The following was transcribed from a recent interview on The Agile Brand with Greg Kihlström podcast.
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Last holiday season, and even most of last year, it was hard to escape stories about how the supply chain was causing difficulties for retailers, as well as their customers. Today we’re going to talk about Agile Supply Chains, and how they can improve the customer experience which is a win-win for businesses and consumers.
[Greg Kihlstrom] To help me discuss this topic, I’d like to welcome Peter Pernot-Day, Global Head of Strategy & Corporate Affairs, SHEIN. What we’re going to talk about today is agile supply chains, and really how agile supply chains are a win for the customer experience. So you touched on this a little bit in your intro, but let’s start by talking about the challenge, and there can be a lot of waste in the fashion industry. Those that pay attention to that, I surely have read some articles and things about that. And it’s often due to creating high volumes of products that may or may not meet consumer demand, to the tune of roughly $160 billion a year worth of excess inventory. In a world that’s awash in data, why is this still the case for so many brands?
[Peter Pernot-Day] As a pioneer in the on-demand model, I think that our approach has been to take the demand measurement technologies which have existed for some time and also the ability to link that to this digital supply chain were really products that we built from the start. As we founded the company, the idea was, let’s see if we can empower everyone to, A, self-express through their clothing. We call that being able to participate in the beauty of fashion. And in order to do that, we needed to have an ability to respond to customer interests as they changed. You know, fashion’s a dynamic industry. Tastes are changing. Product preferences are changing. And so, in order to meet that vision of being able to empower everyone to express themselves, we really wanted to build a flexible, dynamic, high-speed company. And that is what we’ve been able to do through this on-demand model. I think that other companies are starting to catch on to this. And I think that the digital revolution in supply chains, the ability to work closely with customers, the ability to respond to customer preference in a more flexible way, all of those things are starting to emerge in the industry. And we’re proud of the fact that we really pioneered it. We are one of the first, if not the first company to do this at the speed and scale at which we do.
Yeah, so let’s talk about how that kind of came to be. So, as we’ve been talking about already, SHEIN designed this on-demand business model that not only creates efficiencies for the business but, also, it’s customer-friendly. It reflects the trends that customers are seeking in real time and without some of the waste that I mentioned earlier. So, starting at the beginning, was building an agile supply chain something that SHEIN was founded on, or how did that come to be? Were there early insights that kind of pointed in this direction?
So when the founders got together and were animated by this vision of how do we empower people to self-express; how do we kind of break through the traditional layers and gatekeeping that exists in fashion, I think the idea that they happened upon, which was quite revolutionary, was the marriage of these technologies that I’ve been talking about. And I think that that allowed us to, from the start, have the flexibility and agility to engage multiple different suppliers to meet multiple different taste preferences, design styles, and do that quickly and flexibly. But I would like to, sort of, step back a little bit because I also think that one of the things that sets us apart is, while there is tremendous value in digital, and we have leveraged that very successfully, there’s also a component of this that requires us to engage directly with our suppliers in a more personal way, in an analog way, if you will. And I think that is another aspect of our business which is not well understood or maybe not well known, is that we invest heavily in our suppliers on the analog level. We’re providing new facilities. We’re providing supplier employee training. We introduce them to new technologies like digital thermographic printing, digital cutting. And we’re really looking at ways to build an ecosystem, a community or a partnership, if you will, around our supply chain. And so I think all of that kind of reflects our entrepreneurial spirit, like let’s find these small and medium-sized producers. Let’s digitally empower them. Let’s link them together. Let’s work with them. And I think that’s something that occurred organically as we built the business. And so, to answer your question, yeah, I do think that we have had this from the start, and I think it was part of our idea on what the company should be.
Yeah, and so you touched on some of the things involved in building this agility into your processes, but how long did it take to get this running smoothly? I mean, you mentioned you’re, if not the first, one of the first to do this. So certainly there was some learning that you needed to come by. So how did you incorporate change to this, essentially, a brand-new process?
I think, when we were founded in 2012, the idea was to try to identify some suppliers, identify customers and engage with them digitally. We have iterated on that constantly. And I think that is another hallmark of our business, is this real commitment to evolving, this sort of passion to experiment, to test and learn, to see what’s working. And so we’ve been very successful, and we’re so grateful to our customers for coming with us on this journey. But I think we aren’t really standing still. So we’re looking at new ways of empowering our supply chain. We just announced a major $70 million investment in what we call the supplier community empowerment program, which is aimed at providing capital to our suppliers to engage in some of these activities and projects and upgrades that we were talking about. And so I think that we’re constantly trying to evolve that capability, to improve that capability, to be more and more customer-led, if you will. And so I think that there’s a cultural ethos that we have as a company that really puts the customer first and drives us to try to meet that customer where they’re at.
