There has been yet another shake-up in the cross-border e-commerce market.
After amassing a valuation of USD 64 billion over 15 years, prominent online fast-fashion retailer Shein is making a move into offline retail.
According to an exclusive report by the Wall Street Journal, Shein has acquired around a third of the Sparc Group’s shares. Sparc Group is an American clothing company that owns fast fashion brand Forever 21, mid-range lifestyle brand Nautica, and high-end apparel brand Brooks Brothers, among others. Sparc Group will receive a small stake in Shein as part of the deal.
Sparc Group is a joint venture between Authentic Brands Group and Simon Property Group, the largest owner of shopping malls in the US overseeing over 4,000 retail stores worldwide.
Forever 21’s products will be available online through Shein, which targets similar customer profiles. This will enable Forever 21 to tap on Shein’s extensive customer base comprising around 150 million users. As part of the deal, Shein also intends to establish dedicated in-store sections within Forever 21 stores across the US, facilitating product sales, returns, and exchanges.
However, it is worth noting that Forever 21’s pricing strategy is not completely identical to Shein’s. For example, some of its apparel types, such as tees, are priced double as much as Shein. Based on past examples, such as Pinduoduo, which struggled to penetrate urban areas, combination branding is not necessarily easy to pull off.
Reviving Forever 21
In the past few years, Forever 21 has weathered the storm of transitioning from a family-owned business to being controlled by a conglomerate.
Founded in 1994 by South Korean nationals Do Won Chang and Jin Sook Chang, who are husband and wife, Forever 21 was recording annual sales of USD 4 billion at its peak, operating hundreds of stores worldwide.
As the company expanded, the founding team struggled with talent acquisition and managing the distrust of “outsiders.” These issues hindered their capability to oversee the overall operation of the company. This internal shift also coincided with the company’s gradual divergence from market trends, leading to a series of critical decisions leading to its demise—such as launching large overseas stores without sufficient local expertise—that stemmed from Chang’s personal dream of owning a department store.
In 2019, Forever 21 filed for bankruptcy and subsequently closed hundreds of stores worldwide. A year later, Simon Property Group, Authentic Brands Group, and Brookfield Property Partners formed a consortium to acquire Forever 21 for a mere USD 81 million.
Earlier in 2016, the same consortium also acquired apparel retailer Aeropostale to bring it out of bankruptcy, employing a strategy of infusing professional management to resuscitate struggling businesses. This approach bore fruit as Daniel Kulle, a seasoned manager who had contributed to H&M’s quadrupled North American revenue during his 25-year tenure, was appointed to lead Forever 21. By the end of 2021, the brand’s sales had soared to USD 2 billion under Kulle’s leadership. Winnie Park, another veteran in the retail industry, succeeded Kulle.
In 2022, Park mentioned in an interview that, to compete with rising e-commerce platforms like Shein, the company would continue to bet on brick-and-mortar stores, but focus more on collaborations, influencer marketing, and offering a better-curated assortment of offerings. To captivate Generation Z customers, Forever 21 explored online platforms, heavily promoting its remodeled stores on Instagram and TikTok. Prior to its tie-up with Shein, Forever 21 collaborated with TikTok influencers, quickly amassing over 187,000 followers.
But content promotions alone were insufficient to change the fortunes of Forever 21. At a time when retailers were universally facing dwindling sales, fresh strategies were needed. Shein’s acquisition is an olive branch.
Going offline
In 2023, Donald Tang, executive vice chairman of Shein, announced to investors that the company hit record profit margins in the first half of the year.
However, amid speculation of an impending IPO, Shein recognized that a narrative centered on selling low-cost products in large quantities could lack the allure needed to score big in the capital market.
Moreover, Chinese contenders have begun encroaching on Shein’s territory. As an apparel retailer that prioritizes value and quick product turnover, supply chain management is critical for Shein. When Pinduoduo’s Temu entered the international market in 2022 with a consumer-to-manufacturer model offering attractive incentives to suppliers, Shein was challenged to keep its existing supplier network intact.
Amidst intense competition, Shein must assume the role of a dominant platform if it wants to attain a high IPO valuation. But this won’t be easy. At the end of 2022, Shein’s attempt to introduce third-party merchants in Brazil yielded lackluster results. Meanwhile, Temu was expanding aggressively, growing its active user base multifold from 5.8 million users in October 2022 to over 100 million in April 2023.
Securing a stake in Forever 21 is not Shein’s first attempt to acquire established overseas fashion brands. In 2021, Shein bidded to acquire fashion group Arcadia, which owned brands such as Topshop, Topman, and Miss Selfridge. ASOS ultimately acquired Arcadia for USD 364 million.
For Shein, entering the offline retail market is crucial. Physical stores are not just entry points for foot traffic but are also pivotal in reshaping Shein’s image beyond its reputation for affordable fast fashion. With Temu hot on its heels, low pricing alone is no longer sufficient to safeguard Shein’s competitive edge. Engaging in a price war with Temu would only lead Shein into a quagmire.
Shein acquiring part of Forever 21 is likely just its first step. The ensuing challenge will lie in its ability to onboard more merchants it can and is willing to collaborate with. Shein is bound to lose some customers as it raises its prices. Therefore, moving offline products online will not be enough to secure its foothold in mature international markets with well-developed offline retail scenes.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Yuan Silai for 36Kr.