproduction by producing only small initial batches and replenishing products only after actual consumer demand has been observed. According to the company, this approach minimizes excess inventory, lowers waste, and improves profitability simultaneously. In other words, sustainability is portrayed as aligned with operational efficiency rather than being a cost imposed by regulation.

However, reducing unsold inventory is distinct from addressing the broader environmental impacts associated with the high-volume apparel overconsumption problem.

In the IPO filing document, Shein also introduces the company’s evoluSHEIN sustainability roadmap, which includes responsible design, material sourcing, circularity initiatives, and decarbonization efforts across the value chain. Shein intends to integrate sustainability into product development, manufacturing, and logistics while continuing to emphasize affordability and efficiency.

Supplier auditing

According to Shein, under its Responsible Sourcing (“SRS”) program, suppliers are audited by both in-house teams and internationally renowned third-party auditors, including Bureau Veritas, Intertek, Openview, SGS, TÜV Rheinland, and QIMA, all members of the Association of Professional Social Compliance Auditors. Shein ran roughly 4,200, 4,550, and 5,150 SRS on-site audits in 2023, 2024, and 2025, respectively, covering contract manufacturers representing about 95% of company-branded procurement value each year.  In 2025, over 99% of Shein’s on-site SRS audits were conducted by third-party auditors.

Additionally, Shein discloses that 5, 12, and 5 suppliers were terminated in 2023, 2024, and 2025, respectively, for SRS policy violations. The supplier code of conduct is said to align with the International Labor Organization (ILO) core conventions and the UN Universal Declaration of Human Rights.

However, in the IPO filing document, Shein didn’t mention anything related to forced labor risk, Xinjiang cotton, or UFLPA-related compliance.

What important business issues does Shein see over the next few years?

According to the IPO filing document, Shein sees its future success as depending on the company’s ability to continue expanding internationally while adapting to increasingly complex trade and regulatory environments. Shein regards investments in technology, artificial intelligence, supply chain resilience, fulfillment infrastructure, and marketplace expansion as central strategic priorities.

Importantly, Shein acknowledges that “we have grown rapidly since our inception, and there is no assurance that our growth will continue. In particular, we recorded a net loss of US$99 million for the three months ended 31 March 2026, and there is no assurance that we will achieve or maintain profitability in the future.”

Shein also noted that international tensions are expected to “escalate at an accelerated pace,” potentially creating additional barriers to trade. Its China-based sourcing model therefore represents a strategic vulnerability, even if maintaining production in China remains economically advantageous. As Shein acknowledged, “We sell products to a large number of countries and regions around the world, including the United States and Europe. Currently, the substantial majority of the products sold by us or on our marketplace originate from the Chinese mainland. Tariffs and other trade restrictions imposed by any country where we sell products, particularly on products shipped from China, could significantly hinder our ability to sell products to that country.”

by Sheng Lu

Related reading: Wearing thin: Five things to know about Shein (Udaily, Aug 2026)

H&M’s Evolving Apparel Sourcing Base (updated April 2026)

Founded in Sweden in 1947, H&M is widely regarded as a leading fast-fashion retailer, known for offering a high volume of trend-driven products at competitive prices. To better understand H&M’s fast fashion business model and its implications for the company’s sourcing practices, this study analyzed H&M’s detailed factory list published in February 2026, which includes 1,455 entries.

The factories on the list were classified using information from the “Product Type” and “Factory Type” columns. Specifically, Apparel suppliers are factories that produce finished garments (e.g., denim, knitwear, woven apparel) and are listed as “Manufacturing unit”. Factories that did not provide product information were excluded from the analysis.

Key findings:

First, like most other leading apparel brands and retailers, H&M utilized a geographically diverse sourcing base. Specifically, as of February 2026, H&M sourced apparel from nearly 800 factories across 23 countries and about 550 factories producing textile raw materials in 15 countries.

However, compared to its 2024 sourcing base, H&M seemed to have consolidated the number of factories it sourced from.

Notably, H&M appears to maintain long-term relationships with its suppliers. Among the nearly 800 contracted apparel factories, 314 (nearly 40%) have worked with H&M for more than 10 years, and another 126 for 6–10 years. Only 261 factories (about 33%) have fewer than 3 years of relationship. According to H&M’s website, it “onboard new suppliers or factories and, occasionally, phase them out according to our business needs.”

Second, while Asia remains H&M’s largest apparel sourcing base, other regions, particularly Europe and Africa, also play a critical role. As of February 2026, seven of the top ten countries with the most contracted factories for H&M were located in Asia. However, Türkiye, Portugal, and Morocco also ranked among the top ten. Compared to U.S. fashion companies, which tend to rely more heavily on Asian sourcing, these countries generally play a more limited role in their sourcing portfolios, highlighting H&M’s relatively greater emphasis on regional diversification and proximity sourcing. In particular, sourcing from Europe and Africa can provide H&M with shorter lead times and greater responsiveness to EU market demand, which aligns well with the speed-to-market requirements of its fast fashion business model.