What kind of insights and data and customer metrics do you use so that you can be so nimble? I mean, I know it’s often related to sales data, but you mentioned some initial indicators, like, maybe, without giving away the secrets or whatever, what are you looking at as far as how do you measure success of the process and of the agility of your supply chain?
At the highest level, Greg, what we’re looking for is something I call the demand signal. And the demand signal is a proxy for customer intentionality. The customer has a vision for what they want. They have a vision for how they want to self-express. And what we need to do is identify that and, using our proprietary techniques – and, really, the 10 years in which we’ve been in business, we’ve been refining this and refining this – is determine if that intentionality is actually associated with demand. And we do that across our platform. And so we’re looking at and interacting with, almost as in a conversation, with our customers about what types of products they’re interested in, what types of products they’re not interested in. And we extrapolate from that demand signal very solid projections on how much a particular product is going to sell. And then we can take that back to our supply chain and produce to meet that actual demand. And I think our inventory levels being so low reflect the success of our measurements. So we are doing, I think, a very strong job in, A, identifying demand signals, and, B, translating that back to our supply chain.
You mentioned that some other companies are starting to catch on, maybe following suit, but what’s preventing those that are still kind of doing things the old way, even though they probably know better and they’re seeing some of the benefits and just the reduction in waste, if nothing else? What’s preventing some of these other lagging brands from following suit?
I mean, I can’t speak to other brands and tensions or their business models. I don’t know them well enough to be informed. But I do know that, for us, we see the on-demand model as something that is replicable and scalable and usable by other brands. And we are hoping to and open to partnering with other brands to share what we’ve learned, to work with them in ways that are collaborative or mutually beneficial, to share technologies and capabilities. I think where this is most critical is in the area of sustainability. One of the hallmarks of our sustainability program at SHEIN is around what we call collective action, or collective responsibility. And we think that the capabilities that we’ve developed and are perfecting on the production side with low waste, low-intensity manufacturing, those types of capabilities are something that we should share with the entire industry. And I think there are other market participants who have advances in textiles, advances in recycling or reuse, that we’re learning from as well. So I do think that one of the best parts of our industry is that there is an emerging sense of collective action, collective responsibility. And I’m hoping that we will continue to play a role in that. And I’m very confident that we will, in fact.
One other thing I wanted to get back to, and a lot of what we talk about on this show is about the customer experience and really how to drive better customer experiences. So there’s business value in creating greater efficiencies. There’s, let’s call it, social value in reducing waste and creating a more sustainable business. How has this approach then also helped SHEIN to be more creative, more in tune with its audience, maybe go out there a little bit more than it might have, and more in line with what audiences are wanting?
Our view is that the center of our business is our customer. And our customer cohort is extremely creative, extremely broad and really empowered. And they have strong views on what they want to look like, how they want to be self-expressive and what types of clothing make them feel good, make them feel like their best selves. And that customer-centricity is what drives our creativity. We have customers in 165 countries. And those customers are so diverse, and they have so many new and novel ideas, that we’re producing clothing that, if it was left to a traditional model, we wouldn’t be able to meet that diversity. We wouldn’t be able to celebrate that authenticity in the way that we are. So I think, to answer your question in the first part, our customer-centricity is what makes us creative. But we also go beyond that. So we have a very active in-house design team. We’re constantly looking at new designs, new ways to reach and excite our customers.
But the most innovative thing that we’ve done is a program called SHEIN X. And SHEIN X is an incubator for new designers, new artists, who can work with us, and we will help them with logistics. We’ll help them with production. We’ll help them with marketing. We will promote and advertise their products. And we will list them on our site, alongside our normal collections. And this is a way for new designers, new artists, to bring forward their vision, their voice, in a way that is safe; it’s empowered; it’s easily accessible. And so some of the traditional barriers to designers, some of the traditional barriers to artists seeking to move into the fashion industry have been removed. And the creativity that that spawns is remarkable. We did our first-ever global SHEIN X summit in Los Angeles, and we had several collections from several of our SHEIN X designers. We had at least 50 designers at the summit. And to see the breadth of their vision and the uniqueness of their ideas and to be able to bring that to light, I think, is something that’s really becoming more and more a hallmark of our company and reflects our founders’ entrepreneurial vision. You know, here we have small and medium-sized designers empowered and equipped to go out and really be the next big thing.
