Transcript

00:00 Over the past few years one Chinese company has thrived in the online fast fashion industry reaching a valuation of $66 billion in 2023 and controlling 40% of the US market. It's Shen shine I say Shen. It's Shen Shen is known for $2 t-shirts and $7 pants with prices even lower than its competitors. Shen made its us debut in 2015 and the Brand's sales exploded during the pandemic growing sixfold in 2 years. The company generated an estimated $23 billion in Revenue in 2022 and it's filed to go public in the US. Shen takes fast fashion to a different level and they're on top of every micr Trend but there's a larger story behind shien's low prices. A congressional report found that shien uses a tax exemption to cut costs and the company released a report that cited cases of involuntary labor in its supply chain.

00:58 This is the economics of shen scrolling through Sheen's website can feel endless. We offer thousands of new items per day but Sheen only initially produces 100 to 200 units of each new product. Shen's designs originate with Shen designers and with our xenx third party designers as customers browse those designs. Shen has technology that monitors users engagement activity when a customer shows interest in an item by hovering over it clicking on it or adding it to their cart. Sheen takes note then it creates new designs. Based on data from popular items. This way the retailer can test how popular an item is with its customers. If it does well. Sheen starts producing more. This differs from traditional retail where orders can often be placed in the 10,000 to 100,000 copies of a garment and can be placed between 3 and 6 months in advance and while it's fast at creating new designs. It's also quick to go through them. A Boston Consulting Group report found that Sheen has an inventory turnover rate of 4 40 days.

02:01 That same report found that Shen is twice as fast as other competitor retailers like H&M and Zara. The small batch model is a matter of controlling the cost and controlling the inventory wastage so that they won't have a large number of clothes that are sitting unsold in their warehouses in China or in the US or anywhere else in the world. The company calls this an OnDemand model and to support this on demand model and lower prices. Shen hires thousands of smaller manufacturers ERS. It took the journal to film in one of its third party supplier factories in dongan. Our designers will identify an item design. It prepare a spec for it and then they'll put it into our supplier management system which will identify a contract manufacturer. That contract manufacturer will procure the supplies necessary to produce that garment from a network of suppliers that Shen has approved if a design is popular. Shien's ordering platform can automatically place another order with its platform working in real time.

03:03 They're able to see as demand for particular product is either Waxing or Waning in the marketplace so they can adjust their operations accordingly and this concentration of information allows our suppliers to efficiently structure their own business to be able to meet demand at near Real Time by ordering in smaller batches. Sheen says it can reduce the risk of excess unsold inventory. It means that we don't carry excess inventory waste when we produce use garments that saves around 30 to 40% in cost of goods sold on the garments alone but while less inventory waste in the factory May lower prices for consumers. Environmental activists say it might not lead to lower waste levels.

03:44 Overall critics are saying that because Sheen's clothing is so cheap um people are buying a lot of it and because uh fashion conscious young people may retire uh some of their Sheen quicker than other more expensive clothing that actually may cost inventory wastage after the consumption happened oh my goodness. There's so much a 2023 UBS report found that the average US Sheen Shopper reported spending $100 per month on women's clothing that's about 60% more than the average. US female consumer and critics argue that there's even more behind how the brand is able to keep prices low retailer xen is in hot water. Once again Sheen has faced accusations of worker abuse. The brand has recently come under Fire Sheen's ond demand business model is now the only reason why its products are so cheap. It's also benefiting from cheap labor in China. Sheen has not been fully transparent about its Supply chains.

04:46 In 2022. Shen released the results of its supplier audits but unlike some other retailers Shen didn't disclose who its suppliers were or where they were located. The audits reported some incidents that involve what the company called calls in voluntary labor but didn't mention exactly how many or where these incidents occurred. The Wall Street. Journal's calculations found that these audits accounted for about 36% of shien's contracted manufacturers. The company said in a statement to the Wall Street Journal shien is committed to providing a safe and fair work environment for all our suppliers employees. We pay manufacturing suppliers competitive rates so they can pay Fair wages to their workers.Shen says it's committed about $70 million towards improving supplier factory conditions and training workers. Congress is investigating shien's labor practices and whether the company sources cotton from China's Shang region. The US government has accused Chinese authorities of using forced Muslim weager labor which Beijing denies. Some us. Lawmakers have pushed Shen to be more transparent about their supply chain in a statement to wsj. The company says it has zero tolerance for forced. Labor does not have contract manufacturers in Shin Jang and doesn't Source cotton from China. Fashion analysts say shien hasn't provided evidence to back up these statements including a list of its suppliers which goes against industry standard and in addition to its ond demand model and low labor costs.

06:12 Shien also keeps prices low by taking advantage of a US tax exemption which allows low valued packages to enter the US tariff free under the DI Minimus tax rule. Shipments sent to individual buyers in the US aren't subject to tariffs if they're worth less than $800. According to a report from the US House of Representatives. 30% of all packages shipped to the United States each day under the Dom Minimus rule are from shien and its rival timu between the two companies that adds up to millions of packages. Shen says that it supports reforming the Dom Minimus exemption meanwhile the valuation has fallen. The company's $100 billion valuation in 2022 dropped by a third in a fundraising round earlier this year and teu which launched last September overtook a larger share of of the US market. Last June recently shien has tried to improve its image through social media amidst environmental and labor criticisms but with limited success.

07:09 Sheen brought a group of influencers to tour factories in China. The tour didn't really help address a lot of the criticisms that people have about shien the company has also moved its headquarters from nanzin China to Singapore. Shien is also trying to diversify its supply chain outside of China with this move. Shien is also adding new manufacturers in other countries although the majority of Shen's supply chain is still in China. The company promised to invest 150 million dollar to train 2,000 Brazilian manufacturers over the next 3 years and Shen has recently partnered with Forever 21 and acquired roughly onethird of the fashion brands. Operator spark group Sheen has in recent months been trying to Pivot to a Marketplace modotto which allows third-party sellers to sell products directly to Consumers as genan expands globally and is trying to capture more of market share in in the US and in other countries around the world.