Over the eight years, SHEIN’s sales have grown hundreds of times, and its relationship with the South China garment manufacturing industry is no longer a case of customers placing orders with factories. SHEIN has established a comprehensive supply chain system that delves into various processes such as clothing design, fabric procurement, and processing, bringing factories closer to the demands of market-end consumers. This has resulted in increased factory efficiency, reduced inventory waste, and driven the digitization and production efficiency of the entire South China garment supply chain. SHEIN has transformed itself and the supplier factories it collaborates with.

Amid the current shift of the garment industry supply chain to Southeast Asian countries, export restrictions, and rising local labor costs, the entire apparel industry needs higher efficiency to meet new challenges.

The Secret of “Small Orders, Fast Returns”

In 2012, SHEIN, which transformed into a cross-border fast-fashion women’s clothing brand, entered the US market, focusing on cost-effectiveness and quickly introducing women’s clothing. Its clothing sales scale is now second only to ZARA, with sales exceeding $15 billion in 2021. Compared to ZARA, which pursues a sense of fashion, SHEIN’s model image is more aligned with Instagram influencers – youthful and colorful.

Since the second quarter of this year, with inflation and declining consumption in Europe and the United States, many Chinese foreign trade factories have experienced a sharp drop in orders and slower payments. However, SHEIN continues to grow, providing daily stable orders for clothing manufacturing enterprises in Guangdong province.

Despite the challenging environment, SHEIN’s sustained growth is attributed to its ability to efficiently plan production, reduce waste caused by inventory backlog, and offer consumers affordable and fashionable products. While inflation has impacted European and American brands, people are still willing to spend $10-20 on nice clothing to improve their mood.

Efficiency relies on SHEIN’s system, which connects consumers on one end and factories on the other. The first step in reducing waste is to identify fashion trends early. Behind the vibrant website for consumers is a tracking system. SHEIN summarizes current popular colors, prices, and patterns from frontline trends, allowing designers and buyers to design new clothes accordingly.

Discovering trends is just the first step; timely production is crucial. Traditional clothing orders may take months to a year from pattern making to production and delivery unless selling basic styles like UNIQLO; missing a trend will result in excess inventory, inability to lower clothing prices, reduced consumer purchasing willingness, and a vicious cycle.

The solution is on-demand production, reducing inventory waste and consequently lowering prices.

Before SHEIN started eight years ago, the “small order, quick response” model was already a relatively mature clothing supply model in South China, not a new concept, from establishing model rooms to photography centers, from spot procurement to large-scale independent design and stocking. 

After completing the design and taking model photos, SHEIN places orders to various factories through the system between 4-6 PM daily. The factory’s business department immediately calculates the fabric cost and places orders with specialized fabric merchants through SHEIN’s system. By the following day, the fabric has arrived at the factory, and workers process the fabric, create samples, and send them to SHEIN for confirmation. The sampling process is completed within two days, then production begins, taking only seven days.

Before being listed, no one dares to say whether a style will sell well. Therefore, the first batch of a style generally is at most 100 pieces. The accuracy of the system’s judgment has increased through repeated testing, and it is now known that over 80% of styles receive additional orders.

In traditional industries, once the goods are delivered, the relationship between the factory and the brand is reduced to settling the bill. However, in SHEIN’s “small order quick response” model, delivering the goods marks the beginning of a new cycle.

Starting from the second day, the factory can view the sales of each clothing item from the management system provided by SHEIN. When a style sells well and is about to run out of stock, they know that new orders are coming soon, allowing them to prepare to purchase fabrics. 

SHEIN’s system automatically rates and places new orders for each product based on the sales performance. For a well-selling item, the system generates daily orders for the factory. 

This rhythm significantly reduces waste. When consumer enthusiasm wanes, SHEIN’s orders also slow down, minimizing the amount of unsold clothing. In traditional garment manufacturing, losses from unsold items are typically spread across all pieces, increasing overall product prices. The “small-batch fast response” approach reduces losses from unsold items, allowing SHEIN to set lower product prices than other fashion brands. This affordability attracts more consumers, increasing sales and creating a positive cycle. Hence, SHEIN maintains its product prices lower than other fashion brands.

Brand and Factory Collaboration: Interlocking and Flexibility

Compared to traditional apparel businesses, the relationship between SHEIN and factories is more closely intertwined. With the expansion of product categories, the number of Chinese suppliers cooperating with SHEIN has reached over a thousand.

The system for connecting with these factories has been upgraded over the years, delving into the production process of factories since 2020. Factory owners can now see what styles are being produced each day, which process each style is undergoing, whether there are deviations, and where there may be losses in the production process.

As SHEIN, armed with more data, began to assess the overall operation of factories, it discovered deficiencies and issues. 

Relying on system tracking and continuous improvement by project teams, these clothing processing factories’ quality control and efficiency gradually improved. Reduction of factory waste also helps the brand set more attractive prices.

In addition to inspections, there are independent project teams. For example, if a factory has a period where clothing has defects, SHEIN will set up a project team to go to the factory and solve the issues causing the defects. 

Over these eight years, SHEIN and its collaborating factories have transformed from small companies into large ones. Both parties are exploring ways to enhance factory operations, such as allowing factories to “bind” to specific items. If the sales volume of an item reaches a certain quantity in a day, it becomes bound to the factory. Factories that initially handled small orders continue with subsequent large orders rather than passing them on to larger companies.