Third, at the country level, in terms of the number of contracted factories, China remains H&M’s single largest apparel sourcing destination (over 230 factories, or 29.5%) as of February 2026. H&M also sourced the widest range of apparel product categories from its China-based factories, covering woven apparel (85 factories), jersey (56 factories), knitwear (32 factories), and denim (11 factories). In other words, China is one of the few countries that can make almost all types of products for H&M. In comparison, H&M was inclined to source more narrow product categories from other top-supplying countries, such as Türkiye for jersey, denim and knitwear; India for denim, Indonesia for underwear/swimwear; and Pakistan for denim and socks. This finding aligns with recent studies indicating that Western fashion companies commonly regard China as highly competitive for its product variety, which is difficult for other countries to match.

It is also noteworthy that most of H&M’s contracted factories in China are relatively small, with over 76% employing fewer than 500 workers. This pattern is consistent with China’s role in supplying more variety-driven orders with small- to medium-sized minimum order quantities (MOQs). In contrast, H&M’s contracted factories in other major Asian sourcing countries, such as Bangladesh, Pakistan, and Indonesia, are more concentrated in large-scale production, typically employing over 1,000 workers. Notably, 41% of H&M’s contracted factories in Bangladesh and nearly 40% in Pakistan have more than 4,000 workers, indicating their role in producing high-volume orders for the company.

Additionally, H&M contracted garment factories have commonly received material certification, led by those related to organic and recycled content. For example, as of February 2026, among H&M’s contracted apparel factories, 49.6% held the Recycled Claim Standard (RCS), followed by Global Recycled Standard, GRS (39%) and Organic Content Standard, OCS (38.5%). The results align with H&M’s stated material goals of increasing the use of recycled or sustainably sourced materials in commercial products to 100% by 2030, including reaching 50% recycled materials. Most of H&M’s top apparel-supplying countries already have 50–70% of factories holding at least one type of material-related certification. The ability to obtain such certifications is increasingly becoming a baseline expectation for H&M suppliers.

by Sheng Lu

Additional reading: H&M’s Evolving Sourcing Map Speaks to Global Supply Chain Shifts (Sourcing Journal, April 2026)

Shein Lost Market Share in the U.S. Apparel Retail Market in 2025 Amid Trade Tensions

Latest Data from Euromonitor shows that while the United States remained Shein’s largest apparel sales market in 2025, the value of sales declined by 4.5%, affected by factors such as higher tariffs on Chinese products, the elimination of the “de minimis” rules, and young U.S. consumers’ growing concern about sustainability. Based on the value of sales, Shein’s market share in the U.S. also dropped from 1.8% in 2024 to 1.7% in 2025, the first time since 2021.

Shein’s business outlook in the U.S. is expected to remain challenging in 2026 due to ongoing high tariffs affecting imports from China, tighter regulations and enforcement on cross-border e-commerce shipping, and consumers’ increasing demand for sustainable apparel products and supply chain transparency.

Amid headwinds in the US, Shein is diversifying its sales markets in the rest of the world. For example, Shein achieved more apparel retail sales in key EU markets in 2025, including the UK (up 4.2%), France (up 26.7%), Germany (up 31%), Italy (up 19.7%), and Spain (up 26.6%). Likewise, Shein’s sales in Brazil increased by over 698% between 2021 and 2025, much higher than 131% in the US.

As of 2025, Shein’s total apparel sales in the UK, France, Germany, Italy, Spain, and Brazil (around 6.5 billion USD) already surpass the sales in the US (around 5.9 billion). It is likely that emerging markets like Brazil will become increasingly important to Shein’s future global expansion due to the price competitiveness of Shein’s products in local markets, the relatively relaxed regulatory environment, and the attractiveness of Shein’s commitment to investing in production there.

Additional reading: Inside the Chinese factories of fast-fashion giant Shein (by FRANCE 24 English | February 2026)

Interview with the National Committee on U.S.-China Relations: The Geopolitics of Fast Fashion–U.S.-China & the World

About the interview: Fashion is possible because of international trade. Each year, the global fashion industry generates more than $4 trillion USD and provides families with affordable clothing options. However, as fast fashion continues to grow, so does awareness of pressing issues such as labor standards and environmental sustainability. How are the United States and China involved in the global fashion industry? How can they collaborate on the issues facing the global fast fashion industry, from production to consumption?

Sheng Lu joins the National Committee to discuss how fast fashion is a global phenomenon and how the United States and China can address common areas of concern.

Learn more about the National Committee on U.S.-China Relations (NCUSCR)

FASH455 Video Discussion: This ‘Loophole’ Lets $54B of Products Into the U.S. Tariff-Free (WSJ)

Discussion questions:

  1. What makes the de minimis rule controversial?
  2. Who might be the winners and losers of the suspension of the de minimis provision for U.S. imports from China? Why?
  3. Imagine you are part of the sourcing department of a U.S.-based fashion company that currently sources from China. How would you respond to the situation in the video, and what recommendations would you make regarding your company’s sourcing strategies?
  4. Do you have any other thoughts or reflections on the video?

Additional reading: