Shein’s secret to keeping prices low

Shein says its clothing prices are low because its technology advantage lets it minimise waste and pass the cost savings onto the consumer.

The Chinese clothing giant denied repeated allegations that it was dodging tax in South Africa, saying it seeks to comply with local laws and regulations everywhere it does business.

While the fashion industry is cagey about releasing stats on how much waste it generates, The Guardian reported earlier this year that between 10% and 40% of clothes made annually aren’t sold.

This is one of several forms of pre-consumer waste. The others include over-ordering raw materials, and waste from off-cuts while producing clothing.

For a sense of the scale of the problem, the industry produces 80 billion to 150 billion garments each year.

Therefore, the lowest estimate for overproduction pre-consumer waste is 8 billion garments per year, while the upper estimate is 60 billion excess garments that are either dumped or destroyed.

Delaware University professor Sheng Lu analysed the output of some of the largest global apparel companies over twelve months in 2022. She found that Shein listed 1.3 million different items on its website during the year.

This dwarfed traditional fashion companies.

During the same period, the Gap listed about 12,000 different items on its website, H&M had roughly 25,000, and Zara had about 35,000.

In its 2022 sustainability report, Shein revealed that its test-and-repeat business model entails creating a small batch of 100 to 200 items for every new product.

It uploads just under 10,000 items to its store every day, which means producing 1 million to 2 million test units daily.

Shein tracks the sales performance of each new product. If a design does not perform well, it does not get another run.

According to the activism group Impact, only 6% of designs listed on Shein stay on the site for over 90 days.

However, Shein has dismissed the insinuations and conclusions of activist organisations that it is causing a massive negative impact on the environment.

It also rejects the label “fast fashion”, instead preferring “on demand fashion”.

The fashion producer said its model actually helps reduce waste.

“When we see customers responding well to a product or design with orders exceeding our current stock, our proprietary supply management software identifies a third-party supplier from our network with the capacity and expertise to produce enough garments to satisfy the actual demand,” Shein stated.

“This unique, on-demand production model enables us to virtually eliminate excess inventory waste.”

Shein said this lets it offer a wide range of products at competitive prices without accumulating large inventories of unsold products.

In addition to overproduction pre-consumer waste, Shein said it also minimises textile waste from the start.

“Contrary to some common misperceptions, we keep prices affordable through our technology-based on-demand business model and flexible supply chain,” a Shein spokesperson told MyBroadband.

“This reduces inefficiency, helps us to lower wastage of material, as well as reduce our unsold inventory. We pass this cost advantage to our customers, and this is what has driven our success.”

Despite Shein insisting that it includes VAT and 30% to 45% import duty on the price of every item listed on its website, complaints from South Africa’s local fashion industry have persisted.

The complaints revolve around a loophole that allows imported parcels with goods valued below R500 to be charged a flat 20% duty and 0% VAT.

Most recently, The Foshini Group (TFG) CEO Anthony Thunström told the Business Times that the South African Revenue Service (Sars) has committed to closing this loophole.

Thunström said they have received a commitment from Sars and customs that the full 45% duty will be charged on all clothing imports from 1 July 2024.

MyBroadband analysed how the change would impact Shein orders below R500 and found that adding 45% duty and 15% VAT would increase prices by almost 39%.

However, even with the price increase, Shein will remain price competitive with clothing retailers in South Africa.