According to Forbes, SHEIN’s latest valuation has reached $47 billion. Recently, there are a lot of analysis articles about SHEIN in the market.
What exactly did SHEIN do right?
In my opinion, SHEIN founder Yangtian Xu’s strategic choice of insisting on being a traffic pool reflects his strong heart; while the deep plowing in the supply chain end follows the trend of modernizing and transforming the workshop-style supply chain in China’s apparel industry. In addition, SHEIN has a set of more underlying management concepts, which may give this company a certain ability to replicate and a broader imagination.
In this article, we will do an in-depth interpretation of SHEIN from three dimensions: flow, supply chain and management.
Traffic pool: doing the hard but right thing
In 2013, SHEIN (the name was still SheInside) was established for 1 year (Note: SheIndide was established in 2012, while its predecessor, Point Only Information, was established in 2008), with a total of 100 employees and 250,000 registered users. One data is particularly bright, that is, the repeat rate of customers is as high as 40%.
You know, at that time in the cross-border e-commerce industry, no one cared about the operation of the station, and no one cared about the brand. At that time it was the traffic bonus period of Google and Facebook, and most people adopted the way of bulk laying to test single products, shooting one shot and doing a one-time business. Sense, the wave and live more manipulators, willing to do top-level thinking, long-term focus on the real entrepreneurs less.
A so-called circle of bigwigs once told him this: “You are now telling me that these ideas of engaging in branding is not new at all, I tried it more than ten years ago, but when you seriously do products you find that you have been losing money, a group of brothers are living a very difficult life, but as long as a little bit of play can be rich overnight, how will you choose it?”
It is a question of playing with traffic to make quick money, or sticking to the brand and the traffic pool.
In June 2013, China’s first cross-border e-commerce stock, Lanting, went public, and the essence of its business model is the capture of Google AdWords and SEO traffic dividends. Guo graduated from the junior class of China University of Science and Technology and Stanford MBA, and was the chief strategy officer of Google China and special assistant of Kai-Fu Lee. Zhe Zhou, one of Lanting’s angel investors, is Guo’s alumnus from Stanford University. He is the 103rd employee of Google, the first engineer of Google Adwords, and wrote 60% of Google AdWords code.
The main category in the early days of Lanting is wedding dresses, the customer price of wedding dresses is $200, the gross margin is as high as 60%, the disadvantage is a one-time business, no one gets married every day, so the overall repurchase rate of Lanting is not high, about 20% (do not misunderstand, not 20% of the people remarried, Lanting also sells other categories of goods, such as general clothing, electronics, etc., so there are still repurchases (of). Product categories and business models are compatible. Therefore, the money earned by Lanting Jisi was basically returned to Google, and at that time, the marketing cost on Google accounted for about 30-40% of its sales.
It seems that the product category determines the business model, however, it is more likely that a company’s initial endowment determines its business model, which in turn determines the selection of the product category.
The initial endowment of Lanting is Guo’s understanding of Google’s traffic mechanism. 2007, when Lanting was founded, the founders were Guo, Wenxin, Zhang Liang and Liu Jun, but Guo himself was working at Google at that time and did not officially enter the game. At the beginning, the company’s main business was electronic products, but it turned out that the customer price and gross profit were not going up, and the company was facing huge losses, and the suppliers who came to ask for money even blocked the office door. At the end of 2008, Guo left Google and joined Lanting as the chairman and CEO, and a few months later, Lanting launched the wedding dress product line, and the sales immediately rose, reaching 26 million dollars that year.
With a hammer in your hand, you will look for nails everywhere. Resource endowment tends to make people fall into path dependence.
Guo, who had a glamorous resume since childhood, could never have imagined that he would lose to an unknown kid with far fewer resources and background than himself.
There is very little information about Shein founder Xu Yangtian on the internet. Forbes mentioned in an article earlier this year that Chris Xu was born in the United States and graduated from the University of Washington. This may be a direct quote from SHEIN’s own 2013 press release in PR Newswire, entitled “SheInside Seeks Collaboration with Designers Worldwide,” in which Xu is described as Chris Xu, an American-born-Chinese (ABC) graduate of Washington University; this page has been removed.
