Shein's head of strategy Peter Pernot-Day on how the e-commerce app is trying to get ahead of its own marketing narrative

0:02Hello, everyone, and welcome to the Modern Retail Podcast.

0:30a lot of interesting things with marketing. There have been efforts with circularity and resale and different things like that. I want to get into as much as we can in the short, short time we have. But Peter, how are you doing? Thanks for joining. Hey, Cale. It's so good to be here with you today. And thanks for having us on the podcast. Looking forward to chatting. I'm super looking forward to it too. So first, let's talk about you. Who are you and how did you end up at Shein? What were you doing before? So I'm the head of our strategy group at Shein. Part of my role is helping execute on key corporate priorities and objectives.

1:02I joined Shein in late 2021 as the deputy general counsel and chief privacy officer. And I took over the strategy part of my job in 2022. So I'm pretty new to this role. Got it. And so when you joined, did you think you would end up heading into a strategy role? Like being the counsel is the hidden parts of things and being strategy is much more public facing or being involved with the public facing stuff. Am I wrong about that? You know, it depends. Obviously, lawyers like to stay out of the limelight and keep their clients out of the limelight. But I think one of the things that drew me to Shein is I'm really impressed by our founder's vision.

1:46And I think the opportunity to engage with people like yourself and your listeners and share that vision and what we're about has really excited me. So when I got this opportunity, it was really a no-brainer. I jumped at it. Got it. And I actually wanted to get into this because I think Shein is really interesting because people think of it as new and it's honestly not that new, right? You guys have been around for over 10 years. Can you just give a little truncated history of Shein from where it started to where it is now? So we were founded in 2011 and we've been around and selling products to American customers since about 2014, 2015.

2:24Our founders really got started because when they were looking at the broader fashion ecosystem, the broader retail ecosystem, they saw that there were opportunities to enhance efficiencies through the use of technologies that I think are pretty well established these days, but were relatively novel then, and that they could use those technologies to really let everybody engage in the fashion ecosystem. And what they took that to mean is people want to self-express through their clothing. They want to be able to identify as members of a group or members of a subgroup, and that the current retail model had some inefficiencies that made that difficult to achieve.

3:05And so I think that's what really animated them and has driven us from originally just selling wedding dresses to now being a fully integrated global marketplace, at least in some key geographies like the United States. Correct me if I'm wrong. This is what I've always tried to understand the model and synthesize it as well as possible because many people refer to Shein as sort of an online fast fashion. And you do have a lot of different SKUs, but they're in very small numbers. Is that correct? Where you try something out, you do a few, you put it on the app, and if it sells, then you produce more.

3:41But if it doesn't, then you stop producing that. Is that correct? Yeah, that's correct. I think what we like to call it is on-demand production. And the way it works is, as you mentioned, And we will identify potential products. We'll work with one of our small batch production partners. And we'll make between 100 and 200 copies of that garment. We'll then offer it for sale. And if we detect a demand signal, we'll go back to our contract manufacturing partners who we're connected to through our supplier management system. And if we find a partner who has capacity to meet what we project demand to be, they'll make those garments for us.

4:21And that's allowed us to operate profitably. It's also allowed us to dramatically reduce excess inventory waste. How quickly does it take to get a garment from idea to for sale on the app? It really depends on the garment. So as you know, some garments require embellishment steps and are much more complicated to make. some are much more rote and really easy to make at bulk. But I would say in general, some of our garments can make it from design to sale within a month. Wow. That's very quick. I wanted to step back and go into your new role, sort of the head of strategy, corporate affairs. How do you describe that?

5:04What does that mean? What is your purview and what are you focusing on right now? So I think our core strategies going into 23 and 24 are really around localization. And the marketplace is an extension of that strategic objective. What do we mean when we say localize? We want to be closer to our customers and closer to our core geographies in a variety of ways. So the first is through engagements. These would be pop-up stores. These would be more localized and tailored marketing. These would be more localized and tailored collections that we offer for sale in those geographies. It's also infrastructure based.

5:45So these would be building and expanding warehouse and distribution facilities, both in the United States. We've got a new one in Canada that we've just built outside of the greater Toronto area. We've built one in Poland. We're looking at expanding further in Brazil, where we have major operations today. And so that's part of the infrastructure component. And then the final piece is finding both suppliers who make and manufacture Chien clothing, but also third-party sellers who are interested in coming alongside us and reaching our customer base in these local geographies. And we're actively recruiting partners for the marketplace as we speak, both in the United States and the European Union, and obviously in other areas as well.

