I Want It Now: HAWT Girl Summer Edition

How Fast Fashion is Taking over eComm pt.1

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We buy things we don't need with money we don't have to impress people we don't like.

Louis Vuitton, Gucci, Balenciaga all capitalize on an overly materialistic society in which a brand is worn to signal status and prestige. 

These articles are defined by economists as Veblen goods. In normal-land, as the price of a good increases, the demand for this good decreases because that makes sense. 

With a Veblen good, as the price increases, the demand actually increases as well. This is largely due to luxury signaling that the prestige affords while there is no real underlying utility.

While Veblen goods will still thrive, we are now seeing the exact opposite take off. This interesting sub-category is popping up across social networks and eCommerce: FAST FASHION.

It is reliable, affordable, and hopefully won’t completely disappoint you like these bad boys… 

In the first part of this two-part series, we will cover Fast Fashion through the lens of Shein, and in next week’s newsletter, we will talk about social eCommerce with a focus on Pinduoduo. This week, in <5 minutes, we’ll cover:

  • Traditional Fashion 👉 Lifestyle marketing + Brick and Mortar distribution

  • The Birth of Fast Fashion 👉 Content Consumption on New Social Platforms x D2C Distribution 

  • Case Study  👉 Shein

  • How GRIT’s Playing it 👉 Focusing on the plumbing of the system

Let’s get started!

1. Traditional Fashion 👉 Lifestyle marketing + Brick and Mortar distribution

Last week’s newsletter focused on the concept of intangible assets. In that piece, we discussed how important a brand is. A brand has to make you feel a certain way.

But a very small minority of people actually get that intrinsic feel-good moment when purchasing a Gucci plain white tee vs. a 4-pack that you can find at Costco…

When it comes to high fashion, it’s not only about how it makes you feel, it’s more about how it makes others feel. How cool, fashionable, and presentable do I look to my friends and more importantly, to my enemies? 

This is where authentic luxury brands capitalize: through materialistic signaling that is propagated by the media. 

Now you can say, “Hey look, I’m so rich that I buy Gucci flip flops just like Rick Ross instead of dollar-cost averaging into low fee ETFs.” 

But beyond the vanity of highstreet “fashun,” there are much more practical brands at affordable prices that people equally identify with.

Are you into puka shells necklaces and shredding some gnar? Head to Hollister.

Do you like to blast sum 41 and have a chain attached to your leather wallet in your oversized jeans? Head to Hot Topic. 

These brands help people signal to others something about themselves that makes them tick.

This social signaling used to be engrained into the public through the mediums of: movies, music videos, television, airport magazines, and billboards. 

The manufacturing and production of these goods also used to be incredibly difficult because of long lead times. If you wanted to mass-produce something with a long lead time, you essentially had to gamble on what the latest trend would be in the summer well before this time period arrived. 

The distribution of these goods used to be through brick and mortar retail locations: shopping malls.

The cool thing for kids to do back in the day was to go to the movies or hang at malls. Not really buy much, but just hang out. It spawned a large cultural phenomenon of “mall rats”

The idea for brands was pretty simple. Try to convert these “top of the funnel” mall rats into paying customers. Go to where the crowd is. 

But now… this crowd is digital native and hangs out online. 

2. The Birth of Fast Fashion 👉 Content Consumption on Social Platforms x D2C Distribution 

To frame this conversation and ask, “where did this fast fashion thing come from?” I want you to think about how a cohort, ‘kids these days’, socialize. They are constantly bombarded with dopamine hits as they ‘hang out’ by sitting together in silence, scrolling through Facebook, Instagram, and Snapchat. 

It is not the intent of this newsletter to get into the impact that this has had on mental health and privacy, I’ll leave that to the 50 documentary series that have come out over the last 5 years. 

Instead, I want to simply acknowledge the nature of consumption around this content. It used to be the case that when you got together with friends it was at a dinner party or the movies once a week. By the next time you saw that group of friends again, they wouldn’t really notice if you wore the same outfit again. 

Now think about how much content is posted on a daily basis by the new generation. If you post a picture in a cute dress one day, and then repeat that same outfit only a couple days later, the trolls will come marching in. 

This has created the industry of fast fashion which produces articles of clothing that are trendy at that moment and full scale manufacturing and delivery in DAYS instead of MONTHS. These articles that are produced are also so cheap that they essentially become disposable after only a couple of uses.

One of the dominant players in the industry right now is Shein, and if you haven’t seen it yourself, download TikTok.

