Chinese ultra-fast fashion giant Shein has become the cheapest apparel retailer in every major European market, undercutting even Primark and intensifying pressure on the Irish value clothing chain at a time when its parent company is already navigating a difficult backdrop.
Research from RBC Capital Markets, which surveyed entry-level clothing prices across Spain, Germany, France, Italy and Sweden, found Shein consistently ranked below Primark on price – a competitive dynamic that analysts say has contributed to Primark incurring higher markdowns and margin pressure over the past year.
Primark is the key division for FTSE 100-listed Associated British Foods PLC (LSE:ABF), representing around 45% of sales and roughly half of profits.
While rivals Inditex and H&M have responded by nudging their prices higher and repositioning away from the low end of the market, Primark has moved in the opposite direction, becoming relatively cheaper.
"We think Primark has been suffering from lacking a digital offer in mainland Europe, at a time of more aggressive channel shift online."
Shein's momentum in Europe has accelerated partly because the US largely closed its doors to the retailer last year, following the removal of duty-free rules on low-value Chinese imports.
Some relief may be on the way: the EU plans to abolish its own €150 duty-free threshold for small parcels from 1 July, introducing a flat fee of €3 per parcel that will add to Shein's cost base – though analysts expect the impact to be modest given the retailer's average order value of around €50.
Elsewhere, RBC noted that Next PLC (LSE:NXT) is a beneficiary of a "less competitive" midmarket, while its international growth has benefited from "increased localisation" and from Zalando's ZEOS offer, which allows for fulfilment across mainland Europe from a single inventory pool.
"At the mid to upper end of the mass market, shoppers appear to be buying slightly fewer but higher quality garments," RBC said.
One of the nuggets from Next's full year results last week revealed last year saw LFL price inflation of 0.9% and average selling price increases of 3.4%, while this year it expects LFL price inflation of 0.6% and ASP increases of 2.2%, which the company said "reflects a gradual but meaningful shift in customer preferences".
RBC said this trend "should favour the likes of Next, which is investing in better fabrics, yarns and prints. It also favours Inditex whose business model aims to respond quickly to trends and to offer more stylish, quality garments at attractive prices."