6:33Yeah, the marketplace is also operating in Brazil right now. Is that correct? The marketplace is active in Brazil. We've announced a major expansion in Brazil, around$100 million investment for precisely this reason, where we'll have local Brazilian contract manufacturers, we have Brazilian distribution centers, and we have a team on the ground in Brazil to help us understand and meet customer expectations in that country. Can you just give a brief synopsis of how your third-party marketplace model works? Let's talk about the US. Are you seeking out a number of brands? The idea is they will upload their SKUs, and then they will dropship them?

7:16How are you seeing this? What types of brands are you going after and what's been the uptick so far? So I think we're recruiting a wide variety of potential sellers. And I think we're looking for companies that share our vision of really making the beauty of fashion, the beauty of lifestyles accessible to everyone. The way that it works is we're offering our really industry-leading demand measurement capabilities and so that our sellers will have access to this type of information. But we're also allowing the sellers to have a good degree of flexibility. So they will be able to determine, for example, whether they want to handle returns or they'd like us to handle returns for them.

7:59And then we're working with them to do fulfillment. So we have a very strong fulfillment capability. And these would be last mile delivery, for example, international air freight, for example. All those things are things that we would help our sellers handle if they wanted to. What is the criteria for being a seller? Do they have to be able to produce at a certain quantity? How are you seeking them out and what's the rubric? So I think the most important thing is that they share our commitments. And those commitments, I think, are best illustrated by our supplier code of conduct. You know, we have zero tolerance for forced labor.

8:38We really want to identify and work with companies that share those commitments and are willing to sign our supplier code of conduct. So I think that's the first step. And then I think the second step is, are they capable of meeting global demands? We're a global company. We have customers in over 150 countries that are interested in a diverse range of products. And so we want to make sure that the contract manufacturers or sellers that we work with have that kind of capacity and experience to support a global brand and participate in a global marketplace. So if I'm, say, a dressmaker in LA who wants to sign up, I have to be able to sell enough clothes that's global so it's not just for the US marketplace, it's for every Shein customer around the world?

9:25No, I think it's more around the ability to produce high-quality items at the speed and at the scale that reflects the marketplace they're participating in. So if we took your example, and I'm a dress manufacturer in Los Angeles, we'd want to make sure that you have experience working with an e-commerce platform of our scale to meet U.S. demand. Do you have a target? Is this a way so that you're relying less on manufacturing overseas and production, say, in China? Is that the impetus behind doing these localized marketplaces? And if so, what's the target for how much of the collection will be from the marketplace and how much will be from the Shein private labels?

10:06So we're still early days, and we don't really have a breakdown of how much will be Shein, how much will be third-party sellers. I think in terms of the impetus, one of the key drivers of this initiative was really customer expectation. We wanted to be able to offer our customers a wider range of products. And I think that's something that we've seen demand for amongst our customer base. And so we wanted to meet them there. I think you're right, though, that in terms of reducing shipping speeds, reducing the impacts of shipping, bringing production and distribution closer to our customers is something that we are very focused on as we expand something we call the Evolution Roadmap, which is our path towards reducing our carbon footprint 25 % by 2030.

10:59Going off of all this and sort of expanding a little bit, I wanted to ask about the overall marketing strategy because I feel like Shein has become a much more front-facing brand than I remember it being. So I think Modern Retail wrote a story maybe two years ago that was about how Shein was really popular. But a lot of your marketing was in Google search or pretty much in being sort of hidden, but people being able to find your products if they wanted to. But now you're doing more pop-ups. You're talking about sustainability. Can you talk about that evolution to trying to get ahead of the conversation?

11:33Sure. So one of the things that I love about working at Shein is we really have a global vision. And we want to be seen as a responsible global company that's focused on meeting our customer expectations. And I think our customers have two very strong values. One is they want to have access to affordable, high-quality, fashionable garments. And I think the other is, is that many of them care about having access to sustainable options. And I think some of the efforts that you're seeing today reflect those two values. We want to be able to explain how our company works. So that's the on-demand business model.

12:12It's a very different form of production than I think other garment manufacturers have used. And I think is something that allows us to be both accessible from a price perspective and profitable. I think the other component of it is sustainability has often been something that's limited to specific collections or to very high priced brands. And our vision is to offer a very wide selection of responsibly sourced garments using our Evolution by Design fabric standard, but also that's financially accessible. And so that people who do not have tremendous means can buy sustainably sourced, responsibly produced garments.

12:57That's part of what we're working towards as a business. And I think both of those are responsive to what we see our customers being interested in. Can you talk about how you figured out this is what your customers were interested in? Was it that, you know, I feel like, you know, business press, but also consumer facing press has written about you for a while. There was a lot of mystery for a bit about exactly how you operated and what it was. And so did you do surveys or did you just realize we do have these things that we should be more front-facing because this is what our customers are asking us to say?