Yeah, wow, that’s really interesting, and it sounds like the diversity is enabled by the agility of the supply chain, and all of that then ties into just a better customer experience. You know, when a customer sees things that are relevant to them, it seems like it’s kind of a full circle there, would you say?
Yeah, I think so. I think that the most dynamic systems and the most agile systems are systems that are responsive and flexible to change. And when we talk about agility, or at least when I talk about agility, what we’re thinking about is how do you identify an input; how do you orient yourself to that input so that you can react successfully? And the more and better you are at reacting to those inputs and the faster you can do that, we think, the more successful a company can become. And we, through this on-demand model we’ve pioneered, are able to be quite agile.
So do you see this agility, and the agile supply chain, is this the future of e-commerce? And what do you also see next, as SHEIN continues to innovate?
So I think, down the road, we’re looking at a couple of strategic projects. So I think one of the largest is what we call localization. We feel that, in order to continue to be customer-led and customer-centric, it’s really important to be in the geographies where our customers are located. We’ve invested very heavily in the United States. We have a Los Angeles headquarters. We have a major distribution center in Whitestown, Indiana. We’ve got a smaller operation in Washington, D.C. And what that does is it brings together individuals who are familiar with the U.S. market, who have in some cases decades of working in the U.S. fashion industry and are understanding of what U.S. customers are interested in. And that allows us to further refine and tailor our offering. It also allows us to bring distribution into the United States in a way that speeds up deliveries. It reduces the carbon footprint of the company. And it really allows for the customer experience to be, I think, elevated. And so I think that’s an area where you’re going to see a lot of growth. To give you a specific example, we’ve just announced a major initiative, over $100 million investment, into Brazil, to start doing local manufacturing with suppliers in Brazil to really build up a marketplace in Brazil so that Brazilian customers can interact with Brazilian suppliers. And we will have a sustained ecosystem within Brazil. And I think that’s something that those two projects really reflect, this localization strategy. And I think that’s something that we’re excited to see continue into 2023, 2024
I think another area where we’re really focused, and we touched on this a little bit throughout the conversation, though, is sustainability. And we really see sustainability as a very important driver of our business. We think that the efficiencies that we’ve gained and some of the efficiencies that we hope to gain as we continue on our journey are actually net positive from a business perspective; they’re net positive from a customer perspective – customers are getting products that they can be very confident in and feel good about; and it’s also good for the collective. I talked a lot about collective resilience and collective responsibility and sharing. I think those are all areas where we as a leadership team are really focused going into 2023 and 2024. So I’m excited to see some efforts there.
I think the last thing, and this is just more of a personal one, but we’ve just announced a partnership with FIDM, the Fashion Institute of Design. And FIDM is this great school that has so many talented students. And we’ve created a scholarship program where we’ll be giving up to $40,000 in scholarships to individual designers for them to participate in the SHEIN X program we were talking about. And going back to that idea of empowering the new and finding the next creative voice, this is a way in which we can reach into individuals at the very start of their career, you know, really in college, and we can nurture them and empower them so that they can be really successful and to do so in a way that eliminates some of the financial burdens of higher education, that allows them to see and experience what the fashion industry is like. So I’m personally really excited about the FIDM partnership, and I’m looking forward to seeing more of those types of relationships develop over the course of this year.
About the Guest
Peter Pernot-Day is Global Head of Strategy and Corporate Affairs at SHEIN, and a member of the company’s executive team. Based in California, he helps set SHEIN’s global strategy and leads projects across the organization focused on supply chain, market access, digital services, privacy and security, public affairs, and environmental, social and governance efforts. Prior to joining SHEIN, Peter held leadership roles at Mixpanel, Inc., a leading provider of data analytics software for marketing departments, and at BNP Paribas, a global financial institution. In his free time, Peter enjoys surfing and open water swimming.
About the Host, Greg Kihlström
Greg Kihlstrom is a best selling author, speaker, and entrepreneur and host of The Agile Brand podcast. He has worked with some of the world’s leading organizations on customer experience, employee experience, and digital transformation initiatives, both before and after selling his award-winning digital experience agency, Carousel30, in 2017. Currently, he is Principal and Chief Strategist at GK5A. He has worked with some of the world’s top brands, including AOL, Choice Hotels, Coca-Cola, Dell, FedEx, GEICO, Marriott, MTV, Starbucks, Toyota and VMware. He currently serves on the University of Richmond’s Customer Experience Advisory Board, was the founding Chair of the American Advertising Federation’s National Innovation Committee, and served on the Virginia Tech Pamplin College of Business Marketing Mentorship Advisory Board. Greg is Lean Six Sigma Black Belt certified, and holds a certification in Business Agility from ICP-BAF.
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