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Saturday, July 13, 2024

Guangzhou hub of web factories challenging fast fashion world

All day long, trucks plastered with Shein logos stop by to load up on freshly sown boxers and cocktail dresses. Many of these products will soon find their way to around the globe, who bought them with a tap on their smartphones.

The mercantile history of Guangzhou, the city once called Canton that is about two hours’ drive from Hong Kong, can be traced back to Wu Bingjian, one of the richest men to have ever lived on Earth.

Today, foreign trade is alive and well in the southern port, where a new breed of merchants have emerged. Taking advantage of the internet and the country’s vast army of factory workers, companies like Shein – pronounced “she-in” – and others have quickly risen as contenders to global retail giants from Amazon.com to H&M Group.

Shein and its rivals are the beating heart that keeps these small factories running. Shein’s core advantage lies in its agile supply chain, which is both fast and flexible, and its large existing user base, said Yao Kaifei, CEO and founder of BrandAI, a software-as-a-service start-up focusing on cross-border e-commerce.

Shein in early days, its founder Xu Yangtian and supply chain head Henry Ren Xiaoqing spent a lot of time visiting garment factories in Guangzhou in person to secure contracts. Many suppliers initially rejected Shein because it placed orders in quantities far smaller than those from traditional exporters, and only reorders if an item proves to be popular with shoppers.

The company typically asks factories to produce around 100 pieces of a new item, while other clients usually request 10 to 20 times more, according to the manager of a denim factory that worked with Shein. Orders from Shein, which sells low-priced clothing from US$5 tank tops to US$20 jeans, are also less lucrative.

Shein’s orders generate a gross profit margin of around 6 per cent, compared to 10 to 20 per cent for those from other customers, the manager said. Adding to the troubles, Shein’s tight delivery deadlines often force factories to pause production for other clients and work overtime.

Slowly, Shein managed to sign up an extensive network of manufacturers by doing what many of its peers fail to: always paying on time. The trust that it has built with suppliers eventually gave it an edge over competitors, as shoppers worldwide became drawn to Shein’s seemingly endless selection of budget-priced clothing that is in tune with fashion trends.

An agile supply chain and connected-commerce capabilities are needed to sustain [Shein’s] success in an ever-changing marketplace,” said Derek Deng, a senior Bain partner in Shanghai. “Sustainability can be achieved when the company can create a synergy between its supply chain and its distribution channels to adapt to fast-changing local market needs.”

When a product sells well and inventory runs low, the system automatically reorders from factories. This allows Shein to restock in seven days, compared to 14 days at Spanish fashion giant Inditex’s Zara, according to suppliers.

The rise of Shein and other Chinese apps, including PDD Holdings’ Temu, ByteDance’s TikTok Shop and Alibaba Group Holding’s AliExpress, has transformed China’s export landscape, with Beijing touting cross-border e-commerce as a key part of its plan to develop a “digital silk road” for selling Chinese goods to the world.

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