In 2023, fast fashion accelerated. Following in the footsteps of e-commerce giant and market leader Shein, a cohort of challengers has upended the competitive landscape by producing fashion quicker and cheaper than before. The first generation of fast-fashion heavyweights, like H&M and Zara, that introduced the concept of trendy runway-inspired fashion at affordable prices has before been challenged by a second generation of digital-first fast-fashion players like Asos and Boohoo. Now, a third generation of companies is making its mark. Rising players include Temu - a marketplace owned by China-based PDD Holdings, which overtook Amazon as the most-downloaded shopping app in the US and in most of the other 16 markets in which it operates just months after launching; Turkey-based Trendyol, a marketplace backed by Chinese internet giant Alibaba; and Cider, a US-based retailer targeting Gen-Z with a third-generation fast-fashion business model.
These companies, with their ultra-low prices and rapid turnover of trendy styles, have captured the attention of consumers in western markets. Two companies stand out in this regard: Shein and Temu (which are the focus of this analysis). According to the BoF-McKinsey State of Fashion 2024 Consumer Survey, 40 percent of US consumers have shopped at Shein or Temu in the past 12 months; in the UK, a newer market for the retailers, that figure is at 26 percent. Meanwhile, consumers indicate they are looking to increase their spend with these players: net future purchase intent for Shein and Temu is, on average, 18 percentage points higher than that of first-generation competitors.
Ultra-low prices are integral to the success of the business model. Shein’s average SKU price of $14 is significantly lower than H&M’s $26 and Zara’s $34. Turnaround times from trend capture to product availability are also condensed: Shein aims for 10 days, under half the 21-day minimum elsewhere. However, this speed does not always translate to delivery times — customers often wait weeks for parcels to arrive for the sake of trendy designs and low prices. Customer loyalty is built on more than just price or speed — the third generation of players is also transforming the customer experience through gamification, micro-incentives and social media communities.
Agile, scalable manufacturer-to-consumer supply chains: Some third-generation companies have developed large networks of suppliers who often manufacture exclusively for them. For Shein, which was initially built with a first-party, owned-inventory model (before introducing a third-party, cross-category marketplace in 2023), strict performance management of suppliers drives reliability, while direct-to-consumer delivery from China enables rapid scalability with low inventory risk. Temu, meanwhile, operates purely as a marketplace, finding manufacturers with excess capacity and onboarding them to sell unbranded goods directly to consumers in a low-price “B2B2C” model. While Temu’s prices are often between 10 percent and 40 percent lower than Shein’s, the retailer has faced challenges relating to quality control and reliability, BusinessOfFashion reported.
Data-driven product design and testing: At Shein, products are designed or selected using demand-driven trend modelling, which includes a range of data inputs from current trends to viral products to consumer perception. Shein adds between 2,000 and 10,000 items to its app every day and produces in small batches; to maintain a tight grip on inventories, hit rates comparing product page visits to sales are evaluated in real time. Temu’s approach also evaluates hit rates to feed back information to sellers on trends and demand levels for their products.