Why is SHEIN so cheap? Inside Shein’s controversial culture

Shein X

When the deal is too good, think twice, the adage goes. The saying is a bit modified in the fashion world: When the deal is too good, someone else is paying for it. Going through Shein’s website, you can’t help but wonder how the clothes are so cheap – I mean, you can get a wedding dress for 30 pounds ($37.65)!!

Furthermore, you aren’t getting an old, out-of-fashion dress. The website offers you one that’s trendy and in vogue. The cherry on top is that if you add a couple more items, Shein will ship them to you for free. 

Sounds too good to be true, but you can get such deals from Shein. Despite people’s reservations about Shein’s prices, they keep buying, accelerating the company’s growth.

Key Takeaways

  • Shein keeps operational costs low by shipping direct-to-consumer from its large warehouses. 
  • The company sources cheap and trendy designs from partner companies, which is much cheaper than investing resources in a design department.
  • Shein markets its products through growing social media influencers, who tend to charge less than celebrities and cost less than ad campaigns. 
  • Shein affiliates have been accused of exploiting cheap labor, using non-environmental friendly goods, and stealing designs from social media. 

Shein has few warehouses that rarely hold stock for more than 90 days

Shein’s headquarters are in Guangzhou, China, where the company collects clothes from various suppliers. It then sends the clothes to its various warehouses worldwide or ships directly from the ultra-large Guangzhou base. 

Most brands send large chunks of clothes to retailers via shipping containers, increasing costs. However, Shein ships most clothing straight to customers who make purchases online. 

Even when it sends clothes to warehouses in the United States and Europe, it does so to facilitate shipping. 

Furthermore, Shein rapidly changes its stock depending on trends. The BBC reports that only 6% of Shein’s inventory remains in stock for more than 90 days. 

If you access Shein’s website right now and check back after three months, 94% of the stock will be entirely new clothes. Shein sells clothes cheaply but encourages buyers to purchase more clothes as trends evolve – and in Shein’s world, they evolve rapidly. 

The company’s business model is based on the volume of sales. To keep people buying, they need to see fresh products every time they log in. 

Gen Z and young millennial shoppers have propelled Shein’s rise | Photo by Justin Chin/Bloomberg via Getty Images

Shein purchases small orders of new designs and places them on its website. If the designs prove popular, the algorithm automatically orders more clothes; if unpopular, the system halts the designs orders. 

It ensures that items keep moving and prevents pile-ups of unwanted stock on warehouse isles. Shein customers order online, so the company always knows what people want. 

Shein’s online-only system negates the need for physical shops, reducing operating and staffing costs. Temporary Shein locations pop up occasionally, but the company doesn’t invest in brick-and-mortar shops. 

“We were going for low margins and large quantities,” Li Peng, one of Shein’s initial owners, told WIRED

Outsourcing allows Shein to keep the costs of their clothes low

Shein doesn’t make most items on Shein’s website; the company outsources clothing before placing its brand on them. 

China became a significant clothing production center after joining the World Trade Organization in the mid-2000s. At around that time, Shein’s CEO, Xu Yangtian, alongside Wang Xiaohu, approached Li Peng for business advice.

The company was incorporated in Nanjing, China, but initially, it didn’t sell clothing. Li and Wang decided to ape Western companies hiring Chinese clothing suppliers by adding clothes to their company’s stock. 

To decipher which items and suppliers attracted customers, representatives bought clothing samples and advertised them online using different domain names. The company ordered more items only when customers responded positively to a particular item – a system still used by Shein today. 

Shein’s low prices reduced customer expectations about quality and allowed the company to move a lot of stock. Xu eventually ditched Wang and Li to form SheInSide, which ultimately morphed into Shein in 2015. 

Outsourcing places the burden on other companies to create cheap products on Shein. They know that Shein products sell, so they scramble to produce affordable and trendy products. 

To make a profit, Shein’s suppliers offer their clothes to the company at lower prices than the ones on the website – which are already astonishingly low. These prices have piqued the interest of entities who suspect that the Shein’s suppliers are exploiting cheap labor. 

An investigation by the Swiss advocacy group Public Eye found that employees of companies supplying Shein face enormous pressure to turn clothes around. 

Courtesy of Public Eye

Public Eye found that most staff worked three shifts per day, with one day off per month. Payment per item of clothing turned around and inspired some workers to work 75 hours a week, more than double the legal limit. 

“If you have that without implementing checks on limits… that automatically leads to high working hours because workers need to make a living,” David Hachfeld of Public Eye told The BBC

Shein denied that the company or its affiliates exploit cheap labor

“Big brands say they check their suppliers but so much of this is farmed out to cheaper factories, meaning there is a widespread lack of transparency behind industry standards,” Victoria Bellandini, senior fashion lecturer at the University of Lincoln, told The BBC

An investigation by WIRED concurred with Public Eye’s report. Like Public Eye, WIRED found occupational health and safety hazards in some supplier factories. 

According to WIRED, Shein earned a zero out of 150 score from Remake, a nonprofit advocating for better environmental and labor practices. Due to Shein’s secrecy, it’s difficult for organizations like Remake to judge the company’s impact on the environment. 

However, it’s estimated that Shein’s encouragement of dumping off-trend clothing has contributed to the rapid increase of clothing items in landfills. 

Shein conducted an audit of its partners, finding that 83% operated with ‘major risks.’ 12% had committed ‘zero-tolerance violations,’ which may refer to forced or underage labor or severe health and safety issues. 