However, more domestic information shows that Xu was born in 1984 and graduated from Qingdao University of Science and Technology in 2007. In the late report, Xu Yangtian came from a poor background, “soaking soy sauce in steamed bread” as a child, working outside in his senior year of high school, and studying half-time in college. After graduation, Xu Yangtian came to Nanjing to work, at first in Nanjing Aodao company to do foreign trade online marketing, in October 2008, Xu Yangtian together with Wang Xiaohu and Li Peng set up Nanjing Point Only Information Technology Co., Ltd, mainly by brushing the site in Google search rankings, selling some imitation goods, which is the predecessor of SHEIN.
Photo: Xu Yangtian’s graduation photo circulated on the Internet, looking at the architectural style does not look like at the University of Washington
The information about Yangtian Xu on the Internet is indistinguishable from reality. Some people say that Yangtian Xu started his own SEO business when he was in college and had already made millions of dollars by the time he graduated; others say that Yangtian Xu did logistics for a big seller on Amazon and later switched to product selection. However, all this information has not been confirmed.
However, it seems that one thing can be confirmed: SHEIN can be regarded as a follower of Lanting Jisei at the beginning. 2009, Xu Yangtian brought his team to do cross-border e-commerce for wedding dresses, and the originator of the cross-border wedding dress category is Guo Goji’s Lanting Jisei.
Xu Yangtian, who has been doing SEO since college and studies Google’s traffic rules every day, wonders if he envies Guo Goji in his heart, who is born with a golden spoon. After all, we are all living in the waves of the wave, rich and dangerous, to put it nicely is the traffic test, to put it bluntly is gambling. The driving force behind all the waves, the designer of all the rules of the game, is precisely Google.
The parting of ways between SHEIN and Lanting’s business philosophy happened in 2012.
In 2012, Xu Yangtian gave up the wedding dress business and officially established SheInside, fully transforming to do cross-border women’s fashion. In that year, Xu Yangtian basically determined the later development direction.
The earliest report about Xu Yangtian that can be found on the Chinese Internet is the article “Go faster, do better, think farther – see how the post-80s “activist” opens up a blue ocean of online garment foreign trade” published on the official blog of eBay on June 21, 2013. The article was later included in the 10th issue of “Import and Export Manager” in 2013.
In the article, Xu Yangtian made it clear that his position is to build a brand and work hard on products and services, saying: “To make a brand, we must find professional people and operate in a professional way. From the market to find a random batch of cheap and best-selling goods, randomly sold in any way, this barbaric growth of the road is increasingly unfeasible.”
This statement, in the present view, marks Xu Yangtian’s complete break with the flow business.
He was perhaps tired of the life of a prodigal man who lived off the sky and lived in a place with no fixed location, and vowed to settle down, make his own brand and form his own traffic pool. This time, Xu Yangtian wanted to make his own waves.
And in the same period of Lanting, the supply side was still cooperating with 1688 to get goods, basically unable to establish their own brand recognition; the demand side was still playing the old way of traffic, and the marketing cost even went up, from 21% in 2009 to 28.8% in 2013.
Someone once asked on Zhihu why there are so many small websites under Lanting, including toyinthebox, dropinthebox, onlyts, happybox, etc. Is it because of the pressure caused by the slower growth rate?
This way of multi-site operation of Lanting is later known as the site group model. Aopeng, fine engraving, Starlink will carry this model forward. The so-called site group model is to use site building tools to quickly build many sites, each site only sell a class of goods, and do test products on Google or Facebook, and then increase the investment budget after the explosion. This is a typical traffic business model, which starts fast and goes fast, and the platform does not focus on consumer experience, and there are even many gray ways to play.
Unlike the site group model, SHEIN focuses on the SheInside site (in 2014, SHEIN also acquired ROMWE to start a dual-brand operation), all the traffic is directed to this centralized traffic pool, and then distributed to different products. This model, called the boutique/branded station model.
The site group likes to place commodity ads, while SHEIN does not only place commodity ads, there are Google keywords that SHEIN chooses to link directly to its homepage, rather than specific category/commodity pages. SHEIN also does everything possible to get consumers to download the app, and in May 2021, SHEIN has surpassed Amazon as the most downloaded shopping app in the U.S.
Enter SHEIN’s home page, see the large European and American style, fresh and bright, and no actual connection with the sale of goods; while lightinthebox’s home page is a rotation of banner ads, flowers and green, in a trance into the wholesale market of small goods.
