Shein is the great disruptor of the fashion industry in recent years. However, little is known about his business. Only that its business valuation reached 64,000 million dollars after its last round of financing, that it sells in 150 countries and that its workforce reaches 16,000 people, 10% that of Inditex. It is speculated that its income has already exceeded that of the Galician giant, but Shein, based today in Singapore after being born in China, and which only operates in the online channel, does not share its financial information. In its focus is an imminent IPO, while it is discussed whether its supply chain complies with minimum labor rights. Its head of strategic and corporate affairs for North America and Europe, Peter Pernot-Day, does not go beyond “speculation.”
Ask. How do you define Shein’s business model, its operation and its impact on the fashion industry?
Answer. Our vision is to make fashion accessible to everyone. The principles behind that idea have led to the creation of something that is unique in the sector. A model that allows us to make between 100 and 200 copies of a garment in an initial phase, put them up for sale on our website and check the interest they arouse among our customers. Only when we detect that this happens, we manufacture them. This allows us to offer a wide variety of clothing at an affordable price.
Q. They are not the first to offer clothing at low prices.
RBut our innovation solves a problem in retail. Everyone wants to put the consumer at the center, make sure they like their clothes… Our model truly allows customers to choose what they want to wear. They are not limited to a specific design or a capsule collection. For us, that has changed the industry. Another point is that the expense associated with production is reduced by making those few copies and not manufacturing more until we know what is going to sell. We are able to significantly reduce the associated expense. Some estimate that excess inventory in the industry is between 20% and 30% of the total. We are significantly below. It is another point that we are changing with respect to traditional retail.
Q. They are a Chinese company, but they moved to Singapore. Why did they make that move?
R. We have a model that tends to localize. We are present in 20 countries, and delegations in key markets: in North America, in Latin America, especially in Brazil, and in Europe, mainly in Dublin and Poland. Having those local teams allows us to reach a larger customer base. We mainly sell outside of China. And I think the move to Singapore was a logical step in orchestrating that strategy.
Q. Not much is known about its founder, Sky Xu. There are hardly any photographs of him.
R. He is one of the four founders of the company and the current CEO. He is closely involved in the day-to-day operations, vision and strategic direction of the company. He is a visionary leader in his contribution to retail, especially in the concept of an on-demand model.
Q. We also don’t know much about the company’s figures. Why are they not public?
R. We are a private, unlisted company, and that is why we do not detail the figures.
Q. Many private companies publish their financial results.
R. Our position is to comply with all laws, regulations and requirements asked of us.. If there is a legal requirement to detail our information, we will follow it to the letter. An example is our subsidiary in the United Kingdom, whose accounts we publish. (Shein UK reached turnover of £1.55 billion in 2023)
We are a private, unlisted company, and that is why we do not detail our financial figures.
Peter Pernot-Day
Q. Its profits are estimated at 2,000 million dollars and 45,000 million in merchandise sold. Are they correct numbers?
R. I can’t confirm it.
Q. Then your company’s figures are left in the hands of third-party estimates.
R. As I say, we are committed to being transparent where the law requires us to. There are many ways to run a company, and the one we have chosen is to be transparent where we need to be, but we are not going to reveal anything about our current financial situation.
Q. Do you think Shein is a transparent company?
R. We like to talk about our business, be open and accessible to governments, civil society and the press. I think transparency is a somewhat subjective term. We think we are very transparent. Others may not agree. It depends on the perspective. We comply with all transparency, governance and publishing standards that are applicable to private companies. If the law requires it, we disclose. We have done a tremendous job of being transparent. No company is 100%. Apple is never going to tell you what new product they are going to develop.
Transparency is a somewhat subjective term. Apple is never going to tell you what new product they are going to develop
Peter Pernot-Day
Q. Is the company prepared to share all the information required of a listed company?
R. Shein has robust governance and accounting, as well as controls over its leadership. We have an international management team with decades of experience. I can’t comment on whether or not we will go public. I trust my colleagues a lot.
