How to Future-Proof the Apparel Supply Chain Using the SHEIN Business Model
Posted: February 21, 2023 | Word Count: 440
Consumer expectations are shifting — and many companies aren’t prepared to meet rapidly changing customer needs. With rising inflation and costs, apparel brands struggle more than ever to satisfy customers — and their bottom line — with the traditional retail model. Since its founding just over a decade ago, SHEIN has operated a unique, on-demand business model that solves for many of the issues now facing the retail industry: instead of telling customers what to wear, SHEIN responds to what they want to wear.
SHEIN is a global leader in fashion, beauty and lifestyle products that serves millions of customers in more than 150 countries — but while its peers create thousands of products in each style, SHEIN initially produces as few as 100 pieces for each SKU. How is it possible to serve a global customer base with so few items at a time? The company has built a fully digital supply chain with proprietary software that tracks customer interest and communicates market feedback with its supplier factories in real-time. This digital supply chain is the core of SHEIN’s business model, empowering the company to offer a wide range of current styles without creating excessive inventory waste.
In a traditional retail model, trend strategists and designers predict what customers will want to wear up to a year in advance and stock their shelves according to those predictions. The ever-increasing pace of trends means those predictions are further and further from actual demand by the time that season rolls around.
SHEIN’s on-demand business model offers a lower cost and lower waste solution to this problem because:
- Production is totally guided by actual demand
- After starting with as few as 100 SKUs in a new style, SHEIN turns to algorithms to gauge real-time customer interest, empowering supplier factories to increase or stop production based directly on market demand. This data-driven test-and-learn approach improves efficiency and minimizes production waste.
- They’re e-commerce only
- SHEIN avoids the need for overproduction typically associated with filling physical storefronts and prevents much of the waste and environmental impacts associated with running a traditional retail store. This unique on-demand business model consistently limits excess inventory to single digits while the rest of the industry struggles with 30% overstock on average.
- Their supply chain evolves with them
- SHEIN does not own or operate any manufacturing facilities. Instead, they source from a network of third-party suppliers. They support supplier factories with physical facility enhancements, innovative technology and training.
Apparel brands looking to set themselves up for success in the future must think smaller before they think bigger: SHEIN’s small batch, on-demand production business model is the blueprint for serving tomorrow’s customers.