Small orders are just preparation; large orders are where the profit lies. A collaboration factory owner believes this approach is more sustainable, providing small factories with growth opportunities.

After binding, SHEIN’s factory owners are more motivated to prepare materials in advance and expedite production, ensuring that the available styles are in stock for as long as possible, selling more and for a longer duration, bringing more orders to themselves.

This creates a balanced relationship between SHEIN and the factories. The balance allows SHEIN to deeply engage in the operations of the factories while allowing the factories to maintain autonomy. Traditional apparel processing needs more autonomy; factories complete production, deliver the goods and settle accounts upon delivery. They neither see sales figures nor feel any connection to their operations.

The Massive System Developed over Eight Years.

In the early days, SHEIN, like many other independent platforms, smoothly tapped into various traffic sources such as Facebook, Instagram, Pinterest, TikTok, etc. 

In 2011, SHEIN was one of the first companies to leverage social media KOLs (Key Opinion Leaders). Many individuals who would later charge thousands of dollars for a single advertisement were willing to share the brand’s outfits for free at that time. Now, with an established brand, 70% of consumers spontaneously search for SHEIN and enter the website.

However, the era of traffic dividends eventually comes to an end. In 2014, SHEIN, initially relying heavily on sourcing from Guangzhou’s Thirteen Factories, established new relationships with suppliers to explore a different collaboration model.

A new model was born. SHEIN chose to take on the design and pattern-making process, completing the entire design phase and delivering the finished patterns to suppliers for garment production.

After achieving scale, SHEIN further transformed its supply chain by integrating fabric resources in 2015. Previously, factories decided where to source fabrics, often needing help negotiating favorable prices due to smaller order volumes. Now, factories place orders for fabrics from SHEIN’s fabric supplier database. SHEIN negotiates fabric prices on behalf of the factories, eliminating the need for factories to deal separately. If the required fabric is not in the inventory, factories provide feedback through the system, and SHEIN’s supply chain staff find suitable fabrics to add to the inventory.

In 2017, SHEIN began integrating suppliers for printing and dyeing processes, then establishing a “material library.” All of these resources can be found on SHEIN’s fabric marketplace.

Similar to the “small orders, fast returns” in garment factories, placing orders with fabric suppliers has become more flexible. An order can involve cutting just 30 meters of fabric, reducing raw material waste.

Account terms have also become more flexible. Since SHEIN began collaborating with factories, the most extended account term is 30 days after delivery. If there are significant promotions or large orders, this period can be shortened to one or two weeks, reducing the factories’ working capital turnover costs.

From one company to the entire industry—A new mode of production to meet new challenges.

SHEIN’s supplier in Guangzhou’s Humen district reflects that a skilled garment worker generally earns over 8,000 yuan monthly. Although equipment efficiency and worker skills are improving, the average labor cost (wage) for making a simple garment, has increased by around 30% in the past decade. Excluding other expenses such as raw materials and logistics, labor costs may account for 30%-60% of the total cost of a garment. The cost of fabrics and fuel in the Pearl River Delta has risen even more. 

Additionally, with the EU and other regions lowering tariffs on Southeast Asian garments, the foreign trade orders that Guangdong used to struggle to fulfill are gradually shifting to countries like Vietnam, Myanmar, and Bangladesh.

More giant factories are joining SHEIN’s “small-batch fast-response” system. In the past year, many “super factories” have become SHEIN suppliers, including large suppliers cooperating with well-known domestic and foreign footwear and clothing brands. Some of these factories have an annual output value of over 100 million yuan. For example, a clothing company in Zhongshan, which handles the entire process from spinning, weaving, dyeing, and printing to production, is used to serve international orders. These factories were more accustomed to only accepting large orders.

Investment in the supply chain continues. SHEIN’s supply chain headquarters project in Zengcheng, Guangzhou, has begun preliminary work. The project covers an area of about 3,000 acres, with a total construction area of about 3.3 million square meters and a total investment of 15 billion yuan. 

This system can also be extended to inland areas. Initially, SHEIN’s suppliers were concentrated in areas with a radius of less than 200 kilometers around Guangdong. In the past two years, some of SHEIN’s partner factories have started to set up branches in Jiangxi, Hubei, Guangxi, and other places where pre-cut fabrics from Guangdong are sent for production. The ready-made a production tracking system reduces the cost of running in branches, and factory owners can directly see the progress of each link through the data panel, managing production remotely. Those who have worked in Guangdong for many years and need to go home to care for their elderly relatives have taken advantage of this opportunity to return to their hometowns to continue doing the work they are familiar with.

An industry insider stated that whether it is environmental or technological progress, the direct-to-overseas-consumer model that SHEIN is exploring is just the beginning. It allows the South China garment supply chain to communicate with the international market, and SHEIN will gradually explore smaller-scale production with less waste in other parts of the world, thereby changing the development and production relations of the textile industry.

The Pearl River Delta has accumulated the world’s wealthiest resources in fabrics, accessories, and factories. The “small orders, fast returns” production model has been more fully utilized here, allowing brands to offer customers a more colorful array of choices. Eight years ago, this laid the foundation for SHEIN’s rise. Eight years later, the orders SHEIN secured and the perfect digital system developed over the years enabled the local clothing industry to face today’s more challenging market environment easily.