Q. Will they be listed on the London Stock Exchange?
R. I cannot comment on speculation.
Q. It is public that they have registered the documents to do so.
R. I know this information, but I cannot confirm or deny it.
Q. It has been reported that US regulators did not authorize them to be listed in New York for alleged problems with labor abuses. In the United Kingdom there are similar concerns.
R. I can’t comment, because I can’t confirm if there is a process. I would say that any multinational of our size and scale must be scrutinized, whether by governments, regulators, or media, or clients. We are open and prepared to answer those questions. I don’t think it’s inappropriate to receive them.
Q. What are relations with the Chinese Government like? It is said that he did not like his move to Singapore.
R. We are a company based in Singapore and we have government relations teams in the large areas where we operate. Our main focus is to build our business and deliver the products to customers. I cannot give further details about conversations with any government agency.
Q. Will they go public sooner or later?
R. Again, I can’t comment. I would tell you that, if we did this process, the main driver would be to improve transparency as we have been asked to do. Those types of demands made to us would be resolved. If the company decided to do so, it would be one of the benefits.
Q. Are concerns about labor practices in China justified?
R. In our sustainability report we include details about audits, analysis, where we fell short, and that says a lot about our commitment to ensuring there are no labor abuses in our supply chain. We have a zero tolerance policy, and if there are cases, we disclose them and take action. We work to make the supply chain pleasant for all workers. That means paying wages, making facilities safe, or making sure there is no child labor or abuse.
Q. How many suppliers do you have?
R. 5,800. Mostly micro, small and medium-sized companies. Part of the success of our on-demand model is in these types of companies. Attracting them to our supply model has been very transformative
Q. They have been involved in purchasing cotton from areas of China, such as Xinjiang, where labor abuses have occurred. Do you buy cotton from that area?
R. I think the person who can best answer that question is a company called Ortain (dedicated to verifying the origin of cotton), with which we work, and which would explain our cotton program.
Q. Does selling an evening dress for 15 euros generate a margin?
R. The company is profitable. We have shown that there are many inefficiencies in the traditional retail model that can be solved with technology. And there it is the clients who win. One of the big misconceptions about our business is that we sell cheap thanks to volumes. No. We achieve economies of scale through cost efficiencies, such as avoiding excess stock, or through purely online sales. Physical stores have many advantages, but they can also be very expensive. We save by avoiding these costs, and that is how we set prices.
Q. Do you consider having physical stores?
R. Not at this time. We will continue with the experience of ephemeral stores, and I do not see them becoming permanent.
Q. They have been accused of copying designs. Do you have a problem at that point?
R. We take the protection of intellectual property rights seriously. The controls we have introduced include a team in California and China that reviews products to ensure they do not infringe other intellectual rights. They rely on an artificial intelligence platform that scans images and compares them. Even customers can alert us that a product may be a copy.
Physical stores have many advantages, but they can also be very expensive.
Peter Pernot-Day
Q. Now you are the ones who accuse Temu of copying you.
R. Shein and Temu have a dispute in the US. We filed a lawsuit and are awaiting a court date. I can’t make any more comments.
Q.What role does Spain have in your business?
R. It is a very important market. It is dynamic and competitive. And very talented. We have 148 Spanish designers on our platform for creatives.
Q. Spain is the first European country where they have opened their marketplace to local brands. Does that mean it is your main market on the continent?
R. It’s in the top 3. I can’t be more specific.
Q. Do you contemplate investments here, for example, at a logistical level?
R. I cannot speak about logistical investments, because they are decisions that are announced when they are made. In direct investment, I can say that in Spain we have a team that is growing, we have allies in last mile delivery, in logistics centers that process deliveries and returns. All of this is benefits for the country’s economy. We don’t give investment figures, but we see many opportunities in Spain, and I expect more to come as we grow our business here.