The left picture is SHEIN, the right picture is lightinthebox
The traffic of SHEIN seems to be wasted in the short term, but in the long term, it is beneficial to the creation of users’ minds, while lightinthebox does not seem to waste a single bit of traffic, but every exposure does not leave a positive impression in consumers’ minds, which is the biggest waste of traffic.
I experienced SHEIN and lightinthebox (Lanting) two websites, SHEIN’s shopping process is more like Taobao, browse and see the products you like, click into the product details page, then select the color and model, add the product to the shopping cart, and then continue to browse shopping, the consumer’s product browsing will not be interrupted by the act of adding a car. The lightinthebox is completely different. I saw a T-shirt that said old man, and after I clicked add to cart, I was directed to the cashier to finish the payment. It doesn’t matter if you don’t want to register, lightinthebox supports PayPal direct payment without being a registered user of the platform.
Lanting tries to shorten the payment path for consumers, fearing that if they are a little slow at any point, they will walk away. SHEIN, on the other hand, seems to be unhurried.
The product is just a reflection of the business model. Only those who want to do long-term business and firmly believe that their products and brands have long-term value to consumers will do such a long-termist design on their products.
Many people believe that one of SHEIN’s core competencies is the ability to get traffic at low cost. This may have been true in the early days of SHEIN, and it is undeniable that Yangtian Xu made his first bucket of money from SEO. However, there is never a technical barrier to traffic placement, and the traffic placement mechanisms of Google and Facebook are so mature that the traffic dividend is only temporary.
I learned from people close to SHEIN that SHEIN’s CPM customer acquisition cost is even higher than most of the competitors, for example, the same is done for Facebook ads, SHEIN’s CPM cost may be about 50% higher than the competitors. This point is somewhat contradictory to the expression in the late report, which said, “the general public cast advertising to a certain extent, but Xu Yangtian bone crevices are eaten, marketing cost control is 70% cheaper than peers”.
According to the analysis of the above-mentioned people, SHEIN’s customer acquisition costs are higher than those of competitors, probably because SHEIN adopts a strategy of through-put, “SHEIN simple coarse selection of a few indicators will start the full amount of placement, not how to calculate the fine account.” In addition, SHEIN’s customer unit price, conversion rate and repurchase rate are all higher than those of competing products, so it can afford higher front-end costs. “SHEIN may even be deliberately raising its offer and pushing up the market price of traffic, such that only SHEIN can afford it, while other competitor ROI has been uneven.”
SHEIN’s core competency, therefore, is not a question of technology, but of strategic choice.
After having its own centralized traffic home, Xu Yangtian began to operate SHEIN truly as an e-commerce platform.
There are two pillars in the operation of an e-commerce platform, one is commodity operation and the other is consumer operation.
SHEIN handed over the commodity operation to the machine.
SHEIN does batch product testing, which is not different from the station group. The difference is that the site group takes its own products and tests them in Google, and can’t keep anything after the test. SHEIN is the first to buy in users, and then test in their own platform, each test, the platform will have more data, become more intelligent.
Batch product testing is actually a very advanced productivity model.
The so-called A/B test of Byte Jump is also another kind of batch product testing. Yang Zhen Yuan, the head of algorithm and data technology of Byte Jump, has disclosed at the technical open day of Volcano Engine that the number of new experiments in a single day of Byte Jump is over 1500, and by the end of March this year, Byte has done 700,000 A/B tests in total.
On June 12, 2021, SHEIN had a total of 4,363 new models, and the previous day the number was 5,105. The models here refer to SPU, if they are SKU caliber, SHEIN may be up to tens of thousands of new models per day. SHEIN defines that as long as one item can be sold every day, the item is considered a success.
The recommendation algorithm is another productivity.
SHEIN is an early adopter of recommendation algorithms in the product stream, and has a recommendation module like You May Also Like. In Shenzhen, SHEIN has a digital intelligence center (AIDC) of several hundred people, one of the main responsibilities of the department is SHEIN’s personalized recommendation algorithm, such a team size, in the head of e-commerce companies is not small. 2019, someone posted on the pulse, seeking offers to compare: Tencent PCG and SHEIN, both algorithm post, how to choose?
SHEIN attaches importance to consumer operations.
Open SHEIN’s APP, there is a special tab called Gals (meaning girls), which is SHEIN’s content community. Gals has an overall style very similar to ins, and its pictures and videos are of high quality.