13:32So I think that for us, the driving force here is we wanted to engage with our customers. And we listen to them through surveys. We interact with them on social media. We interact with them at these pop-up stores that we launched as a form of direct engagement. And one of the things we heard is exactly what you said, is the brand seems mysterious, or how does this really work? And so we have launched a multi-channel effort to try to explain why our business is different, how it has revolutionized certain aspects of the garment production process to achieve very low prices, but to do so in a way that also is sustainable, both from a financial perspective and possibly from an environmental perspective as well.

14:25Now, there's still work to be done on that last piece, the environmental piece, for sure. But I think there's a lot of misunderstandings about how our brand works, that our customers have, that other stakeholders have, and we're going out and trying to correct that today. That makes a lot of sense. I actually want to ask about what you're learning in trying to explain that, because I feel like that's a really, really difficult marketing task where you're trying to say there's a bad perception about us. We want to write it. And so like, for instance, I like, you know, there was the influencer trip that happened recently.

14:55Do you like, how are you trying to tell this story? And what are you seeing resonates or what doesn't resonate? And so that you can learn to be able to tell the story correctly to shoppers? I think that the most important thing any brand can do, and I think Sheen is trying to do this as well, is to be transparent, to find your own voice, and to share how your business works and as open and honest as you can be. Obviously, that has moments of great success where we resonate and connect with our audiences. And obviously, it also has times where that doesn't work as well. But I think that looking at our vision as a leadership team, our core objective is to be transparent, to share what we're about and who we're about.

15:44And I think speaking to the influencer trip itself, I think that was an effort to do that. I think that those influencers spoke honestly about what they saw. And I think it's a shame that they were attacked for it on social media. I don't think that they bear any responsibility for reporting honestly about what they saw on their trip. It also goes to a deeper question, which is when you're trying to talk about something that people don't often see, like where clothes are made, it's difficult to actually transmit that message. So is that something that you're going to continue doing, not necessarily with the influencer trip, but talk more about here are these manufacturing places in China?

16:23Or do the customers respond to that? Or is there another way to get that message across? Do you understand what I'm saying? I do. our idea is to be as open as we can about how garments are produced. And I think we have a number of ways we can do that and we're exploring those. But I think your broader point is correct, is that this is a highly complex, globalized supply chain. We have producers that we work with in China. We have producers we work with in Brazil, Turkey, northern Mexico. And that's just our contract manufacturers. For example, our cotton, we source 22 % of our cotton from the United States, 67 % of our cotton from Brazil.

17:08How do you capture that aspect of the supply chain? And so I think educating customers is something that we're very committed to doing. That's part of the reason we're on this podcast today. But I think you'll also see other efforts to use media, to use video and other educational components to explain just how complex supply chains can be. We're going to take a quick break and we'll be right back. Can you talk a little bit more? Because this is something that you guys have been giving more details on and I want to just get more into the nitty gritty. But I think you call it your circularity program.

17:46It's generally resale. Is that correct? So our circularity program has multiple facets. Resale is one of them. We launched the Shein Exchange platform. We have about a million active users on that platform. And this is, for your listeners, a platform where customers can do peer-to-peer resale of pre-loved Shein clothing. And we've seen some success with that platform. But that's not our sole method for circularity. We've also partnered with a company called Queen of Raw, and Queen of Raw uses SaaS technology to assess dead stocks across the industry and then allows people to purchase that dead stock for reuse.

18:28And it's one of our objectives to become the industry's leading purchaser of dead stock material for repurposing into our garments. The other component of this is we're looking at next generation materials. I mentioned earlier the Evolution by Design standard. This is a fiber standard that, while itself not fully recyclable, includes 30 % recycled polyester in its garment mix, but also reflects an idea that we have, which is true circularity is going to come from better designed fabrics and better designed garments that are able to be broken down into their components to drive recycling and reuse.

19:10And this will drive us towards circularity. Got it. This is something that I've always wanted to ask pretty much any company that's in your position that is mixing technology with centuries-old business models. So if you have a SaaS program that is trying to make the supply chain more efficient and deal with dead stock, if you are trying to introduce new types of materials that haven't been used before, but you're also working overseas with manufacturers that have been working for decades and have their own systems. How do you implement those so that you know that they're actually running? What is the process by which you're able to meld those two things together, specifically when you rely on so many disparate parts of the supply chain?

19:50So I was actually at Collision in Canada last week, and I talked a little bit about this point. What I think Shein is an example of is something I like to call augmented intelligence. What does that mean? So we are using technologies that have existed for some time, but that are often associated with, quote unquote, artificial intelligence. These are things like machine learning. These are things like some kind of language model, statistical analysis and algorithms. We leverage those to connect with our suppliers and we can look at inventory levels. We can look at capacity. We can help them order materials and track all of that at a high level of granularity.

