Sparc Group Teams Up with Chinese DTC Powerhouse Shein in a Unique Partnership
In a move that is sure to shake up the fast fashion landscape, legacy US fast fashion retailer Forever 21 and Chinese ecommerce disruptor Shein have agreed to a landmark partnership. Their forthcoming collaboration will reportedly allow the two to cross-list merchandise in their physical and digital storefronts.
A Fast Fashion Marriage Made in Heaven?
Some analysts are calling this a “fast-fashion marriage made in heaven” due to the clear advantages bestowed on each party:
- Forever 21 gains access to Shein’s significant global e-commerce user base across 150 countries as well as their 250M+ followers on social media.
- Meanwhile, Shein will tap into Forever 21’s 600+ stores across the US market, gaining a major foothold in physical retail, which still makes up the majority of fashion spending in the coveted US consumer market. Shein will be able to utilize a shop-in-shop concept at Forever 21 stores and provide in-store return options for their products.
Both chains are hoping this will accelerate sales growth and drive omnichannel share of wallet. They may also be looking for a reputational boost. Forever 21 may look to reinvigorate its brand relevance by forging an association with a trendy, Gen-Z oriented brand while Shein may accelerate its brand awareness and drive trust through an association with an established American brand.
Potential Pitfalls for Shein and Forever 21
While the deal offers clear surface benefits, we have identified several challenges to watch surrounding the partnership:
- Two vastly different business models can create operational logjams:
- Shein’s “secret sauce” is in their agile, data-driven assortment strategy. Shein has close relationships with Chinese textile manufacturers, allowing them to order smaller runs and fulfill them faster than competitors. This enables them to “prove out” different products in smaller quantities and only order more as demand warrants across thousands of products using automation and machine learning. In other words, they place many small bets and only double down where they calculate a strong probability of success.
- Meanwhile, Forever 21 operates like a more traditional fast fashion retailer, operating smaller, longer-lifespan assortments ordered earlier and in larger quantities due to longer lead-times. In other words, they have to place larger bets at fewer tables to define the fashion trends.
- It is unclear if the two business models will gel as the two chains attempt to cross-list, cross-merchandise, and collaborate.
2. Brand Image: can two wrongs make a right?
- Forever 21 has lost significant brand equity and relevance in the US, especially among younger consumers. Meanwhile Shein has captured the attention of the “Tiktok generation” through their trendy, ever changing assortment and platform gamification. Will a collaboration between the two ring hollow for their target audiences?
- Meanwhile, Shein has received significant backlash for poor ESG policies and ranks very low on the Fashion Transparency Index, which grades companies on the information they disclose regarding their social policies, environmental policies, operations, and supply chain. We are skeptical that a partnership with Forever 21 will do much to improve their public image that has contributed to a 33% drop in valuation over the last 2 years and delayed their US IPO plans.
Within just a few years, digitally-native Shein has grown to rival leading fashion retailers like H&M and Zara. Extending their reach to potentially hundreds of brick-and-mortar locations and developing an omnichannel offer has the potential to transform the fashion landscape and catapult Shein to the top.
Although we have our concerns regarding this partnership, only time will tell. The hallmark of a successful partnership is the alignment of target customer and business models alongside a proper evaluation of all potential synergies and risks.
For expert support when structuring your next partnership or evaluating M&A opportunities for strategic alignment and long-term success, Contact Us at McMillanDoolittle. And stay tuned for our insights as this forthcoming collaboration hits the market.