SHEIN’s 1 point equals $0.01, and you can earn 5-60 points by participating in a Buyer’s Show Contest, and 0-1000 points by winning in an Outfit Event. The so-called Outfit Event is a matching posting game, where players can freely choose clothes from SHEIN platform, drag them to the canvas to match, and decide the winner according to the number of likes and the platform editor’s choice, which is particularly popular in the U.S. This kind of fashion editor-like game is especially popular.
In addition to the front-end app experience, SHEIN has a sizeable customer service team located primarily in Nanjing, Yiwu and the Philippines, and SHEIN is recruiting college students around the world for part-time customer service. “SHEIN’s customer service team has a lot of power, definitely not what you understand in customer service, for example, they will set up a project team specifically for the problem of high logistics shipping costs, to push the supply chain center side to reduce shipping costs”, a person close to SHEIN told me.
In fact, the model of independent station emerged so emerged because some sellers found that it was difficult to sink their private domains by opening stores on Amazon and eBay, so they wanted to make their own websites to close the distance with consumers and let them really stay and become their own customers. However, independent sites are played hard by Chinese cross-border players as second-class e-commerce.
SHEIN’s mindset of doing long term business has returned to the original idea of an independent website.
I believe that the core of defining a company as an Internet company is to have the ability to distribute centralized traffic, otherwise, it is just called a marketing company, or a trading company.
This is also the biggest revelation that Poundland gave us back then.
When Poundland first started out, most people saw it as a social e-commerce company and thought it was decentralized, completely different from the centralized mindset of Ali and Jingdong.
The company is not a social e-commerce company at all, but a serious centralized e-commerce company. All of Pindo’s actions point to directing traffic to its own app. Pindo’s app is a centralized traffic field, its centralization, even more than Taobao. The reason is that Taobao is a shop logic, or a private domain, while Poundland is a core product logic, is suppressed private domain.
To this day, less than 5% of Poundland’s large transaction traffic comes from WeChat friend recommendations.
The company is a social e-commerce company in the true sense of the word, he does not control his own traffic pool, but in the traffic end to build their own multi-level distribution network, in the supply chain end is to use self-operated model, heavy selection, and even some goods also take their own brand model. However, hindsight proves that both are ultimately unproductive, with no real barriers. 2020 saw Yunji’s revenue cut back compared to 2019, and the company on the verge of delisting.
History doesn’t repeat itself, it just rhymes with the same thing.
Today, Lanting’s market cap is only $250 million, which is still less than one percent of SHEIN’s. Guo was once the chief strategy officer of Google China, a title that seems slightly ironic today.
Supply Chain Transformation: Doing Something, Not Doing Anything
Flow and supply chain are the two ends of an e-commerce platform’s flywheel.
Is there a consumer first, and then there are goods? Or are there commodities first, and then consumers? If there is no merchandise, the back end of the customer, conversion, repurchase are not high, it will not be able to bear the cost of front-end placement, the flow will never get up; if there is no flow, there is no supply chain is willing to play with you, the merchandise of more fast and good savings will never be achieved. This first chicken, first egg problem, is an eternal topic around bilateral platforms.
But one thing can be confirmed, SHEIN began to pay attention to the supply chain, far earlier than we thought.
The late article has recounted: before 2014, SHEIN did not have its own supply chain, and in 2014, Xu Yangtian decided to personally go to Guangzhou to make the supply chain up and build his own design team.
However, in a public report about SHEIN in June 2013, SHEIN had already placed its sourcing and processing department in Guangzhou, and had already set up an apparel product team, which included apparel designers and buyers; Xu Yangtian had even taken a stake in the apparel factory. In a press release published on PR Newswire in November of the same year, SHEIN had officially launched its external designer recruitment program, initially offering generous terms: designers would receive a 30% commission. Fifty designers signed up on the same day.
Focus on the supply chain, go deeper into the supply chain, transform the supply chain, this is a correct but useless, only suitable for appearing in the PPT nonsense.
The key question is: how to grasp the strength of the supply chain transformation, which links can be done deeper by themselves, and which can be divided to others?
After all, the supply chain is too long, and core enterprises must do something and not do something.
The essence of the supply chain problem is a problem of top-level design of production relations.
If we look upstream along the goods that consumers see on the app, we will first see a planning team. This team determines the supply of all goods on the platform, for example: how many new SPU’s will be added in total? How many SPUs for each category, how many for the buyer team to go to the market, how many for the designer team to make their own? The designer chain is a bit longer and involves fabric, boarding and production of large quantities. After the consumer orders, the warehouse logistics fulfillment.