20:35That connection is one component of this. But what really drives it, in our opinion, is this close relationship we've built with our suppliers over the last 11 years that we've been in business. This means going to their factories, meeting their employees, working with their teams to empower them to use new technologies like digital thermographic printing. and also investments in their communities. So we've invested, I think,$70 million into our suppliers to make sure that they have appropriate facilities, that they have technical training for their employees. All of those things reflect this combination, to your point, of technologies with a physical practice that's existed for centuries.

21:20So to us, that's really the key. and that allows us to understand how they're making garments, what they're using to make those garments, and to measure their performance in a way that we feel confident gives us visibility across our entire supply chain. I wanted to ask a broader consumer sentiment question that goes back to what we were talking about earlier, which is, you know, you're talking a lot about sustainability, you're talking a lot about transparency, and I feel like people, you know, either us, like someone like me, who's a journalist who writes about retail, or you, who works for a retail company, we talk a lot about sustainability and that it's an important thing.

22:00But I'm not convinced that even if you talk to a person and they say they care about it, that actually is mirrored in their shopping patterns or in their decision-making patterns. And so I feel like you would have the data on this. What are you seeing in terms of what people say versus what they're buying and what they actually care about? So I think this is a great question. We did some work with Vogue Business, and we found that about 89 % of consumers, the clear majority of consumers, consider sustainability when they make an apparel purchase. but that consideration is not the leading factor and we our data suggests that really between four and six percent of consumers are what we would call highly sustainably focused which means that sustainability is the driving choice but a pretty significant minority between eight and twelve 12 % view sustainability as being very important to a purchase decision.

22:58So I think the picture is somewhat mixed. Most consumers are aware of sustainability and they want to find options for it, but it's not the driving decision point. And I think that's why we as a brand have an interesting role to play, which is because we are more price competitive. As we start to offer more sustainable options, I think we will be able to meet customers who may have seen sustainability as a marker of premium products versus more generally accessible products. A few more minutes, but I wanted to get into sort of your future plans for the year. It sounds like in the US, specifically, the marketplace is one of your big focuses.

23:40Is that correct? And sort of getting the marketing message out? So I think our biggest objective in the United States is to continue expanding our logistics footprint. So we have a facility in Whitestown, Indiana. We're adding 500 ,000 more square feet to. We're also building a parallel facility in Cherry Valley, California. And those are major, major efforts. As you know, those are significant projects. We're also very focused on the localization effort. And that means continuing to expand our U.S. team and U.S. executive team to be able to meet the needs of American customers. So I think those two things are our primary objectives.

24:19But, you know, obviously, we're very happy to be engaging with the media and other key stakeholders and talking to the community, learning a lot of new things and new technologies and capabilities that are in the retail space. And I think that's actually been quite rewarding for us. And then I think the final piece, and this is kind of near and dear to my heart, is the She-NX program. And this is something where we're looking to partner with design schools and independent designers to work with us. We will provide logistics, manufacturing, marketing, return and refulfillment support. They contribute designs and artistic renditions, and those are things they own the intellectual property for.

25:04And the intention is to allow them to break into the fashion industry, to have an opportunity to have their voice and vision heard by our entire global audience. Our goal for 2023 is to add 1 ,000 new designers globally. And you're working with design schools or with individuals or both? Or how does that work? It's both. So we've just announced a partnership with the Fashion Institute of Design in Los Angeles. We are providing a very significant scholarship, around$40 ,000 for eligible students. And this is a way for them to continue their education while also potentially launching a fashion brand.

25:41But obviously, we work with new and emerging designers. And some of these designers have their own brands already. Can you just give sort of a quick nuts and bolts? So pretty much they are up and coming designers. They have a few things that would fit within the Shein platform. And therefore, you guys would help them with designing it en masse and then marketing it? Or would it be a section in the Shein app that says these are from our cohort? How are you seeing this working out? So the typical Shein X designer comes to us with little to no experience in, let's say, mass production. And so we work with them in multiple ways.

26:22The first is helping them understand how to use computer-aided design and how to render garments that are capable of being produced at a high quantity. And so this would be the first step. We will then, once they have mastered those skill sets and we work with them on that, we will bring their garments to a production and we'll use our small batch production model. So they can launch a collection. There will be a limited number of garments behind each product offering. That's put on sale on our site with Shien X, the designer name, and is marketed with their name and their collection criteria as a unique capsule collection.

27:09If those products sell, we will continue to produce those products for them and in partnership with them, and they will receive royalties for those goods. If the garments are not resonating, then those producers are free to continue in the program up to a point And at that point, they can either continue to buy our services or that they can graduate from the program. So you mentioned localization program is a big tentpole that you're focusing on for 2023. Does that mean we should expect to see more pop-ups? And on the marketing front, what types of campaigns do you think you'll be doing? Will you be doing more work with influencers?