Tariffs Call for Differentiation Beyond Price

Fast-fashion brands are hustling in the face of U.S.-China tariffs. Price increases abound and, in May, the Washington Post reported a price hike of 43 percent on a sampling of women’s clothes on Shein. Whether a result of U.S.-China tariffs or increasing social pressure not to buy from environmentally destructive fast-fashion brands, Shein was losing U.S. customers, and it wasn’t alone in this. Chinese fast-fashion retailers like Shein and Temu can’t offer the low prices that once made them competitive. Customers noticed the price hike and altered their shopping behavior to reflect this change.

U.S.-based discount retailers like Old Navy, Kohls, and Nordstrom Rack have been reaping the benefits since tariffs began. So have value stores like Savers Value Village. In October, Shein sales reportedly declined 8 percent YoY. In May, Michael Gunther, Head of Insights at Consumer Edge, told Chain Store Age, “The data isn’t just showing a slight dip—we’re seeing a rapid reallocation of spend from these popular Chinese discount platforms.”

At first, it looked like the Chinese discount retailer boom of recent years might come to an end. But the fast-fashion behemoth still plans to almost double profits in 2025, from $1.1 billion to $2 billion this year. Shein’s strategy to achieve said profits in light of unprecedented tariffs? Localizing shipping centers is just part of the puzzle. Shein is also following in the footsteps of H&M, Zara, and even Temu by diversifying their offerings.

Identity-Driven Consumers Love Brands that Get It

The retail industry has long been driven by the relationship between brand identity and customer identity. In the olden days (prior to year 2000), it was all about brands building awareness to create the illusion of trust. Today, brands need to exhibit the values and cultural markers of their core customer base—such as dialect, aesthetic sensibility, awareness of purchasing priorities, etc. Generation Z is identity-driven, so retailers’ need to reflect their consumers will only strengthen as next gens step into their adult career paths and strengthen their buying power.

PWC highlights this relationship in “The Gen Z Paradox,” saying, “It turns out Gen Z isn’t just price-conscious. They’re value-conscious, with an emphasis on emotional and social value, not just discounts.” Think about that aforementioned emotional and social value in terms of retailers like Shein choosing to expand into lifestyle categories––the categories they choose to offer are as much a branding opportunity as a sales opportunity. For next gens, emotional and social value is achieved when they see their unique identities reflected through the more obvious retail marketing, yes, but also in the inventory of their favorite brands and retailers.

Fast-fashion brands like Shein are creating correlations between their platform and lifestyle categories that speak to the consumers they want to target. In a proprietary survey, more than half of survey respondents from Shein’s customer base said they read “one to three books a month.” And what better way to show consumers your brand reflects their lifestyle than to stock a category like rare books, that’s ignored by other brands in Shein’s price bracket?

Fast Fashion Retailers Do “Lifestyle” Now

Shein is not the first-fast fashion retailer to offer a more diverse product mix. Retailers that are historically value-conscious, like fast-fashion retailers, caught on that adding categories can help them attract consumers beyond their usual value-conscious base back in the early aughts. In fact, H&M and Zara have been on the expansion track since the early 2000s, whereas Chinese retailers Temu and Shein only recently followed suit.

• H&M

Home goods were once relegated to luxury and mid-market sectors. But millennials are all grown up and, guess what? We still can’t afford an $85 towel. Swedish fast fashion retailer H&M caught onto this disparity, branching out into home goods under the banner of democratizing categories that were once reserved for the wealthy. Now H&M is soft launching H&M Beauty with clean, often vegan cosmetics, self-care, and hair products that haven’t been subjected to animal testing.

Why?

H&M says their expansion into beauty is a natural step given their brand positioning. “Our positioning is not about exclusivity,” H&M beauty global general manager, Cathrine Wigzell, told The Times of India, “but about making high-quality, fashion-forward beauty available to everyone.” 

• Zara

Zara was one of the first-fast fashion retailers to diversify its offerings, expanding into homeware with its Zara Home line back in the early 2000s. However, in 2021, the retailer launched Zara Beauty and recently launched a Zara Hair line in collaboration with the division’s new creative director, Guido Palau. Zara even has its toes in the experiential retail pond with Zacaffé, an in-store café concept.

Why?

Zara branched out into home goods for similar reasons as H&M, there was a market for low-cost home goods, and they wanted to keep their millennial consumer base, which was spending less on apparel when tariffs first hit. But Zara’s foray into hair care with its private label line truly set them apart. While H&M and Zara compete for value consumers’ beauty spend, H&M is quickly gaining a monopoly on hair with its own low-cost, celebrity stylist-affiliated haircare line.

Brand Building Through Product Assortments

The Shein-Alibris partnership points to a greater retail trend: product assortments as a branding move. As consumers navigate economic uncertainty, there’s a strong chance that apparel will take another hit. But people will always spend on their hobbies and interests, whether it’s the escapism afforded by a rare Russian novel from Shein, or the fortifying power of a cruelty-free Zara lip gloss with a strong punch of color.

A final word of caution: Think of branching out into new categories as a branding move. Retailers that look for a lifestyle fit as profit potential will be best positioned for long-term success.