SHEIN does not do everything by itself in such a long chain.
SHEIN is not involved in fabric development & production.
This segment is characterized by a high degree of standardization, but if you really want to make flowers, you have to pay a high cost of research and development. This cost, for a fast fashion company, seems to be a bit too high.
Comparing several head listed clothing companies, we can find that Uniqlo is a typical technology-based company whose core staple is fabric. Uniqlo cooperates with fabric suppliers such as Toray, a Japanese synthetic material company, and has launched rocking fleece, HEATECH heated underwear, AIRism breathing quick-drying fabric, etc. It has also set up denim R&D sincerely in the United States.
Uniqlo’s founder and chairman of Xunshin Group Yanai was mentioned in an interview with Business Week earlier this year: “Uniqlo is definitely not a fast fashion garment. UNIQLO wants to do clothing, and always catch up with the trend of fast fashion, the opposite, we want to do is sustainable clothing, our greatest pursuit and ideal, is not to do wear once and then throw away clothing, but can wear a lifetime of clothes.”
Uniqlo’s model is similar to Nifty and Aiki, the fabric is the long video in the field of clothing. Long video pursuit is not a trend, but out of the classic, similar to the basic models of Uniqlo.
Fast fashion companies like SHEIN, on the other hand, are more similar to short videos in the apparel field. SHEIN’s attitude towards fabrics is more fetishistic, which is somewhat similar to that of short video platform users, who take long videos and edit them or create them twice to become short videos.
In a sense, the spiritual nature of fast fashion consumption is even higher than its material nature, even close to the field of cultural creation. If the content of a book is good enough, it seems that there is no need to be overly concerned about the quality of the paper, and a publisher may not need to hold a paper mill of its own.
For the design segment, SHEIN has chosen to take it firmly into its own hands.
As mentioned earlier, SHEIN’s supply chain has two models, one is the buyer model and the other is the designer model.
In the early years, SHEIN’s single volume was small and the buyer model was the main one, but now, the designer model has accounted for more than 50%.
About the size of this mysterious designer force, there is less public information. It is estimated that the scale may reach up to 400 or 500 people, of which about half are own employees and half are external designers who cooperate.
I compared the backgrounds of ZARA and SHEIN designers on Linking, and most of ZARA’s designers graduated from UAL (University of the Arts London), IED (European Institute of Design) and other famous schools, and most of them have more than 10 years of working experience; while SHEIN’s designers graduated from Guangdong Textile Vocational and Technical College, etc. Many of SHEIN’s designers graduated from Guangdong Textile Vocational and Technical College and other types of tertiary schools, and their working experience is only 1-2 years.
The difference behind the talent background is the difference in the production model of the company’s design segment.
Although ZARA is famous for copying models in the industry, the premise of being able to copy models is that the designer should have one foot in the fashion circle and have some understanding of the fashion trends of big brands. Participate in small gatherings and major fashion conferences in the fashion circle. Shein’s designers do not need to do so. They only need to have basic design skills and sit in a cubicle in an office building in Guangzhou, where a freshly graduated design student can immediately get to work.
It is estimated that the productivity of a SHEIN designer is probably 2-3 times higher than that of a ZARA designer. The labor cost and travel cost are significantly lower than ZARA.
The premise of this model is SHEIN’s IT system for designers. SHEIN’s intelligence gathering system makes full use of Google Trends Finder and web crawler tools to keep track of emerging trends and all new products of competing products in real time. SHEIN’s design assistance system, on the other hand, SaaS the designer’s design work online. SHEIN’s designers draw online within a scope that has been framed by the company, which may include fabrics, accessories, etc., and may even include patterns.
It can be said that ZARA’s design is distributed, each designer needs to collect intelligence, process the intelligence and design products; while SHEIN’s design is centralized, SHEIN has centralized the intelligence collection and centralized the designers.
This play style is similar to Jitterbug. Jitterbug gives users a rich design of fabrics and templates (such as: Jitterbug early lip-synching, and a variety of special effects to play with the camera, etc.), the user as a short video “designer”, only need to add a little bit of their own creation can, which greatly reduces the cost of user creation.
It can be said that in this aspect of design, most companies are still in the stage of 18th century craftsmen, while SHEIN has entered the industrial era.
