A look into Shein and its core learnings for the Bangladesh RMG industry
Bangladesh’s garment industry has unquestionably been the backbone of the country’s export revenues. The country’s balance of payments is completely reliant on the RMG sector, which accounts for 84% of total export profits. Without a doubt, Bangladesh’s garment manufacturing sector is quickly expanding. This is primarily due to low labour costs, which serve as an appealing investment haven for western clothing firms as China’s labour costs rise in the garments export centre. We as a nation have been steadily building industries that rely on human capital. We are now entering the inevitable age in which automation, robotics, and artificial intelligence will alter global industries. But what if this backbone crumbles, leaving the country defenceless on the international stage?
Emerging automation and artificial intelligence augmentation will result in a paradigm shift in the traditional labour-intensive manufacturing model. Sewing is the industry’s most expensive and time-consuming activity, accounting for more than half of the total labour input per garment. However, given the continuous changes in fashion that necessitate frequent adjustments in the machinery’s algorithm, stitching remains the most challenging function for it to perform. According to Forrester Research, global investments in Artificial Intelligence capabilities development increased by 300% in 2017 compared to 2016. According to IDC research, the AI business was predicted to be worth more than $47 billion in 2020, up from an $8 billion market in 2016.
Emerging automation and artificial intelligence augmentation will result in a paradigm shift in the traditional labour-intensive manufacturing model.
Rebranding and digitizing the RMG industry in Bangladesh to fulfil global sourcing needs will also necessitate the successful implementation of industrial automation. Specific cases must be examined with an objective criterion for this aim. Despite the fact that the perceptible effect may take more than a decade to manifest in the country, it already poses a challenge to existing enterprises that expect to rely on labour.
Furthermore, new technologies such as glueing as a substitute for stitching materials are rapidly Evolving. Once the technology has been fine-tuned, garment manufacturing in automobiles will take a giant leap forward. Nearshoring will be the most likely solution for multinational apparel manufacturers if automation cuts production costs in the future. This might eventually lead to the entire industry being redirected to the different brands’ native countries. To succeed in the global market, local entrepreneurs need to pay greater attention to the breakneck pace of innovation.
So which case study can we follow in order to move towards digitizing the entire industry and transforming the value chain? Let us discuss one of the biggest RMG based e-commerce startups, one that has recently raised a global stir. A mysterious online shopping upstart that recently made headlines for exceeding Amazon in-app downloads in the United States and building a cult following for its fast-fashion items sold worldwide. Some experts even believe it beats mainstays like Zara and H&M at their own game by producing goods faster and interacting with customers more digitally. Today, let us look into the business model of Shein.
Building a good brand and user experience, like Apple, should allow it to charge premium rates, but instead, like Amazon, it chooses to continually please customers by offering cheaper prices.
Shein (pronounced She In) is the world’s fastest-growing e-commerce business. It was expected to generate about $10 billion in revenue in 2020, and it has risen at a rate of more than 100% in each of the last eight years. Although the corporation is established in China, it prefers to sell outside of the country. Shein is available in almost every other major market in the world, with the exception of India, where it was banned in June alongside TikTok and 57 other Chinese applications. Shein’s clothes have become a staple in every Gen Z closet from the United States to the United Arab Emirates, thanks to influencers like Addison Rae and Katy Perry, as well as Lil Nas X.
Shein pioneered the real-time retail approach, which reduces the time between design and production from three weeks to as low as three days (although typical times are 5-7 days). Shein has created an enhanced cross-border version of Pinduoduo’s Consumer to Manufacturer (C2M) model, which eliminates any residual middlemen. It links in-app and on-site user behaviour to the backend to automatically forecast demand and adjust inventory in real-time, aggressively pushing ads through its paid acquisition and influencer referral machine the entire time. It plugs directly into competitors’ websites and Google Trend Finder to understand what’s in fashion, and rigorously and proactively pursues the customer until it wins sales.
Like its larger Chinese rivals, Shein began with a speciality — women’s apparel — and has since grown into a one-stop shop for almost all clothing and cosmetic needs. It must be nearly impossible to resist the temptation to expand categories continually. Shein has been incredibly disciplined in sticking to simple apparel for so long compared to other Chinese e-commerce startups, given that the key to expanding is having tremendous traffic, which Shein currently has in spades.
Shein can use its advantages by selling rapid fashion through an app, allowing it to compete on three vectors where it is ideally prepared to win: price, selection and retention.
Shein’s capacity to deliver on those three pillars is based on its backend (affordability and choice), front-end (addictiveness), and connectivity between the two advantages. The company’s compounding advantage is built by combining components of Apple and Amazon. It controls the full value chain, from the factory floor to the Shein app, just like Apple. Building a good brand and user experience, like Apple, should allow it to charge premium rates, but instead, like Amazon, it chooses to continually please customers by offering cheaper prices. It’s a difficult flywheel to master, but Shein has done it, and it’s difficult to picture any other company competing now that the flywheel is spinning.
So, how does it function? Let’s start at the beginning with the backend. It all starts with Shein’s own data and an algorithm combing the internet for fashion trends. Shein has access to Google’s Trend Finder product, which enables for comprehensive real-time tracking of clothing-related search phrases across many countries, as one of Google’s largest China-based customers. Shein, for example, was able to forecast the popularity of lace in the United States during the summer of 2018. With the exception of Amazon, Shein understands what garments people currently want better than anybody else because of its massive volume of 1st party data collected through its app from around the world, and software-human teams that scour competitors’ sites.
Shein provides that information to its in-house design and prototype team, which can take a product from concept to manufacture and launch in as little as three days. Shein is able to function as if it does all of its own manufacturing since it is located in the heart of Guangzhou, China’s fashion manufacturing capital, and has built up years of loyalty with its suppliers. For starters, this means it may start with very tiny quantities, as few as ten products, and work its way up from there. Shein creates extra 1st party data once a product has a life, which it uses to automatically alter manufacturing on the go. It does this every day with tens of thousands of new SKUs.
The platform creates a pphenomenal, interconnected system that integrates the production floor to the consumer without the need for human intervention, allowing them to do so at scale. Remember how Shein’s vendors are required to utilize its software? They receive real-time inventory and capacity data as well as quick updates on new orders depending on consumer behaviour. ‘Every element of their website is related to the enterprise resource planning (ERP) system and their production,’ a competitor executive told Tegus, a leading marketing intel platform. So they’re adjusting their manufacturing capacity in real-time based on who’s looking at what and who’s buying what on the website.
One of Shein’s most important markets is Saudi Arabia. How much cultural understanding and nuance do you believe Shein’s Guangzhou staff has concerning Saudi Arabian women? Probably not much more than you or me, who are currently reading this. However, the idea is that they don’t have to. Shein primarily relies on data and algorithms, with some human insight thrown in for good measure. It’s similar to GPT-3 in terms of fashion. It’s difficult to see how Fashion Nova, a successful American DTC ultra-fast fashion brand with a human-driven design approach, can scale beyond serving its primary market. It’s easy to see how Shein could extend to serve any man, woman or child in any area with middle-of-the-road branding.
There will come a time in the future, perhaps in a decade or fifty years, when commerce will be truly instantaneous. Think about something, and then go grab it. That is the logical conclusion. When we arrive, Shein will be in a good position. Simply said, it is about time that the Bangladeshi RMG industry tries to embrace AI and come up with radical platforms – ones that not only provide finished products to suppliers but extend their reach and engage directly with the end customers. That will be true innovation, the likes of which will enable the entire industry to move forward.
