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garments piled up in a factory in panyu

core tips:

1. the financial times visited eight factories in panyu to learn how it became the "shein village".

2. xiyin founder xu yangtian persuaded the panyu factory to adopt a small batch order model to settle payments faster.

3. suppliers said that in the face of competition from temu, xiyin adopted a policy similar to "choose one of two".

4. “whether it is xiyin or temu payment, we will go wherever there is an order.”

at a factory in panyu, guangzhou, china, workers finish a new garment every few minutes. the new products sit alongside leopard-print skirts, winter coats and polyester fluorescent vests, all made at the request of a single retailer: fast-fashion giant shein.

this scene is played out in thousands of workshops in the panyu garment processing zone, the heart of the xiyin retail empire. the mountains of clothing will be sent to a nearby warehouse, then trucked to guangzhou airport to be loaded onto cargo flights. soon, distribution networks thousands of miles away in europe or the united states will quickly fulfill online orders and deliver the clothes to the doorsteps of young shoppers.

speed ​​is of the essence. "it's never easy to handle xiyin's orders. we have to complete them within seven days, which means we often have to work overtime," said a factory manager who oversees a workforce made up mainly of women.

the financial times witnessed xiyin’s control over the garment processing process by visiting eight factories and other workshops in panyu, and learned about the process through exchanges with merchants, supply chain experts and employees. it is this process control that has made xiyin one of the world’s most popular retailers. xiyin achieved a profit of more than $2 billion in 2023, with website sales reaching $45 billion.

sheinvillage

today, the central area of ​​panyu is known as “xiyin village.” but before xiyin founder xu yangtian came here to build his business, panyu’s factories mainly worked for international fashion brands, handling large orders that took up to a year from design to production.

xu had to convince the panyu factory to adopt his small-batch order model: start by producing 100 units of a new product. only when those products sell well on xiyin’s website will production be increased. “when xiyin first arrived, no one wanted to work with them because the orders were so small,” said a factory manager.

workers making clothes for xiyin

however, xiyin convinced them with better payment terms. panyu suppliers said that the standard payment cycle in the industry used to be 90 days, but xiyin allowed some people to receive payment in just one week. xiyin's soaring sales also brought confidence to panyu suppliers.

discussions about xiyin in panyu wechat groups continued to grow, and word quickly spread that working with xiyin could make money. "by 2020, everyone was working for xiyin because their orders were so large," said the factory manager.

one garment factory owner estimated that of panyu’s 7,000 garment factories, about 80% worked for xiyin at its peak, either as contract manufacturers or accepting excess orders.

in order to maintain price competitiveness, xiyin not only cut costs, but also put pressure on factory owners to purchase cheaper materials to squeeze profit margins. however, some factories will get higher profit margins because they bear higher costs when designing and ordering materials. xiyin also introduced an electronic ordering system to track product sales and adjust production accordingly.

bing gongsun, a businessman who sells products on all major e-commerce platforms, said, "xu yangtian helped digitize the entire supply chain. before xiyin came, we took orders over the phone. his contribution was to improve efficiency."

when the financial times visited eight panyu factories, they saw factory managers sitting next to workers at sewing machines, checking monitors with automatically updated orders provided by an operating system developed by xiyin.

the workshop that supplies xiyin

still, much of panyu’s other garment production remains low-skilled. wages here have been rising as young workers shy away from factory jobs. factory managers say workers who make garments for xiyin typically make between 7,000 yuan and 12,000 yuan a month, depending on their workload, while other blue-collar workers in the area make between 5,500 yuan and 6,500 yuan.

xiyin monitors quality by checking photos of clothes and weighing them when they are delivered to the warehouse. "xiyin is not that picky, but it does check the clothes," said the financial director of a xiyin factory.

over the past decade, xiyin's development has transformed panyu, where trendy cafes have sprung up and restaurants serve food from all over china to the large number of migrant workers.

regulation and competition

xiyin is planning an initial public offering (ipo) in the uk and was valued at $66 billion in its latest round of financing.

however, pressure is growing on xiyin and its business model. although xiyin does not sell products in china and will move its headquarters from china to singapore in 2021, its ipo still needs approval from chinese regulators, according to people familiar with the matter.

meanwhile, pinduoduo's well-funded cross-border e-commerce temu launched a marketing blitz and borrowed from xiyin's model, even poaching xiyin's suppliers in panyu. for xiyin, it's not just competition from local rivals that's at stake. competition from domestic rivals is not a big deal, as the company has always viewed its "special relationship" with clothing manufacturers as a competitive advantage.

the trouble is that the biden administration on friday moved to close a trade loophole that allowed small packages to enter the united states duty-free, posing a new challenge to xiyin.

freight trucks outside xiyin warehouse

“xiyin created a whole new retail model and a whole new supply chain that made it work,” said brittain ladd, a u.s. supply chain consultant. he noted that now temu is “taking advantage of the efficiency gains that xiyin brought to the supply chain.” at the same time, xiyin is also working to diversify its business into areas other than women’s clothing.

“this is a critical moment for xiyin,” he said.

choose one

now, another company has also set its sights on panyu, and that is temu. according to people familiar with the matter, temu has placed a large number of ads on instagram and facebook, and has replaced amazon as google's largest single advertising contributor. google declined to comment.

in 2022, temu established an office in panyu and began poaching xiyin’s employees and suppliers, prompting xiyin to take defensive measures.

according to suppliers, xiyin asked them to stop working with temu and said that any merchant found selling products to both platforms at the same time would be fined and have their contracts cancelled, which is similar to a "choose one of two" policy.

Temu

however, every policy has its countermeasures. factory owners in panyu have found some clever ways to deal with the competition. "there are many ways to get around this regulation. many suppliers have several factories. you just need to register under different names and use these companies to sell products to both platforms," ​​said the financial director of a xiyin factory.

in response, a xiyin spokesperson said the company "has never formulated a two-choice policy."

“while some former xiyin employees have applied to join our company, we are cautious about hiring from direct competitors and the number of such recruitments is limited,” temu said.

ipo variables

in 2023, xiyin launched a round of supply chain cleanup operations before its ipo. its auditors found that a group of suppliers violated the company's certification standards and abandoned them. subsequently, many suppliers abandoned by xiyin turned to sell products on temu.

as its business matured, xiyin began looking for new sources of revenue. last year, it launched a platform for merchants to sell everything from garden furniture to electronics. xiyin has also begun working with factories in brazil and turkey to bring some products closer to shoppers in the americas and europe.

xiyin has driven the development of panyu

the businesses are part of the growth story xiyin hopes to present to investors when it goes public. a person familiar with the company said xiyin is in "wait-and-see mode" because it is unsure about its listing plans.

however, panyu factory managers are not concerned about xiyin's ipo. their focus is still the same as before xu yangtian's arrival: how to survive on meager profits.

"whether it's xiyin or temu paying, we'll go wherever there's an order," said a factory manager. (author/xiao yu)

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