Lawrence Lenihan is chairman and co-founder of Resonance and an adjunct professor at New York University’s Stern School of Business.
Ultra-fast fashion retailer Shein is in the process of going public in the UK at an apparent valuation of $64 billion. Meanwhile, the fashion industry is in turmoil. Retailers are struggling. Brands are struggling or being sold off. And even more worrying, the industry is facing a human rights crisis and consuming finite resources at a pace that is destroying the planet.
Ten years ago, I predicted that we would never see another billion-dollar fashion brand, because the internet had made it possible for smaller, highly specialized brands to find customers and make more meaningful connections. I believed that by leveraging this dynamic, investors and entrepreneurs could create a multitude of smaller, more capital-efficient brands that could generate higher returns.
I was right, with one big exception: Shein. The company has built a business on its ability to bring a wide range of products to market in under two weeks and sell them for as little as $5. Its $64 billion valuation is based on its potential to expand globally as a marketplace for cheaper products. There is a lot of speculation about the size of the company, but it is certainly staggering.
This could be a great investment opportunity. With an additional capital war chest, they could expand and absorb more of the $2 trillion fashion industry. Shein could be the next Amazon. There could be huge profits to be made by participating in the IPO, as well as shorting all the other companies in the fashion industry that go bust after Shein.
I didn’t predict Shein because I didn’t believe that socializing costs could help a company grow its profits. Many of Shein’s true costs aren’t reflected anywhere on its income statement or balance sheet: What is the cost of copying its own designs? What is the cost of violating workers’ rights? Or the cost of accelerating the destruction of the planet? Shein isn’t bearing any of those costs. Not yet. (Shein says it is working to reduce its carbon footprint and is investing in improving working conditions for workers in its factories.)
And it’s not just about the regulatory requirements that come with listing in the UK. I’m cheering for this IPO because I hope it’s the final wake-up call for a struggling fashion industry that may decide to compete directly with them by making more products faster, selling them cheaper, and damaging the planet even more. No one can outdo Shein Shein, and no one will want to.
Fashion is all about speed now, there’s no going back. But fashion’s negative impact on the environment isn’t due to speed, but due to the waste caused by overproduction, and throwing clothes away in landfills that are visible from space. Overproduction is also an economic waste, because these goods have a real economic cost.
A better strategy is to change the game — one that eliminates overproduction and wasteful inventory and values accountability while moving at the speed of culture.
The fashion industry value chain is a highly complex global economic system. Changing it requires highly complex solutions. That solution is technology. Digital identity makes every aspect of the production process visible to the end consumer, and artificial intelligence (AI) allows previously fixed industrial constraints to be dynamically learned and adjusted. AI, specifically, applied to these industrial constraints and learning from very specific data, will transform all industries, but especially fashion.
But the most important requirement for this future is accountability. Governments will take action against industry for climate reform, even as elite gatherings like the UN climate conference are all about talk and little results. The EU Corporate Sustainability Directive and the New York Fashion Law are just two examples of companies being required to disclose their environmental and human rights practices.
Investors must bet on one of two futures: a Shein future (and the demise of the existing fashion industry), or an anti-Shein future, where sustainability and profitability are equally important and one cannot exist without the other. In this second future, a healthy, responsible and growing fashion industry creates opportunity for all.
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