Real-time-fashion is solving retail's inventory problem
Invasive data tracking, Shein's unbeatable supply chain, and a Yale March Madness win
Hi everyone, spring break has been coco-bananas. I took the longest flight I have ever taken in my life - 18.5 hours direct NYC → Singapore - on my way to Cambodia. It was all worth it because I got to see Angkor Wat(!) at 6am for sunrise, with this cheeky monkey who was eyeing the snacks in my dad’s backpack.
Today’s main kiki is a deep dive on Chinese retail company Shein - specifically how their tech-enabled supply chain helps them win the fast fashion space.
SNIPPETS
Trader Joe’s $3 mini canvas bags are the new sambas - everybody wants them. This video of customers camping out in Trader Joe’s and the swarming the poor employees when the bags come out is crazy. Even more wild - coveted owners are re-selling the totes for $12 to as high as $500 on Ebay. Get your bag sis…
“I’ll just order it and if it doesn’t fit I’ll return it!” The beauty of e-commerce right? Yes for the consumer - but returns are very costly for retailers. In 2022, US retailers lost ~ $816 billion in revenue as a result of returns due to consumers returning 16.5% of purchased items. According to reverse logistics company Optoro, returns can cost up to 66% of the product’s original price, including delivery, quality checks, and warehousing fees. As a result, retailers are becoming more stringent with return policies - including adding a return fee and shortening return windows. It’s even more expensive for furniture retailers who require movers and more truckload space. My brother’s friend ordered a couch from Amazon which had a few scratches upon arrival so he asked for a return/exchange - Amazon ended up just sending him a new couch and told him to keep the old one because it was too expensive to ship the furniture back to the warehouse. Lucky him. (I just gave you guys your newest apartment furnishing hack😉)
Over spring break, my professor assigned a paper (sigh) to analyze open-source vs closed source-search engines (at first sigh but ended being interesting). The debate revolves around making software's underlying code either accessible to the public (open-source) or keeping it proprietary and restricted (closed-source), impacting factors like collaboration amongst developers and security for consumers. As an open-source supporter, my main concern is data protection. Most consumers are oblivious that Google sells your data to third parties when you use closed-source Chrome or Google Search. Your data is tracked in unimaginable ways - one of them being your car. It turns out that Mercedes (and other connected-vehicle-manufacturers) collect data including how fast you drive and how many times you hard break or sharp accelerate and sell your data to third parties, including insurance companies, which could result in higher insurance premiums. Just register your rental car under your opp’s name next time you go on a trip and speed.
On this topic of tracking user data, another snippet I learned about during my research for my paper is that Uber tracks your phone battery and will activate surge pricing when you have low battery. A 2023 Belgian study (shoutout home country) reported that two identical ride requests were made at the same time and same location, but Uber charged 6% more for the user that has 12% battery (meanwhile the other user had 84%).
THE MAIN KIKI: How Shein’s tech advantage helps them dominate fast-fashion
Last week, I talked about how inventory is an anchor on profitability in retail businesses. Since then, I have been thinking about how companies can tackle this issue to increase margins, and I have found the holy grail. Real-time-fashion company Shein has perfected their craft in terms of ensuring fast inventory turns and a streamlined supply chain.
A few intro bullets on Shein:
Chinese fashion brand founded by Chris Xu in 2008 and headquartered in Singapore.
Main segment is fashion, but also have home ware, jewelry, and electronics - all sold online.
Produce clothing in China, and then sell online to consumers in the U.S., Europe, and Asia (EX-China). This is probably because the affordable clothing market is over-saturated in China, meanwhile it is a value add for Western consumers.
Their products are priced cheaper than competitors (average SKU price of $14 vs H&M’s $26 and Zara’s $34) so they are a low margin, high volume business.
Since its launch, Shein has managed to climb the ranks of the fast-fashion retail world and has outperformed other big players that have been around for decades. Their $100 billion valuation in 2022 exceeded that of Zara and H&M combined. Their meteoric growth is staggering.
The secret sauce? Their supply chain streamlines and improves traditional supply chain models. Here are the highlights.