There are concerns that Shein sources some of its textiles from Xinjiang, a region known for the use of forced labor by the Uyghur people. A Shein representative didn’t expressly deny that Shein uses cotton from Xinjiang. The rep said:

“We have a program in place to identify the origin of cotton, we do transparency exercises, we talk with our suppliers, and we make sure that all of the product that we’re sourcing and buying is compliant with the market that that product is going into.”

Public Eye found that, despite long working hours, the staff failed to make a decent wage. David Hachfeld said:

“It’s striking to see that a company with such big influence and huge turnover is apparently not yet acting on its responsibility to ensure that pay rates are at a level where you can make a good living within normal working hours.”

The Social Responsibility section of Shein’s website states that the company employs a zero-tolerance policy to partners who violate labor laws. Shein also notes that it ‘proactively campaigns against unethical practices.’

Shein uses influencers to market rather than paying for huge ad campaigns

As many companies laid off workers during the coronavirus pandemic, Shein grew exponentially, reporting estimated sales figures of $10 billion in 2020 and $15.7 billion in 2021. 

During the pandemic, most people spent time glued to their screens, watching social media content. TikTok membership and viewership grew, with content creators reaping the benefits. 

SHEIN haul

Shein saw social media as the perfect advertising medium – it collaborated with collaborators with medium-sized followings, who typically charge less for brand partnerships than those with large followings. 

It allowed Shein to keep advertising costs low while reaching large audiences. Per Euronews, Shein runs a ‘fashion blogger program’ that sends such messages to content creators:

“Do you want clothings absolutely for FREE? Are you looking for long term sponsorship? Then don’t hesitate to send us an email to introduce your thoughts about fashion, your blog website or YouTube channel for us. You may get free clothing worth US$40 to US$200 every month!”

$200 worth of Shein’s clothing is a lot – it’s certainly enough to tempt a growing content creator into collaborating with Shein. 

Shein’s advertising on social media makes it popular among teens and people in their 20s – people who want to look trendy but may not have the funds to purchase from big fashion brands. 

Shein’s partners have faced accusations of stealing designs

Liu Zhiyong, a former Shein supplier, told WIRED that he quit supplying the company as his employees struggled to create and learn new designs while turning them over quickly enough to earn profits. 

Some Shein suppliers have dealt with the problem by stealing ideas rather than spending resources on developing unique designs.

Leah Flores, an artist and photographer, sued Shein for placing her photo on a tapestry the company sold. She obtained a $40,000 settlement only to find that Shein had used more of her images on its products. 

“My lawyers were like, ‘I can’t believe this,’” Flores told WIRED. Leah sued the company and obtained a ‘substantial’ settlement. 

Unfortunately, small designers often have no recourse. A musician named Katie Bailey discovered that Shein was, without her authorization, selling t-shirts promoting her band

Katie Bailey wearing the shirt she designed | The design was being sold on SHEIN

Katie found the t-shirts on Shein’s website before she officially released the merchandise. Shein apologized, blaming a supplier who’d assured the company that the design had no copyright issues. 

Shein promised to pull the design from its site and end relations with the supplier. However, a month later, a slightly-tweaked version of Bailey’s design reappeared on the site and sold out. By then, Shein was too exhausted to follow up. 

Via a guidance document reviewed by WIRED, Shein acknowledged that it had faced many IP infringement complaints:

“There have been many IP infringement complaints recently, leading to millions of dollars of damages and attorneys’ fees being paid and negative news articles and social media posts about the company. Copyright infringement is a straight liability offense, meaning ‘We did not know’ is not a defense.”

Shein acknowledged that its reliance on partners for designs might be a problem hurting its reputation. “It appears that our suppliers are searching the internet, including Instagram and Etsy, and copying other people’s works, then selling them to us.”

The guidance document urged buyers to stop buying unlicensed designs from Shein and designers to modify the designs enough to avoid IP infringements. 

A company rep told WIRED that the company had hired more than 100 employees to review designs and products before their placement on the site. 

The company exploits legal loopholes to reduce operational costs

Shein exploits loopholes in the international trade system to keep operational costs low. 

For instance, China hasn’t taxed direct-to-consumer companies like Shein since 2018. Also, import tariffs in the USA don’t apply to goods worth less than $800, prompting Shein to ship items in small packages. 

According to Simon Irwin, a Credit Suisse analyst, Shein formulates its operations in certain regions depending on their laws. 

Shein’s exploitation of cheap designs and labor, clever marketing, lenient tax laws, and direct-to-consumer distribution allow it to sell clothes cheaply. Irwin told WIRED:

“I cover some of the most efficient sourcing companies in the world, companies that source on a vast scale, have 20 years of experience, have incredibly efficient logistics systems. Most of them admit that they couldn’t get product to market at the same price as Shein.”

Shein is expected to continue growing, but the regulatory noose is tightening, and Shein seems to be bracing for a fight. 

In January 2022, Congress introduced the Import Security and Fairness Act that would place tariffs on all imported goods, regardless of their worth, if signed into law. It would also require Customs to demand more information on imports. 

“This would shut down Shein and platforms like that,” Ron Sorini, a trade expert, told Sourcing Journal. Congressman Earl Blumenauer identified Shein as one of the biggest beneficiaries of the tax exemption. Earl said:

“They’ve got it set up at an industrial scale, to take advantage of modern technology and the cheapest possible manufacturing operations, and there’s no guarantee that they’re following the rules.”

In March 2022, the European Commission introduced a proposal to curb fast fashion’s environmental harm. Shein’s aggrieved workforce is also fighting back by offering eye-opening interviews to the media and suing Shein. 

Shein has responded by beefing up its regulatory and legal teams as it prepares for strong opposition. As authorities rein in Shein’s operations, the company’s prices will likely rise. 

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