Today is the third class in the current August study period. We will start class with a casual conversation our material today is about Shein.
SYLVIE DOUGLIS, BYLINE: NPR.
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ADRIAN MA, HOST:
If you had to sum up the fast-fashion industry in just four words, it would be trendy clothes for cheap. But, you know, even in an industry known for cheap - some would say disposable - clothing, a company called Shein has taken this idea to a whole other level.
DARIAN WOODS, HOST:
Yeah. If you go to the website for Shein, a pantsuit will cost you $28, a graphic hoodie only $11, a full length floral print dress just eight bucks.
MA: Unbelievable. And what does it actually take to make clothes this cheap?
WOODS: Yeah. There's got to be a catch.
MA: I mean, Shein recently tried to answer this question by inviting a group of fashion influencers to Guangzhou, China. It's part of a PR series that they nicknamed Shein 101.
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UNIDENTIFIED PERSON #1: First, they asked a fashion designer for Shein in Guangzhou, China. We made it to the Four Seasons.
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UNIDENTIFIED PERSON #2: The city is just honestly so amazing. We even went to the mall and did some window shopping.
WOODS: First up, a dinner on the company.
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UNIDENTIFIED PERSON #3: And here is us at the welcome dinner. We had, like, a 10-course meal.
MA: And then there was a company-led factory tour. A promo video shows a diverse group of young women smiling as they walk through a brightly lit workshop.
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UNIDENTIFIED PERSON #2: I really expected it to look like it does in the movies, like, really dark and dingy, but I was really surprised to see each piece handled with care.
MA: This PR campaign was supposed to help the company's image, but instead, it kind of blew up in its face. In recent days, it has become the target for internet outrage, with some people calling it propaganda for a company with questionable labor practices and an opaque business. And yet even with the controversy, Shein is, by some accounts, the world's largest online-only fashion retailer and makes up about 50% of the fast-fashion market.
This is THE INDICATOR FROM PLANET MONEY. I'm Adrian Ma.
WOODS: And I'm Darian Woods. Today on the show, we will do our own Shein 101. We'll explain the unusual strategy that helped Shein go from a small internet startup to a global retail behemoth.
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MA: The story of Shein starts around 2012. And back then, it was called SheInside and mostly dealt in wedding dresses. Its founder was a sort of enigmatic guy named Chris Xu. And interestingly, before starting the business, Chris Xu's main experience was not in fashion but in search engine optimization.
WOODS: Right, like, getting really good Google results or, I guess, Baidu results in China. And that tech savvy came in handy as SheInside expanded its product line, became Shein and would be just an online operation. You know, unlike its fast-fashion competitors, H&M and Zara, these places have brick-and-mortar stores. Shein doesn't have to have those costs.
MA: But that by itself doesn't explain how Shein has been able to grow so fast and sell clothes so cheaply. For that, we reached out to Sheng Lu. He's a professor at the University of Delaware, where he teaches the business of fashion and apparel.
SHENG LU: So sometimes, I'm joking I'm the least fashionable fashion professor in - you know, maybe in the U.S. or maybe in the world.
WOODS: And when we asked Sheng what else makes Shein's business model different from other fast-fashion brands, he pointed to four things. First, the way the company uses technology. All fast-fashion brands use tech to identify trends and find customers, but Shein just takes it to another level. Sheng says they even hire data scientists to help design clothing.
MA: So data scientist is, like, the new fashion designers.
WOODS: Yeah. What can't they do?
MA: Anyway, Shein's second competitive edge has to do with its approach to launching new products. So retailers like H&M and Zara are constantly worried about replenishing old products when they sell out. Shein doesn't really care much about that. So when a product runs out, they have already moved on to making a dozen other things.
WOODS: Here are some numbers that really put it into perspective. Sheng says that during a recent 12-month period, H&M offered around 25,000 different products for sale. Zara offered around 35,000. So this sounds like a lot, right?
MA: Yeah.
WOODS: But over the same period, Shein offered around 1.3 million different products. That's 40 to 50 times as many products.
