- [Narrator] Over the past few years, one Chinese company has thrived in the online fast fashion industry reaching a valuation of 66
billion dollars in 2023, and controlling 40% of the U.S. market. It's- - Shein.
- Shein. - I say Shein. - It's Shein.
- Shein is known for $2 T-shirts and $7 pants with prices even lower
than its competitors. Shein made its U.S debut in 2015, and the brand's sales exploded during the pandemic growing
sixfold in two years. The company generated an estimated 23 billion dollars in revenue in 2022. And its filed to go public in the U.S. - Shein takes fast fashion
to a different level, and they're on top of every micro trend. - [Narrator] But there's a larger story behind Shein's low prices. A congressional report
found that Shein uses a tax exemption to cut costs, and the company released a report that cited cases of involuntary
labor in its supply chain. This is the economics of Shein. Scrolling through Shein's
website can feel endless. - We offer thousands of new items per day. - [Narrator] But Shein
only initially produces 100 to 200 units of each new product. - Shein's designs originate
with Shein designers and with our Shein X
third-party designers. - [Narrator] As customers
browse those designs, Shein has technology that monitors user engagement activity. When a customer shows interest in an item by hovering over it, clicking on it, or adding it to their
cart, Shein takes note, then it creates new designs based on data from popular items. This way, the retailer can test how popular an item is with its customers. If it does well, Shein
starts producing more. - This differs from traditional retail where orders can often
be placed in the 10,000 to 100,000 copies of a garment and can be placed between three
and six months in advance. - [Narrator] And while it's
fast at creating new designs, it's also quick to go through them. A Boston Consulting group report found that Shein has an inventory
turnover rate of 40 days. That same report found that Shein is twice as fast as other competitor
retailers like H&M and Zara. - The small batch model is a
matter of controlling the cost and controlling the inventory wastage so that they won't have
a large number of clothes that are sitting unsold in
their warehouses in China or in the U.S. or anywhere
else in the world. - [Narrator] The company
calls this an on-demand model, and to support this on-demand model and lower prices, Shein hires thousands of
smaller manufacturers. It took the journal to film in one of its third-party
supplier factories in Dongguan. - Our designers will
identify an item, design it, prepare a spec for it, and then they'll put it into
our supplier management system, which will identify a
contract manufacturer. That contract manufacturer
will procure the supplies necessary to produce that garment from a network of suppliers
that Sheen has approved. - [Narrator] If a design is popular, Shein's ordering platform can automatically place another order with its platform working in real time. - They're able to see as
demand for a particular product is either waxing or
waning in the marketplace so they can adjust their
operations accordingly. And this concentration of information allows our suppliers to efficiently structure
their own business to be able to meet
demand at near real time. - [Narrator] By ordering
in smaller batches. Shein says it can reduce the risk of excess unsold inventory. - It means that we don't
carry excess inventory waste when we produce garments. That saves around 30 to
40% in cost of goods sold on the garments alone. - [Narrator] But while less
inventory waste in the factory may lower prices for consumers, environmental activists say it might not lead to lower
waste levels overall. - [Shen Lu] Critics are saying that because Shein's clothing is so cheap, people are buying a lot of it. And because fashion conscious young people may retire some of their Shein quicker than other more expensive clothing that actually may cost inventory wastage after the consumption happened. - Oh my goodness, there's so much. - [Narrator] A 2023 UBS report found that the average U.S. Shein shopper reported spending $100 per
month on women's clothing. That's about 60% more than the
average U.S. female consumer and critics argue that
there's even more behind how the brand is able to keep prices low. - Retailer Shein is in
hot water once again. - Shein has faced
accusations of worker abuse. - The brand has recently come under fire. - Shein's on demand business model is not the only reason why
its products are so cheap. It's also benefiting from
cheap labor in China. - Shein has not been fully transparent about its supply chains. In 2022, Shein released the results of its supplier audits, but unlike some other retailers, Shein didn't disclose who its suppliers were or
where they were located. The audits reported some incidents that involve what the company
calls involuntary labor, but didn't mention exactly how many or where these incidents occurred. The Wall Street Journal's calculations found that these audits
accounted for about 36% of Shein's contracted manufacturers. The company said in a statement
to the Wall Street Journal, "Shein is committed to providing a safe and fair work environment for all our suppliers employees. We pay manufacturing
suppliers competitive rates so they can pay fair
wages to their workers." Shein says it's committed
about $70 million towards improving supplier
factory conditions and training workers. Congress is investigating
Shein's labor practices and whether the company sources cotton from China's Xinjiang region. The U.S. government has
accused Chinese authorities of using forced Muslim Uyghur
labor, which Beijing denies. - Some U.S. lawmakers have pushed Shein to be more transparent
about their supply chain. - [Narrator] In a statement to WSJ, the company says it has zero
tolerance for forced labor, does not have contract
manufacturers in Xinjiang and doesn't source cotton from China. Fashion Analysts say Shein hasn't provided evidence to back up these statements including a list of its suppliers, which goes against industry standard. And in addition to its on-demand model and low labor costs, Shein also keeps prices low by taking advantage of
a U.S. tax exemption, which allows low-valued packages to enter the U.S. tariff-free. Under the de minimis tax rule, shipments sent to individual
buyers in the U.S. aren't subject to tariffs if
they're worth less than $800. According to a report from the U.S. House of Representatives, 30% of all packages shipped
to the United States each day under the de minimis rule are
from Shein and its rival Temu. Between the two companies, that adds up to millions of packages. Shein says that it supports reforming the de minimis exemption. Meanwhile, the valuation has fallen. The company's $100
billion valuation in 2022 dropped by a third in a fundraising
round earlier this year, and Temu, which launched last September, overtook a larger share of
the U.S. market last June. Recently, Shein has tried
to improve its image through social media amidst environmental and labor criticisms, but with limited success. Shein brought a group of influencers to tour factories in China. - [Shen Lu] The tour
didn't really help address a lot of the criticisms that
people have about Shein. - [Narrator] The company has
also moved its headquarters from Nanjing China to Singapore. Shein is also trying to
diversify its supply chain outside of China. With this move, Shein is also adding new
manufacturers in other countries. Although the majority
of Shein's supply chain is still in China, the company promised
to invest $150 million to train 2000 Brazilian manufacturers over the next three years. And Shein has recently
partnered with Forever 21 and acquired roughly one third of the fashion brand's
operator, Spark Group. - Shein has in recent months, been trying to pivot
to a marketplace model, which allows third-party sellers to sell products directly to consumers as Shein expands globally and is trying to capture more
of market share in the U.S. and in other countries around the world. (upbeat music)