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3. Case Study 👉 Shein

Shein is based out of China and ships to 220 countries, with the US serving as its largest target market, particularly females 15-30 years old who do a majority of their shopping online. 

In June, Shein overtook Amazon for the first time on the iOS App store to become the leading US shopping app and also holds this title in over 50 countries. 

I’ll say that again. Shein overtook AMAZON in the shopping category.

Shein took in over $10 Billion in 2020 which was its eighth consecutive year of revenue growth over 100%. Every start-up shows that bullshit hockey revenue growth slide in their pitch deck, but this is a real-life example of truly exponential growth. 

The best part about Shein is that they do not cater to the rich and famous and sell some sort of luxurious lifestyle. They went after regular people through promotions largely focused on TikTok influencers like Addison Rae. 

One of their recent viral products is a cross-wrap crop top that sells for $13. A Shein expert can carefully curate an entire outfit for about $30.

Now think about the different iterations and combinations you can put together between the different articles of clothing, and the cost/outfit by configuration gets well below $1.

This is incredibly important for someone who is sending out Snapchats or TikToks every day because now for the cost of essentially going to the movies, they can curate a unique style to bolster their content.

While some companies focus on narrowing selection, Shein has tens of thousands of styles on their website and they release about 1,000 styles per week. Talk about turnover.

But the real secret sauce here is the supply chain. Shein spent years cultivating relationships with Chinese garment factories that are small to mid-sized workshops that can pick up orders quickly (think daily) and do the full stack from design to production VERY quickly (think under 1 week). 

New orders will come in over the platform directly to the individual manufacturers which they can then accept and ship out. It’s like ordering from Uber Eats, but that restaurant made that dish this morning.

What this creates is a Direct-to-Consumer (D2C) distribution model because the product is going from a Chinese warehouse directly to the consumer. 

Since the order sizes are very small, they also take advantage of circumventing both export and import taxes since China and the US began waiving duty fees for D2C brands in 2018. So, they hit the policy tailwinds nail on the head. 

“If you’re Zara, there’s no way you’re going to get around US import duties because you’re not shipping to individuals. You’re selling to stores and importing in bulk,” Michael Horowitz, a consultant at the firm Retail ROI, told Bloomberg. “[Zara has] too much of a physical presence. It can’t get away with it.” (See Source Listed Below)

What this creates is a viral flywheel. If we’ve learned anything from TikTok (besides awesome dance moves), its that an incredible recommendation AI algorithm can accelerate virality by feeding content to people that they desire before they even know that they like it. 

If you’ve been following me for a while, you know that my favourite quote is:

“Talent hits a target no one else can hit; Genius hits a target no one else can see.” - Arthur Schopenhauer

TikTok does this through a video content medium, whereas Shein does this through the medium of retail fast fashion.

Now, let’s check in with our Outrageous Chartered FinMEME Analyst Dr. Patel!

4. How GRIT’s Playing it 👉 Owning the Pipes of the system

Unfortunately, Shein is not a publicly traded company so I like to gain exposure to this theme by owning the “pipes” of the system in place. With such a large distribution network in place, you need to have players that facilitate these transactions.

In my portfolio, I own 3 companies:

1) Descartes (DSGX-US, $8B): Provides enterprise software for execution of supply-chain management, especially for delivery-intensive companies. Their SaaS solution improves the productivity, performance and security of logistics-intensive companies around the world by managing inventory and measuring delivery resources.

Simply put: Descartes makes money by taking a fee on every leg of a package’s journey (i.e plane, train & automobile (aka truck)!)

It’s a free cash flow machine. Like a toll both. But digital. And guess who loves toll booths? Warren Buffett!

I first wrote about this stock in January 2021. Since then, the stock is up +21% and just hit an all-time high.

2) WPT Industrial Real Estate REIT (WIR.U-T). They own +100 distribution & logistics centres throughout the U.S. Their tenants are Amazon, FedEX, IKEA etc. The stock is up +40% since I first discussed it in December 2020.

3) Parkit (PKT-T). They are rolling-up industrial properties to service the growing eCommerce market. It’s only up 5% since I first discussed it a few months back but i’ve made a lot of money with this management team before. I am a buyer of this stock on weakness.

Wrapping Up…

In business class, when you look at a cross-graph for certain businesses, fashion was always sorted in the bucket of long lead times of manufacturing, risky in terms of predicting trends, and not looked at as a dynamic industry. 

With fast fashion, this has completely turned on its head through an expedited D2C supply chain fuelled by a social media flywheel. 

What a time to be alive.

Until next time. Always Yours. Incessantly Chasing ROI,

-Genevieve Roch-Decter, CFA

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