MA: So many products. I mean, when a normal retailer sees that, oh, you know, we've sold out of yellow pants, they think, let's call up the manufacturer and order some more. But when Shein sells out of yellow pants, they're like, OK, how about we make some green pants and some checkered ones and some bell bottoms and ones with little heart prints? - this constant variety of new stuff to keep people shopping.
WOODS: The third ingredient in Shein's special sauce is that it's very different to its competitors in its supply chain. While other brands work with manufacturers all over the world, pretty much all of Shein's contracted factories are in China. According to the company, it has about 6,000 of them.
MA: And fourth, maybe the most interesting of Shein's competitive advantages has to do with U.S. trade law.
LU: So for conventional retailers and brands, they sell products directly from their store - right? - from their warehouse in the U.S. So when they import the products at a beginning, it has to go, you know, through big container. You have to go through the normal customs procedure.
MA: Meaning when other retailers have big containers full of thousands of pairs of pants coming into a U.S. port, those pants have to go through inspections. They have to pay tariffs on them, things like that. But Shein does not have to do that because the law makes an exception for de minimis or low-value goods, as they're called, basically anything under $800. And because Shein is usually shipping relatively small orders direct from factories to U.S. customers, it gets to avoid a lot of that customs stuff.
LU: And also, all of Shein's competitors, if you look at these conventional brands and retailers - they have to pay, you know, millions or even billions of dollars of tax revenue. But Shein doesn't have to do that.
WOODS: So we've got a company with incredible tech skills, a tight-knit supplier network and a launch-a-million-products strategy which also is conveniently able to avoid tariffs. Maybe that's why, according to Crunchbase, venture capitalists gave Shein half a billion dollars in 2019 and why when the pandemic hit in 2020, the company exploded in popularity. You know, with a lot of people stuck at home, a popular pastime for many Gen Zers was buying tons of stuff on Shein and then showing off their hauls on TikTok.
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UNIDENTIFIED PERSON #4: ...Going to do a Shein haul - Sheen (ph). I never know what to call it.
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UNIDENTIFIED PERSON #5: I ordered almost $300 worth of stuff from Shein. And, like...
MA: Shein was recently valued at over $60 billion. And there have been reports the company wants to go public in the U.S. as early as next year. Now, a company spokesperson told us they have no current plans to go public. But these reports and Shein's spectacular growth in recent years have brought more scrutiny to its business practices. Like other fast-fashion brands, there are concerns about its environmental impact from creating and selling so much cheap clothing. And also, Shein has been under fire for its labor practices and where it gets its materials. For instance, also like other fashion brands, there are concerns about whether some of the cotton it uses comes from the Xinjiang region of China. That's the part of China where Uyghur Muslims have been detained in camps and forced into labor, doing things like picking cotton.
WOODS: The company has publicly stated that it does not source cotton from Xinjiang and has a zero-tolerance policy for forced labor. But Sheng is skeptical, in part because Shein has been pretty cagey about sharing information about its supply chain.
LU: You know, a lot of retailers these days, including, you know, like, Zara and H&M - they already released their entire supplier list, not just the tier-one suppliers, you know, those garment factories, but also, you know, those factories making fabrics, making yarns or even the textile raw materials.
WOODS: But Shein?
LU: Where are its factories located? How it treats its workers remains a big question mark.
MA: Sheng hopes more detail about Shein's business will come out as it looks to go public. He says that would definitely be preferable to another influencer campaign.
LU: Our industry is not just about a commodity. It's about the people. When Shein is so big, which means it will have a bigger impact on its workers, this also means you have a bigger responsibility.
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WOODS: You know who also has a responsibility, Adrian?
MA: Who?
WOODS: The influencers.
MA: Ah, yeah. You know, if you're interested in learning more about influencers, we actually have a whole five-part series on it we did recently. We'll put a link to that in the show notes.
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MA: This episode was produced by Julia Ritchey and engineered by Neal Rauch. It was fact-checked by Sierra Juarez. Viet Le is our senior producer. Paddy Hirsch edited this episode. Kate Concannon is our editor. And THE INDICATOR is a production of NPR.