Every few minutes a newly finished garment is added to mounds of leopard-print skirts, winter coats and polyester fluorescent tank tops in a factory in Panyu, southern China. Each has been made at the behest of a single retailer: Shein.
The scene is repeated in thousands of workshops in Panyu’s garment-making district, the heart of Shein’s retail empire. Garments from each teetering pile will go to one of its nearby warehouses, then by truck to a Guangzhou airport and on to a cargo flight. Soon a distribution network thousands of miles away in Europe or the US will fulfil an online order by whisking the clothes to a young shopper’s doorstep.
Speed is of the essence. “It’s never easy dealing with Shein orders. We have to finish within seven days, which means we often have to work overtime,” said a factory manager supervising a largely female workforce.
Shein’s control of this process — seen in visits to eight factories and other facilities, and explained in talks with merchants, supply chain experts and employees — has made it one of the world’s hottest retailers. The China-founded group made more than $2bn in profits for 2023 and registered sales of $45bn on its website. It is working on plans for an initial public offering in the UK, having been valued at $66bn in its latest funding round.
But pressure is mounting on Shein — and on its business model.
While the retailer does not sell in China and relocated its headquarters from China to Singapore in 2021, it still needs to have any IPO approved by Beijing regulators, who are unhappy with the company’s move to “de-Chinafy” itself, according to people familiar with the matter.
Meanwhile Temu, a well-funded retail rival owned by China’s PDD Group ecommerce giant, has unleashed a marketing blitz and aped Shein’s methods, even poaching suppliers in Panyu. More than local rivalry is at stake for Shein, which has pitched its “special relationship” with manufacturers as a competitive advantage.
Last Friday the Biden administration moved to close a trade loophole that had supercharged Shein’s growth by allowing its packages into the US free of customs duties, presenting a new challenge to the company.
“Shein created a whole new model for retail and an entire new supply chain to make that model successful,” said Brittain Ladd, a US supply chain consultant. Now, Temu is “leveraging the efficiency gains that Shein has given the supply chain”, he said, while Shein itself tries to diversify its business outside of female fashion.
“This is a pivotal moment for the company,” he said.
Today, the central hub of Panyu has become known as “Shein village”. But before Shein’s founder Sky Xu set up there, factories in Panyu predominantly worked for international fashion groups, handling big orders with lead times of up to a year from design to shop floor.
Xu had to persuade the factories to adopt his model of low batch ordering: first making 100 pieces of a new item, then increasing volumes only if it sold well on Shein’s website. “When Shein first arrived, no one wanted to work with them because the orders were too small,” said one factory manager.
But Shein got them onside with better payment terms. From an industry standard of 90 days, some started to get paid in as little as one week, according to the suppliers, while Shein’s surging volumes gave Panyu’s suppliers confidence.
And with gossip coursing through WeChat groups in Panyu, word quickly spread that there was money to be made working with Shein.
“By 2020, everyone was working with Shein because their orders were so big,” said the factory manager.
One factory owner estimated that at its peak about 80 per cent of the 7,000 clothes-making factories in Panyu worked for Shein either as a contract manufacturer or taking overflow orders.
Shein bore down on costs, pressing factory bosses to source cheaper materials to squeeze margins — though some factories that produce designs and order materials get higher margins for taking on greater costs.
The company also introduced an electronic ordering system to track how products were selling and adjust output accordingly.
Xu “helped the whole supply chain go electronic. Before Shein came along, we were all taking orders over the phone. His contribution was to improve efficiency,” said Bing Gongsun, a merchant that sells on all major ecommerce platforms.
In the eight factories the Financial Times visited, managers were seated near workers at sewing machines, with monitors where they could view automated order updates via an operating system built by Shein.
Still, much of the rest of garment-making in Panyu remains low-tech, and wages have been rising as young workers shun factory jobs. Factory workers that source to Shein typically get paid between Rmb7,000 ($986) and Rmb12,000 monthly, depending on how many clothes they finish, according to the factory managers, compared with between Rmb5,500 and Rmb6,500 for other blue-collar workers in the area.
The company monitors quality by checking pictures of the clothes and weighing them upon delivery to the warehouse. “Shein is not that picky. But it does check the clothes,” said one finance director at a Shein factory.
Over a decade, Shein’s growth has transformed Panyu. Hipster coffee shops have shot up and restaurants serve dishes from all over China to armies of migrant workers.
Now, another company has designs on Panyu: Temu. It has flooded Instagram and Facebook with adverts and has displaced Amazon as Google’s largest single advertising contributor, according to people familiar with the matter. Google declined to comment.
In 2022 Temu established its office in Panyu and began raiding Shein’s staff and supplier base, prompting the rival to go on the defensive.
Shein ordered its suppliers to stop working with Temu and said any merchants found selling to both platforms would be fined and have contracts cancelled, according to suppliers who described a de facto “er-xuan-yi” policy — Chinese for “choose one or the other”.
Still, Panyu factory owners have found creative ways to navigate the fight. “There are lots of ways around the rules. Many of the suppliers have several factories. You just register under a different name and use those companies to sell to both platforms,” said the finance director.
A Shein spokesperson said the company “has never instituted an “er-xuan-yi” policy”.
Temu said: “While some former Shein employees have applied to join us, we are cautious about hiring from direct competitors, and the number of such hires has been limited.”
In 2023, as part of a move to clean up its supply chain ahead of an IPO, Shein ditched a group of suppliers after auditors found that they had been violating its certification standards. Many of those suppliers switched to selling on Temu.
Shein has also been battling concerns over the provenance of cotton in its supply chain. The US has banned imports of cotton from China’s Xinjiang province because of concerns over alleged use of forced labour, which China denies. Shein has publicly said it has “zero tolerance for forced labour” and requires “our contract manufacturers to only source cotton from approved regions”, while avoiding explicit references to Xinjiang.
As its business has matured, Shein has begun to chase new revenue streams. Last year, it launched a marketplace for merchants to sell everything from garden furniture to electronics, and has begun working with factories in Brazil and Turkey to bring some production closer to shoppers in the Americas and Europe.
Such ventures are part of the growth story that Shein would like to sell to investors — if Beijing does give its blessing for the company’s IPO. With no assurance about its plans to list, Shein is in “a wait-and-see mode”, according to one person close to the company.
Panyu’s factory managers pay little attention to such regulatory intrigue. The focus remains as it was before Xu arrived: how to survive in a world of wafer-thin margins. Whether Shein or Temu pays the bills, said one, “We just go wherever there are orders.”
Additional reporting by Stephen Morris in San Francisco
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