- Mass production
Mass production is the core of the so-called flexible supply chain, in which SHEIN has the most delicate scale.
The concept of the so-called flexible supply chain is actually a pseudo-proposition if we look into it. China’s apparel supply chain is flexible from the beginning. The most flexible is the small workshop in its natural state, and the extreme of flexibility may be the fully customized tailor store. Rigidity, instead, is a product of the industrialization era.
The garment industry and the automobile industry can be considered as the two most typical representatives of “flexibility” and “rigidity”. The former is labor-intensive, with low barriers to entry and frequent changes in demand, so it is suitable for the organization of small workshops; the latter is capital-intensive, with high barriers to entry and little change in demand, so it is suitable for the organization of large Taylor factories, with mass production and scale effect.
Workers in small workshops are not real employees, they are paid by the piece, no minimum wage, often do not pay social security, their relationship with the small workshop owner is more like a market partnership than an employment relationship. In contrast, workers in large factories often have a minimum wage, and the factories pay social security for them, which is an organizational relationship.
According to transaction cost theory, the stable exclusive use of assets determines, to some extent, whether the market or the organization is the choice.
The biggest characteristic of the apparel industry is that it is less necessary to invest in any fixed assets for an additional SKU. Take the difference between clothes and shoes as an example, clothes only need to make a plate, not a mold, and the cost of making a plate is only $500, while a pair of shoes needs to be molded, and the cost of opening the mold starts at least $10,000. If it is a capital and technology-intensive goods such as cars, each SKU may have to be on a new assembly line, with fixed costs of up to several billion yuan.
In the case of high fixed investment, it is inevitable that the flexible supply chain of small single fast reverse, so there is no fast fashion for cars, and the number of SKUs for shoes is much smaller compared to clothes. This is a simple matter of accounting.
The characteristics of the apparel industry, so that its natural industry ecology is small workshop type. Small workshops are naturally flexible supply chains. Even some listed companies, due to the requirements of human rights protection, seem to cooperate with a certain formal factory as a supplier, but in actual operation, they may be subcontracted to small workshops at different levels.
Although they have the advantage of flexibility, small workshops have some natural disadvantages.
First, the operation of small workshops is very unstable and may close down at any time, which also affects the stability of the supply chain itself.
Second, the management cost of managing small workshops on a large scale is very high, and management itself is a matter of negative scale effect.
Thirdly, although the fixed cost is much lower than the factory model, there is still a fixed transaction cost between the small workshop and the brand. The small workshop starts with high-customized goods such as wedding dresses, and for low-customized fast-fashion apparel, the revenue per order may not cover the transaction cost.
In response to these shortcomings, SHEIN has broken them one by one.
In order to solve the problem of unstable small workshop operations, SHEIN has made the billing period the shortest in the industry, a practice that is considered generous in the apparel industry. Some brands in the industry may owe their suppliers up to one year, and many suppliers have been dragged to death.
SHEIN will also support their own factories, as mentioned in the interface news report: “Some factories it is too small, how do we go about it? We lend him money to buy equipment and plants.”
It is through these practices that SHEIN has gained a group of die-hard suppliers. It can be said that although suppliers are not on its balance sheet, they are SHEIN’s core asset.
Geographic proximity and IT system maturity determine the efficiency and transparency of information transfer; the efficiency and transparency of information transfer determine the level of administrative and transaction costs.
SHEIN has located its office in the center of the small workshops, and what is happening in the small workshops can be clearly known by having a meal.
Within 500 meters of SHEIN’s headquarters, there are nearly 50 garment factories, large and small, located
SHEIN has also set up an MES system to achieve penetrating process management of factories and workers.
In SHEIN’s recruitment revelation, this is how to describe the duties of the MES system developer: “Using the MES system developed by our company for our partner garment factories as a tool, help our production department to export management processes and rules and concepts to the garment factories.” In addition, the duties of SHEIN’s order followers include “teaching suppliers how to use the platform and participate deeply in our operation management.” Such content.
The relationship between SHEIN and its partner factories is definitely not just a simple market partnership, but a half-market, half-organization model.
When you use someone else’s system, there are basically no more trade secrets to speak of.
The factories SHEIN cooperates with are small workshops, which generally do not have their own systems, and SHEIN’s MES is their only system, so to a certain extent it also ensures the accuracy of information.
I opened SHEIN’s MES backend login screen and found that half of the page was occupied by “Have you clocked in today?”