Data-driven demand forecasting
Shein uses data derived from customer behavior, social media trends, and real-time market insights to forecast demand, which informs what items and how much to produce. Shein’s entirely e-commerce business (excluding a few pop-up stores), benefits from near-100% accuracy and instantaneous sales data-collection vis-a-vis its fast-fashion competitors, who are largely dependent on employees logging inventory correctly and on time in their primarily brick & mortar sales model. In addition to data on past sales, Shein generates forward-looking insights on what is in style based on consumer browsing behavior and trending items on social media.
Micro batch processing: Small orders, quick response
Another secret ingredient is Shein’s “micro-batching,” placing small orders of new items for manufacturers to produce rather than the traditionally larger batch orders of its competitors. These small orders enable Shein to test demand for new items with its customers, and if well-received, they scale up production to meet demand. If not well-received, they kill production without having produced excess loss-making inventory. Some numbers on this: Shein on average releases 2,000 new SKUs daily, many of which are usually in testing mode, where an initial order of 100 items per SKU is placed. Depending on popularity, they will tell the manufacturers to either scale up or down. Shein’s micro-batching is a form of the customer-to-manufacturer (C2M) model, “where consumers actively participate in the design, production, or customization of products and services in collaboration with manufacturers”. The flexibility granted by micro-batching not only helps Shein de-risk in terms of limiting excess inventory, but also enables them to stay current with fast-moving trends in retail, whose life cycles have only gotten shorter in the era of social media.
Short manufacturing cycles
Shein has extremely short 5-7 days manufacturing cycles, compared to Zara’s 3-4 weeks. One of the drivers is Shein’s unique supplier structure: they do not own any manufacturing facilities, but rather work with >6,000 small suppliers located in/near Guangzhou, one of China’s manufacturing hubs. Shein onboards suppliers with their proprietary software system, which includes a digital bidding system that algorithmically assigns orders to the supplier that can manufacturer it best/has superior expertise on that specific item, ensuring the shortest possible production cycle. Why short manufacturing cycles matter is because it facilitates more accurate demand forecasting - aka it’s easier to know what items people will buy next week as opposed to in the next 3-4 weeks, so that manufacturers can keep pace with trends, only producing to demand, minimizing dead stock inventory.
Shein’s unparalleled instantaneous data collection paired with their experimental production model with short production cycles makes them not just a fast-fashion brand, but a real-time fashion brand, adapting to consumer tastes quicker than competitors with longer cycles. The power of a tech enabled supply chain!!!
However, it would not be socially responsible for me to positively highlight Shein’s business model without mentioning that it’s mass-scale production has devasting consequences on our environment. Their clothing material is mainly virgin polyester - a synthetic fiber created through a chemical reaction involving petroleum. One source said producing virgin polyester results in the same amount of CO2 emitted by 180 coal-fired power plants. But the lower cost material is what makes their brand so lucrative. Buying low quality at low price points, the consumer (think of your college friends) is fine wearing a few times, tossing, and buying new product.
Rather, a better environmentally conscious fashion company is Quince which has constructed an efficient supply chain and is producing with sustainable materials. (This $50 Quince cashmere sweater is the best)
THINGS I’M LOVING RIGHT NOW
SKIMS tennis outfits - I’d play tennis if I looked that good. While I feel like celebrity brands usually just dupe other brands and only get hype because they are associated with an influencer/celebrity, SKIMS adds amazing products to the market. Everybody else is duping them now.
Life updates through air-playing your camera roll. I did this with my friends last week and it was hilarious.
The “mall-ification” of the Singapore airport. This airport is a luxury “Disneyland” with the world’s largest indoor vortex waterfall. The Changi Airport is attached to the Jewel mall which is a tourist attraction, so you walk out of baggage claim into a really high-foot-traffic area with plenty of retail therapy. Also note in the photo the banana looking cones to indicate slippery floors.😝
Matcha-limoncello-tonic - I made this drink with my friend Mira. We eyeballed proportions but I found a recipe video. DELISH.
That’s a wrap on letter 3! Let me know your thoughts in the comments. Finally, re Yale’s EPIC win over Auburn this Friday, I loved how every Yale chirp was just a comment about how we’re a smart school, like… thanks! In response to Charles Barkley’s comment saying Auburn is “always going to beat the smart kids”, the comic of the week:
See you in the next letter <3
That little tidbit on Uber is WILD!