Why Shein Isn’t Sweating De Minimis Reform
The biggest thing that Peter Pernot-Day wants people to know about Shein—pronounced “she-in” and a contraction of SheInside”—is that the e-tail juggernaut is most decidedly not a fast-fashion brand.
“I often take issue with the designation,” the Singapore-headquartered firm’s head of strategic communication said at Sourcing Journal’s Fall Summit in New York City last week. “We’re much more of a test-and-learn model that I think is somewhat unique and innovative in the broader space.”
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Speaking with managing and technology editor Jessica Binns, Pernot-Day said that the Chinese-founded company wants to be clear about what it is and what it isn’t. What it is, he said, is a “digital-first retailer that does on-demand fashion.” And what it isn’t is “something that is involved in massive overproduction and the destruction of unused garments.”
While he didn’t dispute the fact that Shein manifests 6,000 new items every day, resulting in a total of 600,000 on its platform at any one time, Pernot-Day said that the company makes, on average, just 100 copies of a particular garment “for the entire world.” It’s through this tack, he noted, that the Forever 21 stakeholder is able to minimize inventory waste from the occasional duds that no one wants to buy.
“What we’re doing is we’re offering our customers a wide selection of potential designs,” he said. “If those designs resonate, and we detect what we call a ‘demand signal,’ that information is communicated back in near real-time to our fully digital-first supply chain, and suppliers, usually small and medium-sized producers who have the capacity and capability of meeting that order, will take it up and do a larger product [run].”
Not that there’s anything wrong with overconsumption, suggested Pernot-Day, who until recently was Shein’s head of strategy and corporate affairs and, before that, its chief privacy officer and deputy general counsel.
“I don’t know that overconsumption itself is something that should necessarily be prohibited,” he said after Binns asked if its ultralow prices—think $10 tops, $12 dresses and $20 boots—are fueling impulse buys that have become so routine that they have their own TikTok hashtag: #sheinhaul.
He allowed, however, that there is a “need” to shift consumer behavior, which is something the new Missguided owner is trying to do through Shein Exchange, a resale platform with more than 3.5 million users to date.
“To us, our view is let’s find ways to make [fashion] more circular, less carbon-intensive but still allow the individual to self-express through their clothing—and to have the option to do so at an accessible price point,” Pernot-Day said, noting that so-called “sustainable” fashion is often unattainably priced and that many of the latter’s consumers are its consumers, too. “So our vision is to make clothing that’s both sustainable and accessible.”
One attendee quipped to a reporter that they felt like they were being gaslit throughout the conversation, which lasted just over 20 minutes. “The math isn’t mathing,” this person said.
To be sure, Shein’s legion of critics insist that the fashion phenom’s meteoric rise has come at a cost: to the environment, to the workers who make its clothes, to the independent artists whose work it’s accused of stealing.
Investigations by news organizations and NGOs have panned the company for what they have described as dangerous and exploitative conditions. A Racketeer Influenced and Corrupt Organizations Act a.k.a. RICO lawsuit that accused the Temu nemesis in July of “criminal” activity due to the company’s alleged copyright infringement, just added more plaintiffs. Greenpeace and others have slated the company for making clothes with levels of hazardous substances, such as lead, that exceed regulatory limits. And despite Shein’s PR-friendly partnerships with the likes of Queen of Raw and The Or Foundation to grapple with its use of virgin, mostly fossil-fuel-based materials at both the start and end of their lives, its detractors say that these efforts don’t change what is essentially an extractive business model built on excessive demand and equally excessive supply.
And Shein’s manufacturing footprint, which has expanded beyond China to encompass Brazil, Turkey and potentially Mexico, is only growing with what Pernot-Day calls its “localization” strategy, particularly as it takes on Amazon, Alibaba—and yes, Temu—with its sell-everything slant.
“Our strategy going into 2024 is… building up production capabilities, logistics capabilities, management capabilities and marketing capabilities in our core markets,” he said. “It’s much more cost-efficient to produce garments for sale in Brazil in Brazil; it’s much more cost-efficient to produce garments for sale in the European Union in Turkey.”
To ensure it has visibility into its lengthening supply chain, the self-proclaimed “empowerment company” is relying on a “very rigorous” audit program. In 2022, it conducted 2,800 audits. This year, it’s hoping to reach 3,600 audits. Still, supplier compliance has been more miss than hit. In its latest ESG report, Shein said that 82 percent of the factories audited last year required corrective action for violations such as insufficient emergency exits, signs of structural damage, non-payment of minimum wages, underage labor and involuntary labor.
“We’ve…thought a lot about how do you create incentives to drive change,” Pernot-Day said. “And what we’ve come up with are some economic incentives. We provide social responsibility scores for all of our suppliers; suppliers who score high will get better orders. And that helps encourage, in our view, an ecosystem-wide change.”
In the United States, which one in 10 Shein customers calls home, investment in distribution centers and logistics management is also continuing apace—including hiring former Amazon and Alibaba supply chain whiz Wei Andy Huang last month to head up U.S. fulfillment and logistics, according to his LinkedIn profile, news first reported by The Information.
A Shein spokesperson said Huang’s “expertise as a leader in supply chain and logistics will be instrumental in helping us to provide American customers the best possible shopping experience as we continue to grow in the U.S.”
Shein’s U.S. supply chain investments come despite the increasing weight of congressional scrutiny over Shein’s potential ties to forced labor in China’s Xinjiang Uyghur Autonomous Region, as well as its use of the de minimis provision in customs law to purportedly skirt duties, taxes or fees to the U.S. government, as well as any additional oversight.
In the case of the first, Shein says that it no longer sources cotton from China and that it regularly sends samples to forensic traceability firm Oritain in New Zealand to confirm their point of origin. To rebut the second, it says it’s backing reform.
“We do think that it’s appropriate to try to reform the law, and particularly to equip Customs and Border Protection with the capability and capacity to police imported goods for forced labor,” Pernot-Day said.
He said he wanted to put to bed a common misconception: that Shein is able to offer such competitive pricing because it takes advantage of the de minimis exception.
“Our competitiveness comes from the fact that we have extremely low inventory waste, in many cases below 1 percent, and this almost sell-through-like nature of our business,” Pernot-Day said. “It’s technology enablement, it’s [the] use of machine learning and very efficient production capabilities.”
If de minimis was to one day go away, Shein will still be able to compete on price, he said.
Pernot-Day said that Shein is aware of its naysayers—and that their criticism is, for the most part, fair.
“I mean, we are a major player; we are a disrupter,” he said. “We’ve emerged on the scene to challenge some traditional retailers. It’s a challenge with new business models and ways of doing it. I think it’s appropriate that we’re asked questions about our business.”
What he thinks is unfair, however, is that the IPO aspirant—Bloomberg reported Tuesday that it’s seeking a $90 billion valuation—is accused of doing things that “we’re not alone in doing,” which is where his role as a strategist comes into play.
“So I come to events like this; we try to be more transparent and try to answer questions honestly and candidly about our business,” Pernot-Day said. “And I think that’s really a critical part of our journey as a company right now. We didn’t do a great job of shining when we were younger. And now that we’re a little bit more mature as a business, I think it’s time for us to be open and honest about who we are and where we stand.”
The materials science challenge of producing products made with more of these “circular” materials at scale, while ensuring their durability through multiple washes and a range of uses, is one that Shein embraces, he added.
“My two-year-old daughter loves Shein; she destroys that stuff,” Pernot-Day said. “So it’s got to be tough enough to put up with her.”