The login page of SHEIN’s MES back office with a picture
Previously, small workshops usually did not punch cards, after all, they were paid piece-rate, so they could just get the job done, but SHEIN requires its partner factories’ workers to punch cards. This picture vividly illustrates SHEIN’s transformative power over its partner factories.
Some media also reported that “SHEIN workers are paid on a piece-rate daily basis, scan QR codes to record daily work progress, and receive their wages uniformly through SHEIN’s supply chain management software.” If this is the case, SHEIN goes even beyond the information flow and achieves penetrating management of workers in the money flow as well. However, this information has not yet been cross-confirmed.
Faced with the challenge of revenue per order not covering transaction costs, SHEIN’s special geographic location, on the one hand, reduces the cost of sending samples, following orders, quality control, and a host of other things that require reliance on physical entities, and on the other hand, for the parts that do not require physical entities, SHEIN goes directly and completely online.
Traditionally, which order is produced by which supplier is decided by the purchasing human, which is not only inefficient, but also prone to corruption, SHEIN’s approach is to completely Uberize the process of order distribution, after the order is released, the platform automatically dispatched orders or suppliers online to grab orders, behind the algorithm algorithm decision, so the transaction costs of the process can be reduced to nearly zero.
Facing the small workshops born and raised in China, SHEIN does not abandon them and start a new business. Instead, SHEIN has taken full advantage of its flexibility and solved the shortcomings of small workshops by means of information transformation.
In fact, there have been two schools of thought on the transformation of China’s apparel supply chain. Their purpose is the same, both are to solve the contradiction between large-scale and personalization.
SHEIN is a way to do reform on top of the established foundation, while unlike SHEIN, Alibaba’s Rhinoceros Smart tries to use AI to solve the contradiction between large-scale and personalization, trying to directly disrupt the whole industry. Previously, ByteDance has proven in the digital world that it is feasible to use AI to solve the problem of mass personalized distribution of information.
Rhino is essentially a large self-owned factory prototype that uses AI for pre-production scheduling, production scheduling, and hanging routes to improve productivity and achieve flexible production.
However, the productivity increase of a few hours in a district is backed by an exponential cost increase. “Rhino factory fixed costs are too high, so many hanging, and robots and other equipment, if you really spread to each piece of clothing, never hit the ground running”, a friend who is a supply chain told me that he had gone on a field trip to the Rhino factory. Unlike the digital world, the basic elements of the physical world is impossible to exhaust, and even if it can be exhausted, each of its adjustments is also costly.
- Warehousing and logistics
Warehouse logistics link, SHEIN than the general platform to do deeper, earlier.
SHEIN is the earliest on the overseas warehouse.
SHEIN’s overseas warehouse is mainly used as a return warehouse, not as a stocking warehouse. The reason is that SHEIN sells mainly fast fashion goods with many SKUs, so each piece is stocked overseas, which takes up huge inventory costs, and the demand for fast fashion is unstable, so if the goods are stocked out in advance, it is easy to run out of stock. This raises the logistics cost and affects the user experience.
However, the return rate of clothing, especially fast fashion industry, is very high, which may be as high as 20-25%. With the return warehouse, the returned goods can be sold twice after secondary ironing, packaging change, disinfection and other preparation operations, thus reducing the cost of goods loss.
SHEIN’s return conditions are particularly generous, 45 days to return, the first single free postage, compared to competing products, generally within 7 days to return. shein will even return policy in the home page in an obvious position as a selling point marked out. The bottom line behind this is precisely because of SHEIN’s over-the-top layout in overseas return warehouses.
The lenient return conditions, in turn, make consumers willing to buy multiple pieces at once, raising the customer unit price. Currently, SHEIN’s average unit price is close to $100, and even exceeds $150 in regions such as the Middle East. Generally speaking, merchants will maintain logistics costs at about 20% of the price of the goods, and with high customer unit prices, SHEIN can naturally use the most expensive logistics. Mainly commercial express and some special line products, very rarely use postal products.
SHEIN uses the time saved in logistics to produce.
The most extreme small orders are actually produced according to orders, and many of SHEIN’s orders are actually oversold, although they are marked as in stock, but behind the scenes they are produced on demand after the orders come in.
The overseas warehouse allows SHEIN to dare to do returns, the relaxed return conditions to improve SHEIN’s customer unit price, high customer unit price allows SHEIN to use the most expensive logistics, the most expensive logistics to save time, so SHEIN can do real on-demand production. This is really a wonderful chain of events.
