A Top Shein Exec on That Influencer Trip Fiasco

July 16, 2023 7:00 AM EDT

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Few companies have profited from the pandemic’s e-commerce boom more than Shein (pronounced she-in), the retailer that has become known for selling ultra-cheap clothing and other goods. Founded in China and now based in Singapore, Shein became the second most popular shopping app globally in 2021 and the most-downloaded app in May 2022.

Helping to lead Shein’s expansion around the world is Donald Tang, who became the company’s executive vice chairman in November 2022 after advising Shein CEO and cofounder Sky Xu for three years. Tang, a former Bear Stearns dealmaker, was brought on to help oversee strategy, amid speculation that Shein was toying with the idea of listing itself as a public company on an international stock exchange—something the company has previously denied. In 2022 its valuation was estimated around $100 billion, according to the Wall Street Journal.

Tang is well placed to bring Shein to market if the company chooses that route. As the former vice chairman of Bear Stearns and chairman and CEO of Bear Stearns Asia, he has brokered deals between Chinese and American companies, including the $2.6 billion takeover of movie-theater chain AMC by Chinese giant Dalian Wanda Group.

Despite its popularity with consumers, Shein has some image problems. The brand is routinely criticized for perpetuating the fast-fashion trend, creating cheap items that often end up in landfill and for its alleged labor practices in China. It has also been accused of exploiting a customs loophole that allows it to avoid paying tariffs on the goods it sends to the U.S. A Shein spokesperson said that its business model minimizes inventory, that the company has zero tolerance for forced labor and robust compliance systems, and that it complies with the customs and import laws of the countries in which it operates.

That backlash only grew in June, after Shein flew a group of popular influencers to China to tour the company’s facilities. The influencers were widely derided for posting content from their visit that sounded pretty much like the brand’s public relations message.

On July 14, it emerged that the company had been hit with a lawsuit from a group of designers accusing the company of copyright infringement and having a corporate structure that the suit alleges amounts to racketeering. In a statement responding to the lawsuit, the company said that it “takes all claims of infringement seriously” and that it would “take swift action when complaints are raised by valid IP rights holders.” The company also added that it will “vigorously defend” itself against the lawsuit “and any claims that are without merit.””

Tang says the company is trying to tackle some of the problems Shein is criticized for, such as auditing its suppliers. In 2022, Shein conducted 2,812 audits of 1,941 contract manufacturers, accounting for about 84% of Shein-branded products by procurement value, the company says.

Tang sat down with TIME in New York City on July 10 to talk about what the company learned from the influencer trip disaster, the environmental concerns of fast fashion and Shein’s plans for a marketplace local to the U.S.

This interview has been condensed and edited for clarity.

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I have to ask about the influencer trip that was seen as a bit of a cynical marketing ploy. Do you regret having organized that trip? And is there something you would do differently in the future?

It’s something that came about with the best intentions. In hindsight, it didn’t go to the place we intended, which is that we’re committed to more transparency. We want people to see all the different places that we make things from. The influencers got very unfair treatment, which I very much regret.

You regret that there was backlash against them?

It was a well-intentioned effort that didn’t get to the right place at the end. We have a lot more to do on the journey of total transparency. So we must do more: Invite reporters to see the factories—whatever questions they have, we’ll answer.

How can you ensure transparency when you have so many different partners and suppliers spread out across China?

One step at a time. Nothing is perfect. We’re not perfect for sure. We’re committed to being as good a supply chain for our customers as possible. We’re committed to better working conditions. We have done quite a lot since last year. That’s not enough. We have to do a lot more to ensure that consumers are taken care of and that workers are taken care of.

Fast fashion has been around for awhile, but Shein’s business model is different. Can you explain how you operate differently than an H&M or Zara?

We are on-demand fashion. We try to figure out what you want. And then we make it for you. So we always have very, very low single-digit inventory numbers. Whereas [other retailers] have to design things and then they stock them, market them and then sell them. And then they have leftovers. We have very, very little leftovers.

How do you know what consumers want to buy beforehand?

If you are a consumer who spends a lot of time browsing, discovering and reflecting, basically you are designing. It’s basically behavior analysis and then you aggregate it and it becomes a pattern.

How do you keep costs low without the volume of making lots of pieces at once?

The lack of inventory is really the key to driving the price discount. If you have no overproduction, then you can pass the savings [on] to the consumers.

We have all these small and medium enterprises, mom and pop shops [as suppliers], and we digitize them and see who has capacity and who doesn’t.

So, you also have more suppliers than a more traditional fast fashion retailer?

Yes, we have thousands.

There’s a challenge with that many suppliers, to ensure that factory conditions are good and that you’re not using forced labor. How do you do that with thousands of different suppliers?

First of all, we’re committed to better factory conditions and worker conditions. We do everything to prevent forced labor. That’s zero-tolerance for us.

