Shein’s head of strategic communications on the company’s ‘on-demand’ business model and moving beyond China

Shein is arguably one of the most controversial companies in the world. Beloved by Gen Z, the Singapore-based apparel company nonetheless has faced allegations of forced labor, copyright infringement, and using unsafe levels of toxic chemicals in its products. As recently as August, 16 US attorneys general sent a letter to SEC Chair Gary Gensler asking that he make sure Shein will independently verify that it does not use forced labor before approving its US IPO. It’s also still recovering from a PR disaster after it sent fashion influencers to a model factory in China, which some saw as downplaying concerns about working conditions.

As Shein now endeavors to expand beyond China, diversify its operations, and repair its reputation globally and in the US, Retail Brew sat down with Peter Pernot-Day, the company’s head of strategic communications, to talk about how the fast fashion giant plans to sustain its growth in a way that avoids some of the public relations pitfalls of recent years.

This interview has been lightly edited for length and clarity.

Many still see Shein’s main competitive advantage as low prices?

The key to our success is something we call the on-demand business model, which is a marriage of two technical systems. One is an audience engagement system, and the other is a digital-enabled supply chain. The combination of those allows us to do something that is really pioneering in the fashion industry, which is to focus on demand versus supply. What we can do is assess and project what demand will be for a particular product category…The net effect of this is to reduce inventory waste into the very low single digits.

Doesn’t leading with demand require a highly flexible supply side?

That’s what’s enabled by our digital-first supply chain. So we work with a network of around 5,000 contract manufacturers in China, Brazil, and Turkey, and because we’re digitally connected to them, we understand what their needs are, what their capacity is.

We also place very small orders. In a typical garment production, you’ll place between 10,000 and maybe 100,000 orders. We place 100–200-piece orders for the entire world. That small-batch production is what enables us to maintain very low inventory waste. It’s also what allows us to respond to changes in demand. So let’s say bucket hats are really popular, but then all of a sudden they’re just done…We’re not sitting on 100,000 copies of a bucket hat.

When you look at Shein’s rise though, the Guangzhou region of China offered a specific geographical and economic advantage. What happens to that advantage as you diversify into other markets?

We were founded in Guangzhou. Now we've moved to Singapore. I think the question underlying your question is: Is that localization strategy something that's going to be effective? That’s where we go back to digital-first being Shein’s secret sauce. Because we can digitally connect to suppliers in a way that no one else is really able to do at the moment, that allows us to geographically relocate this model very effectively to other countries.

What makes for a good match when you’re looking for a new supplier or supplier region?

The most important match is that they share our commitment to a zero tolerance for forced labor; that they respect their employees; and that they're willing to abide by our supplier code of conduct, which aligns with the International Labor Organization's core conventions and standards. We also need to make sure that they have a stable internet connection. Then we're also looking at skill sets. We really are looking for garment producers with a track record of producing high quality clothing and in the categories that we're looking to produce.

How far along is Shein with its US localization efforts?

We don’t sell a single T-shirt in China. All of our sales occur outside of China, and the US is the most important single market that we operate. I think that that is something that we are actively building the infrastructure to support. We’ve got a major operation in Los Angeles… We’ve got a very significant operation in Whitestown, Indiana. We’ve got almost 2 million total square feet of warehouse facilities, and we are adding a second facility very similar to the Whitestown facility in Cherry Valley, California, to support West Coast demand. 

The Shein name has become politicized in the US. How do you navigate that situation, and in particular the impact of US-China tensions?

We look forward to working with partners, whether they’re in government or out of government, who want to understand our business, who are giving us opportunities to be transparent about what we do and how we do it…We’re not a perfect company. There are things that we don’t do well. But giving people an opportunity to sit down with us and hear…where we want to go as a company—I think that is an important part of the process of participating in the American economy.

Editor’s note 10/10/23: This story has been updated since its original posting.