As I write this, I feel more and more that such an interlocking business model requires very holistic and long-term thinking and planning, and its complexity is far beyond the average person’s imagination. What kind of organization is behind all this? What kind of person is it? What kind of management philosophy, mechanism and culture does this organization and people have?
SHEIN’s management philosophy, mechanism and culture
There are different comments about Yangtian Xu.
Some people say that Yangtian Xu is very low-key, walking around inside the company, you would think that this guy is just a research and development, you can’t tell he is the boss. Outside the company, Xu Yangtian never shows up, and when he comes across articles about himself, his first reaction is to delete them.
Some people say that Yangtian Xu is very authoritarian, SHEIN is a typical top down type of company. He would directly ask the PM who did the live broadcast on the corporate weibo, how did the product do?
It is entirely possible that these two different descriptions are the same person.
SHEIN’s employees, in the eyes of some larger, Internet companies that promote bottom up, are a bit like screws.
“SHEIN is a bit like a factory, very few people have options, management feels that you go and go. A lot of people do jobs that are really alternative, and the middle and upper management will break things down to a fine point.” I was told this.
I looked at SHEIN’s job site, which does have a very fine division of labor, with no less than 300 de-emphasized positions. SHEIN also has a lot of project managers and PMOs in the organization, which requires someone to coordinate the division of labor. shein also has SOPs for some departments that seem less standardized, such as reddit operations, which further reduces the requirements for people.
Unlike Ali, SHEIN is a typical process management company. In this respect, SHEIN can be grouped with Jindo and Shopee. The reason why process management is used is that all three companies have a very fine division of labor. With too fine a division of labor, it does not make any sense to manage only the results, because a result is often influenced by many processes together and is difficult to attribute.
In Ali, to do something is most often asked: you do this thing, what is the value behind? Is the result measurable? This leads to a very logical, very result-oriented approach for everyone in Ali, but the overemphasis on local results and the repeated pull between teams also reduces the overall efficiency of the company.
And in SHEIN, to do something, the first thing people in the cooperation department think of by default is to cooperate, rather than questioning the logic behind it. It’s obviously more important to listen than to get results. SHEIN does not pay much attention to the KPI assessment of employees, the performance and promotion at the end of the year mainly depends on the boss, the boss is mainly looking at whether you work hard.
Implementation, it seems to have become the most important corporate culture of this company.
SHEIN’s official values are 5: customer first, full commitment, quick response, learning and innovation, and integration and collaboration.
SHEIN’s culture seems to be more pragmatic, unlike Ali, which has that here and now, it’s not my business.
In one of SHEIN’s corporate culture questionnaires circulating online, there is a judgment question: When a problem arises at work, we face this problem, we have to take the initiative to take responsibility, talk about responsibility first, then solve the problem. The correct answer is: wrong.
What also impressed me in this questionnaire was: “Before making decisions, actively express constructive opinions and fully participate in team discussions; after making decisions, we must fully support them in word and deed, regardless of whether individuals have objections or not”.
This kind of calm and pragmatic company culture is highly universal and may help a company succeed in different cultures and in different fields.
Another company that is known for its pragmatism is ByteDance. SHEIN not only distributes information and goods, but also distributes productivity, which is the consumer Internet + industrial Internet.
Such a complex chain may really need a stronger top-level design and ensure that the execution is not deformed. Essentially, SHEIN is an efficiency machine, not an innovation machine. Efficiency companies such as Poundland and Shopee are generally top down; innovative companies such as Nifty are less likely to need planning and more emphasis on bottom up, which is the difference between innovation vs. standardization.
Xu Yangtian himself is very strategic, the company’s people evaluate him: good at long-term thinking, and open minded. the company’s number two person Miao Miao, Xu’s early founding team members, deeply trusted, she is more people-oriented, but also very focused on micro-management, and even a little tough, “if Xu Yangtian is SHEIN’s Huang Zheng, she is a little bit If Xu Yangtian is SHEIN’s Huang Zheng, she is a bit like SHEIN’s Abu” – a person close to SHEIN told me this.
The development of the past 10 years has partially proved the effectiveness of SHEIN’s model, and we will see where the 1984-born Xu Yangtian will lead SHEIN’s ship to in the future.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/shein-the-triumph-of-long-termism/
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