Can you elaborate on what “everything” means? Do you kick out companies that have used forced labor?

There’s a manual for how we deal with all these issues. Suppliers must agree to abide by the company’s Supplier Code of Conduct, which is aligned with International Labor Organization core conventions, as well as local laws and regulations. And then we have international, credible organizations do unannounced audits. They have scorecards, we have scorecards, and we monitor them together.

If there are certain violations, we do not tolerate that. We tend to always try to cure first, not to just get rid of them, because otherwise, they just end up in other places, right? We give them time, and if they don’t cure the problems, we terminate them. Last year, we terminated 28 factories.

I’d think that would be like Whack-a-Mole when you have so many many factories – there’s always going to be a problem with one of them. Do you think that’s true?

Yes. But I think you cannot eliminate them, but you can do better. We can use the scoring system to match the best factories with the best orders. If you have better scores, you get more orders.

A criticism of fast fashion is that the more sales you make, the more stuff that’s created, the more emissions that pollute the planet. Can you succeed while still doing good environmentally?

This is the area that the industry, including us, are not very good at. The post-production, post-consumption. If we are creating more products, if the price is really good, now all of a sudden people have more to buy. This is going to create problems.

So how do we address those problems? We have done some things, like second-hand exchange, and providing customers a menu of options so they can choose clothing made with preferred materials. We also announced a partnership with Queen of Raw to buy up other companies’ surplus materials .

But is there really an incentive for you to deal with environmental problems?

I think there is.

Why?

Because we’re one of the leaders in this industry. If we don’t address it, we’re going to get hurt the most.

Hurt how?

We all live on the same planet. If the planet gets hurt, then we all get hurt. Our planet, our consumers—those are two very, very important things for us. Our investors are obviously very important, but we’re a very profitable company.

Do you still have plans to do an IPO?

That’s not something we are going to talk about.

You’ve been referred to as a brand that was really built on TikTok. If TikTok were to be banned in more states, like Montana, would that create a big problem for your business model?

I’m not going to comment on that. I think social media is important because the new generation grew up with it and they’re very used to that. If we’re growing up with them and we’re customer-first, we’re just using what they use.

You’re going to become more of a marketplace and sell goods from third-party sellers. Would it be accurate to say that you’re trying to compete with Amazon?

We have very loyal customers because we give them choices, and we give them the prices they love. Because of the customer-first principle, we want to make sure that whenever they revisit our site, they can find something else they want to buy. So we connect with local merchants to sell the things that we don’t make.

When you say local merchants, will the U.S. marketplace be exclusively for U.S. sellers?

It’s U.S. sellers and other sellers as well.

How are you going to ensure quality and make sure there are no counterfeits or low quality items from third-party sellers?

Those are monumental challenges and we’re going to take them on just like we’re taking on the other things we’ve talked about. You have to do it one at a time, there’s no shortcuts. If you do something wrong, you correct it, if you do it right, you scale it.

The way that we’re dealing with all these factories in China, you have to have a lot of agility. The Boston Consulting Group put out a report saying that agility is the fashion’s new source of competitive advantage and they featured us.

Can you still be agile, if you expand to more countries? And do you think you’re going to continue to source products mostly from China, as you expand?

That’s a bigger strategy for us, we call it localization. This whole [third-party] marketplace is part of our localization strategy. Localization is also having certain manufacturing hubs within a continent. For example, Turkey for Europe. Brazil for Brazil, currently and hopefully, for the rest of Latin America as well.

What would be the hub for the U.S.?

We’re looking at Mexico.

A friend of mine who shops frequently on Shein says that one flaw is it takes longer for products to get to her—10 days or so—I presume because of your on-demand model. Are there plans to shorten delivery times?

It used to take a lot longer. Now, it’s a lot shorter. It’s half the time now, we want to halve it again. So if your friend wants to have shorter delivery times, going forward, we want it to be competitive in delivery time as well.

Can you be competitive in delivery times while keeping prices extremely low?

I think it is something of a balance. You have to look at the overall needs of the consumer. Some consumers don’t want it to be delivered today. Tomorrow is just okay as long as you give me the stuff I want at the price I want. It’s a holistic calculation.

I’ve seen some reports that avoiding customs tariffs is “foundational” to Shein’s business model. Is that true?

That’s categorically not true.

Do you shop at Shein?

Yes.

What’s your favorite item?

A t-shirt. And also socks. The socks I got are pretty good socks. And the shirt is a pretty colorful shirt. I also buy my pet stuff from Shein. I have a dog. I have a cat. They wear different things.

You buy clothes for your pets?

Yes. Also a leash and harness. And then, because they’re very attractively priced, I can buy more.

Correction, July 19

The original version of this story misstated the name of Shein’s CEO and cofounder. His name is Sky Xu, not Chris Xu.