Tag: Shein

OM in the News: Shein Markets Its Supply-Chain Technology to Global Brands

China-founded Shein has built a bargain fashion empire with a pioneering small-batch manufacturing model, reports The Wall Street Journal (March 21, 2024). Now it is planning to open that up to global brands and designers. It is calling the new initiative “supply chain as a service.”

Shein contracts with thousands of factories in China that churn out tens of thousands of new styles daily.

The move represents a shift in business strategy as Shein faces challenges in the U.S., its biggest market.  Under the plan, Shein would make its supply-chain infrastructure and technology available to outside brands and designers, allowing them to leverage Shein’s system for testing out new fashion items in small batches and track how popular they are with consumers.

Shein has rapidly expanded from a discount Chinese apparel seller to a global fashion brand with the help of its small-batch, on-demand manufacturing model, and now sells to more than 150 countries. It has revolutionized fashion manufacturing as it contracts with thousands of factories in China that churn out tens of thousands of new styles daily. It places orders to suppliers to be delivered in days, relies on real-time data to quickly analyze demand and replenishes orders as needed. That cuts down on the cost for storage and limits inventory waste, a primary reason for its ultralow prices.

By making its supply-chain ecosystem more widely available to brands, Shein is refocusing on its powerful capabilities to manufacture and distribute fashion products efficiently.

Shein’s popularity in the U.S. has drawn the attention of lawmakers, who have pressed Shein to address whether it sources cotton from China’s Xinjiang region, where the U.S. has accused Chinese authorities of committing genocide and of using forced labor in its repression of mostly Muslim Uyghurs, allegations Beijing denies. Shein has said it has a “zero-tolerance policy” for forced labor.

Classroom discussion questions:

  1. What is “supply chain as a service”? Why is Shein offering this service?
  2. How has Shein revolutionized the apparel industry?

OM in the News: Fast Fashion, Shein, and Inventory

Fast fashion was invented by companies such as Zara, and to a lesser extent H&M, in the late 1990s, when the companies took the latest styles seen on the catwalk and brought similar products to market. For companies such as Zara, it took 3-4 weeks to bring a simple T-shirt from design to the stores and 6-8 weeks for a jacket or a dress. But the category fell out of favor in recent years as consumers became more critical of the apparel industry’s impact on the environment.

If what Zara did in the ’90s was fast fashion, Shein’s version is “ultrafast fashion,” reports The Wall Street Journal (May 31, 2023).  Shein’s inventory on average takes around 40 days to turn over. That is about half of what it takes for Zara. The quick-turn strategy goes against industry trends. In general, apparel companies’ inventory turnover has lengthened over the past two decades. (Last year Shein accounted for 1.7% of apparel-industry sales in North America, making it the fourth-largest clothing seller behind Nike, Old Navy and Lululemon).

Shein’s pop-up store in Paris

With its supply base in China, Shein has a well-oiled test-and-scale model: It produces 100 to 200 pieces of any given product at launch and then increases production only if demand is strong. That results in little excess inventory, which in turn helps its bottom line. On the supply side, it milks efficiencies by using a digital manufacturing system. The system asks Shein’s extensive supplier base to share real-time capacity and tags each of them based on category strengths and weaknesses. To minimize costs, Shein selects master fabrics and requires designers to choose from the pool.

Shein’s meteoric rise shows that trendy and cheap have enduring appeal. While Gen Z cares about sustainability, it also values self-expression. Even though the company has said it has no suppliers in Xinjiang, China, where there are allegations of forced labor, the company is hedging its bets with plans to source more fabric from India.

Environmentally friendly resale platforms such as ThredUp and The RealReal made their debuts to great fanfare, but their appeal among shoppers has proven transitory. Allbirds, a footwear brand that boasts environmentally friendly practices, has seen its popularity fizzle, too. Shoppers like to see green credentials, but Shein’s popularity has shown that cash always looks greener.

Classroom discussion questions:

  1. What is Shein’s inventory advantage?
  2. Describe the firm’s production strategy.

OM in the News: Superfast Delivery Shifts into Low Gear

In Chapter 2, we describe how companies can achieve competitive advantage (see pages 36-39) through differentiation, cost, or response (speed). For years, Amazon.com set the pace for competition on speed with its investment in next-day and same-day delivery.

Companies like UPS are turning away from more expensive fast delivery as a way of trimming costs.

But retailers this holiday season, reports The Wall Street Journal (Nov. 10, 2022), are focusing on delivering packages to customers on specific dates, rather than competing on speed of delivery. The shift marks an easing in a race for delivery speed in e-commerce in recent years that has pushed goods to shoppers’ homes at an ever-faster pace while narrowing retailers’ profit margins on sales.

With inflation-conscious consumers now dialing back their online shopping, many retailers are focused on restraining the high costs of fulfillment and “last-mile delivery”.

Amazon now gives its Prime members the option to pick a specific delivery date. Other retailers and logistics operators are now following suit. The idea is to offer “an anticipated delivery time” … whether that is 2 days or that is 3 days.

Saks shows shoppers what day they can expect any given item to arrive based on factors such as their ZIP Code. The feature refines the retailer’s previous 3- to 5-day shipping window. The choice makes clear to consumers that faster delivery carries a higher cost.

Chinese giant online apparel retailer Shein, known for its low-price and trendy clothing, says that rapid sales growth and superfast delivery don’t have to go hand-in-hand, even in fast fashion. Online shoppers are now more willing to wait for certain deliveries, having gotten used to pandemic supply-chain disruptions. Shein focuses on the front end of its supply chain, which includes manufacturing and shipping out of Guangzhou, China. It has significant business in the U.S. even though its website says it takes 10 to 15 days for American customers to get orders. .

Shein plans to expand its North American business by opening three distribution centers in the U.S., but even those will only speed up delivery by 3 or 4 days. The most important factor for consumers has become the visibility of it all and being able to know when to expect a delivery, as opposed to the assurance that it’ll be a superfast delivery. “Sometimes they want it really, really fast, or they want it really, really scheduled,” said a UPS exec.

Classroom discussion questions:

  1. How is speedy delivery an OM issue?
  2. Are your students willing to wait longer for an “anticipated” delivery time?