SHEIN doesn’t want to rely only on Chinese suppliers

south american executive becomes new vice chairman

SHEIN recently announced the appointment of Marcelo Claure, former COO of Softbank Group, as Vice Chairman of SHEIN Group. This means that the business he is responsible for will be promoted to a higher level of importance.

Claure joined SHEIN back in January this year, first as Chairman of SHEIN Latin America, responsible for SHEIN’s Brazilian business.

Claure is originally from Bolivia, South America, and immigrated to the United States.

Although he became an American, Claure’s ties to Latin America still run deep. He founded Brightstar, the largest Hispanic-owned business in the U.S., and in 2019 launched the $8 billion SoftBank Latin America Fund. Since its inception, the fund has invested in a number of businesses in Latin America, focusing on Brazil, its largest country. in 2022, Krauer became CEO of SoftBank Group.

Kroll’s roots in Latin America coincide with SHEIN’s plans to strengthen its presence in the region.

Early SHEIN only in the domestic build supply chain, using a small single fast return model to achieve rapid growth in the United States. Now, in addition to taking the South American users, SHEIN intends to directly in the local search for suppliers, and even built and China similar to the digital supply chain. Claure’s next step is also focused on this.

Finding Crowell, who has both investment experience and local resources, is an option for SHEIN, which wants to localise in Latin America and deal with all kinds of uncertainties.

After all, it will be difficult and unimaginable to build a huge and complicated supply chain system from scratch using local resources in a strange and distant country.

Conquering the new continent

Latin America is regarded as a gold rush by cross-border e-commerce companies, which still has one of the few growing global markets. Brazil is regarded as the “pearl” of this land, and is a must-contest place for many sellers and platforms. But the complexity of the social situation and harsh policies also show that it is not easy to put down roots here.

Brazil is the fifth most populous country in the world, with a GDP per capita of $9,149 by 2022, making it a market with great consumer potential. According to ABComm, the Brazilian e-commerce association, total e-commerce sales in Brazil will reach R$169.6 billion in 2022, up 5 per cent year-on-year.

Brazil presents a huge market, but lurking in the background are high tariffs with complex rules, and a disorientating social landscape where gangs and slums coexist.

There are more than 50 types of taxes in Brazil, including federal, state and municipal taxes, depending on the region. E-commerce mainly involves import tax, sales tax, value-added tax and goods and services tax. The Brazilian policy for cross-border e-commerce says that if the price of the goods is higher than $50, you need to pay 60 per cent of the tariff.

High tariffs will affect the pricing of goods, and the complexity of the tax payment process will also test the ability and efficiency of sellers, which will also affect the positioning and control of the platform.

In addition to taxes, how to deliver goods to consumers is also a headache for platforms and sellers. Brazil, Mexico are the main e-commerce market in Latin America, there are also a considerable amount of slums. Here is controlled by gangs, dangerous and at the same time poor facilities, it is difficult to feel the address. The hijacking of lorries is not surprising to those involved in the logistics business in Brazil.

For platforms, deep localisation in a land of challenges may be the better solution. Claure has said that SHEIN has been a huge success since its launch in Brazil in 2020. Laying out the supply chain locally is the way forward for SHEIN.

2022 is a bright year for SHEIN in Brazil. According to a report by Brazilian investment bank BTG Pactual, SHEIN’s sales in Brazil for the year (estimated) were a whopping R$8bn, or about $1.56bn, a 300% increase from 2021. It also continues to rank high among its peers.

SHEIN is off to a good start, but in fact, before its entry into Latin America, the e-commerce market has already shown a “one super many strong” situation. In the Latin American market, the local e-commerce platform Mercado occupies a large market share, followed by Amazon, Americanas, Shopee and so on.

Mektor is the largest e-commerce platform in Latin America, which has been operating in Latin America for more than 20 years, and its business now covers 18 countries and regions in Latin America. According to earnings reports, Mercado’s GMV has reached $10.5 billion in the second quarter of 2023, up 47.2% year-on-year.

Already leading rivals are moving deeper into localisation, which is making localisation the dominant direction in this market.

This year, Mercado announced a R$19 billion investment in Brazil to improve logistics and operations and increase the number of cities covered by same-day and next-day delivery; Amazon Brazil also recently announced that it will open trial operations to Chinese sellers, making it the 18th overseas site open to Chinese sellers.

Shopee’s local sellers have also doubled in the last year. According to Felipe Piringer, as of April 2022, the Shopee Brazil site has about 2 million local merchant shops.

Deep localisation

Coming to Latin America, where there are many policy hurdles and peers have strengthened localisation, there is no doubt about the future direction of SHEIN. As a platform that started with a supply chain advantage, SHEIN has chosen to replicate its tried-and-tested model in Brazil.

When SHEIN first entered Latin America in 2020, it lacked a localisation advantage over its peers. It relied mainly on lower prices under supply chain management to open up the market. According to some sellers, the price of a local Brazilian apparel brand is typically 100 reais ($19), compared with 30 reais ($6) for SHEIN, and much higher for Mercado.

However, relying on the domestic supply chain is not a long-term solution, and SHEIN may not be able to continue its price advantage if there is a sudden change in policy. Examining the Brazilian supply chain is also on the agenda.

According to Brazilian science and technology media NEOFEED news, Xu Yangtian personally visited the Brazilian clothing supply chain at the end of 2021 to assess the feasibility of producing clothing in Brazil, and signed a confidentiality agreement with two factories.

In September this year, SHEIN accelerated the local supply chain construction. It has partnered with 2,000 local apparel manufacturers in Brazil to establish a supply network. In the next few years, SHEIN will also invest R$750 million ($148.9 million) in Brazil to provide technology and related training to Brazilian apparel suppliers, in order to reproduce SHEIN’s model of quick return on small orders.

Lot of garments, source IC Photo

What SHEIN expects to reproduce is a production model that more precisely controls costs and prices. In China, SHEIN’s SKUs are generally tested from small orders of 100-200 pieces, followed by real-time follow-up of market sales to adjust production and delivery quantities, resulting in more cost-effective pricing by saving inventory and other costs.

If SHEIN can reproduce this model in Latin America in the future, it will be able to grasp a stronger price advantage from the production side and enhance its competitiveness among peers.

From the perspective of realisation conditions, Brazil also has strong landed. According to foreign media sources, in the next few years, Brazil may replace the United States as the world’s largest cotton producer and exporter, and its local textile industry also ranks among the world’s leading level.

In addition to the continuation of the characteristic supply chain model, SHEIN also follow the example of speed sell through, Shopee open the introduction of local sellers plan. 2022 second half, SHEIN will be in Brazil, Mexico investment pilot, allowing local merchants stationed in SHEIN, which is also known as the “platform model”.

Reviewing SHEIN’s initiatives in Latin America, the continuation of supply chain control and the absorption of more local sellers is the focus of its future development in Latin America. However, the complex social environment in Latin America and the game of multiple interests also test SHEIN’s public relations ability, and it needs a leader who is more familiar with Latin America.

Clare’s joining is not only a signal for SHEIN to release globalisation to the outside world, but also a sign of its deeper layout in Latin America. However, the maturity of the apparel supply chain in Latin America is not comparable to that in China, and SHEIN faces a completely different business environment and cultural conflicts, so finding a local executive to take the helm is just the beginning.