Recently, SHEIN has emerged as a significant player in the French fashion market, as highlighted by the French consumer magazine LSA. In 2023, SHEIN’s sales in France surpassed that of H&M, Primark, and even Kiabi, reaching approximately €1.5 billion, making it the second-largest fashion brand in France, just behind the Inditex Group’s Zara. Given SHEIN’s consistent high annual growth rate, analysts predict that in 2024, it may surpass Zara in sales within France. Similarly, in Germany, SHEIN has become the fourth-largest clothing brand in 2023, leveraging its combination of style and affordability, with the potential to rank even higher in 2024.

The impressive growth of SHEIN’s brand is supported by its innovative digital on-demand flexible supply chain, which is not only driving upgrades in traditional industries but also enhancing overall competitiveness and promoting sustainable development across the sector.

Addressing Industry Inventory Challenges with Flexible On-Demand Models
The fundamental principle in the fashion industry, particularly in the fast fashion segment, is straightforward: consumers seek out a diverse range of trendy, cost-effective apparel. However, achieving this has been complicated by a long-standing dilemma referred to as the “impossible triangle,” which suggests that high product turnover rates cannot coexist with low inventory costs and competitive pricing. To frequently introduce fashionable styles, brands often have to accept the risk of excess inventory, leading to higher production costs and ultimately higher retail prices, which can erode competitiveness.

This challenge has persisted for years, often taken as an industry norm. SHEIN faced similar issues when it was founded in 2012 but opted not to follow the conventional industry logic. Instead, its founding team adopted a consumer-centric, internet-driven approach to discover how to significantly reduce inventory and sales prices while increasing the diversity of SKUs.

By implementing a digital “small batch, quick response” model based on first principles in fashion, SHEIN has quickly risen to become a globally coveted fashion brand in just over a decade. This model integrates online retail with on-demand production, allowing SHEIN to forecast and manage production based on market demand rather than on large-scale production that relies on predetermined sales. Each SKU is designed with real-time global fashion trends in mind, with initial production limited to 100 to 200 items. This number is rapidly increased if sales trends are promising, or production is halted if they are not. The online retail format also eliminates the need for warehouse stock, enabling sales to commence even with small production runs while swiftly gathering consumer feedback. As a result, SHEIN has achieved a remarkable balance between quick product turnover and low inventory, boasting unsold inventory levels at single digits, significantly lower than the industry average of 30%.

One of the most immediate benefits of low inventory levels is a substantial reduction in waste and pollution, aligning with the industry’s commitment to sustainability. Moreover, for consumers, this translates into lower prices, as SHEIN does not pass inventory costs onto consumers, allowing it to maintain a competitive edge.

Through its approach, SHEIN has effectively addressed the fashion industry’s “impossible triangle” and rapidly gained market popularity with a diverse range of high-value products and services, disrupting traditional norms where cost reductions relied on mass production. It has established a competitive advantage through small-batch production and responsiveness.

Transforming Traditional Factories into Modern Enterprises
To successfully implement this demand-driven flexible model, cooperation from traditional clothing factories is essential. Initially, getting factories to adapt to new production methods and embrace the digital “small batch, quick response” model posed significant challenges.

To encourage factories, SHEIN focused on two key areas: order cycles and payment terms. Unlike the industry standard, which often involves lengthy months of payment terms, SHEIN has compressed this to weekly or monthly payment schedules, ensuring timely payments that greatly improve cash flow for factories, empowering them to expand quickly. Additionally, SHEIN’s expanding international market provides a steady stream of increasing orders, which has encouraged more factories to join SHEIN’s supply chain ecosystem after witnessing the positive results.

The next challenge lay in enhancing the abilities of these factories. Given that the clothing industry is traditionally manual-labor-intensive, many factories struggled with handling numerous orders simultaneously. To resolve this, SHEIN has developed an array of integrated technological tools and provided extensive training to factories to improve their operational, management, and quality control capabilities. Furthermore, SHEIN invests in upgrading factory facilities and supports various community projects aimed at improving workers’ living standards and job stability.

Through these initiatives, SHEIN not only pushes for a significant upgrade in the traditional garment manufacturing sector but also ensures cohesive management standards for fragmented small orders. By meticulously breaking down business processes and utilizing first principles thinking, SHEIN has transformed the industry into a more systematic and transparent operation, enabling newcomers to quickly grasp business methodologies.

Bob, a 1980s-born entrepreneur from Hubei, transitioned from jobs as a chef and delivery driver to managing his own clothing factory after spending four months in his family’s factory. Within three years, he saw his factory’s performance soar. Embracing the “small batch, quick response” model, Bob initially focused on netting, believing no clothing was beyond his reach. Despite early struggles, his dedication to quality and insights gained from SHEIN’s training helped him master his niche; his factory maintained a defect rate of merely 0.5% for three consecutive months and doubled its production orders soon thereafter.

As orders continued to rise, Bob expanded his operations dramatically. By May 2022, Bob’s factory processed approximately 60,000 to 70,000 monthly orders, peaking at 530,000 by mid-2023—a staggering 211% increase year on year. Just three years into his partnership with SHEIN, Bob’s once-anxious entrepreneurial journey took a turn for the better.

The sisters behind Caiyuan Apparel also have benefited significantly from SHEIN’s fashion trend analysis. Liu Qing, the elder sister, noted, “One of the instructors from SHEIN taught us that ‘design + production = quality’—a revelation that completely changed my perception of design.” Her sister Liu Yu draws inspiration from seasonal trends, bolstered by SHEIN’s insights into global fashion trends and sales data.

Evolving into the Industry 3.0 Era
Overall, SHEIN’s introduction of the innovative on-demand flexible digital supply chain model has addressed the longstanding challenges within the apparel industry. It has helped optimize factory operations by improving efficiency, product quality, and overall capabilities. Following a decade of persistent refinement and innovation, SHEIN has successfully positioned itself as one of the top four global fashion brands alongside ZARA, Uniqlo, and H&M.

Undoubtedly, flexible on-demand supply chains have become an overarching trend in the global fashion industry and are emerging as sources of competitive advantage for the future. While many apparel companies transition from traditional methods toward more digital, flexible approaches, SHEIN is actively pushing forward into an even leaner, automated, and intelligent 3.0 era. Recently, it established its first research center for manufacturing innovation in fashion, committing $40 million over five years to develop and implement standards for lean flexible supply chains.

To continue lowering costs, enhancing quality, and improving efficiency, the fashion industry must delve deeper into technological innovations, waste reduction, and economies of scale that can optimize materials, labor, and machinery. In line with this vision, SHEIN is introducing advanced automated equipment such as digital cutting beds and intelligent line cabinets to further streamline production while reducing costs. The research center is dedicated to addressing various production and technology challenges in garment development and manufacturing, providing actionable solutions that factories can implement.

Caiyuan Apparel is one such beneficiary of these advancements. The company once produced a popular dress available in seven sizes and nine colors, which proved particularly challenging due to the requirements of larger sizes. The solutions developed by SHEIN’s innovation center significantly improved production efficiency and quality, bringing defect rates below 1.5%. With their enhanced understanding of market trends and sales data supported by SHEIN’s predictions, Caiyuan Apparel has achieved a powerful combination of productivity and quality.

Ultimately, with the continuous integration of technological innovation, the traditional garment industry is evolving beyond its conventional confines, propelled by a commitment to first principles thinking and a relentless focus on solving problems and creating value driven by market and consumer needs.