:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/VTJGNYEU4RHSXJPENOEVQU6VM4.jpg "Shein's head for Latin America, believes Brazil can be a manufacturing hub for Latin America for the Chinese online fashion retailer.")
Bloomberg Línea — Chinese e-commerce fashion retailer Shein plans to increase the local production of clothing sold in Brazil to 85% by 2026, a strategy that was not merely adopted in response to discussions in President Lula da Silva’s administration to create a tax on goods imported and sold with a value of up to $50 (252 reais), according to Marcelo Claure, Shein’s chairman for Latin America.
In his words, Shein considers that Brazil has the conditions to serve as a base to supply other markets in the region, in addition to acting as an experiment to internationalize production.
Claure, who recently met with Brazilian authorities, said that before the announcement, the company already had a pilot program with nine local clothing manufacturers in Brazil, adapting the production model of those suppliers to its own operations.
:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/WJVPC4F2YRD3BHE57N3DHQHWNA.jpg "Marcelo Claure to Lead Chinese Retailer Shein’s Latin America Drive")
The retailer’s business model is such that it does not work with inventories, but rather produces small batches of garments — a few hundred— which are then advertised on its website. If demand picks up, further orders are placed with the suppliers.
According to Claure, who was COO of SoftBank Group until a year ago, traditional clothing manufacturers process orders over long timelines and in large lots, while Shein operates on demand: sourcing exactly what the consumer wants and in very small batches.
“It’s a digital model, different from traditional manufacturing,” said Claure. “That doesn’t mean we can’t adapt traditional manufacturing. We will basically train people, bring our technology, and work closely with manufacturers that want to become Shein manufacturers in order to bring them into this new way of manufacturing in which there is no inventory. We’re manufacturing based on demand.”
Partnership with Coteminas
Shein plans to introduce its small-batch, rapid-production model in Brazil, working with 2,000 local suppliers and generating around 100,000 new jobs through third-party companies by 2026.
The retailer has already signed an agreement with Coteminas (CTMN) for 2,000 of the textile company’s apparel manufacturers to become Shein suppliers to serve the Brazilian and Latin American markets.
Coteminas is owned by former Brazilian president José Alencar, and is currently headed by his son Josué Gomes da Silva, who in turn is president of the Federation of Industries of São Paulo State (Fiesp), one of the most powerful trade associations in the country.
Josué was considered by President Luiz Inácio Lula da Silva for a cabinet position, but reportedly turned down the offer.
In a relevant fact released on Thursday, Coteminas said that the agreement with Shein also includes financing for working capital and an exports contract for domestic products.
The amounts of the agreement were not disclosed.
According to Claure, Shein expects to replicate its experience in China, where the retailer works with tens of thousands of clothing manufacturers. To this end, the company said it set aside $150 million (some R$750 million) to invest in training and technology for these manufacturers.
“I can tell you we have been doing this already in Brazil very quietly, as a pilot test, and we already have nine factories operating in Brazil. And the results have been exceptional,” said Claure.
“The first agreement that we make is with Coteminas, supplying fabric to over 3,000 manufacturers”, the executive said. “We have done the analysis of who the manufacturers are and we believe it’s a very good cross-match. Brazil has manufacturers everywhere, especially in the northeast and in the south, so we don’t anticipate any issues in finding 2,000. We like small and medium sized manufacturers that we can teach how to produce small batches.”
Claure said that once they have 2,000 partner factories in the country, demand could increase “dramatically” —a reference to production capacity
Shein’s plan, therefore, is to serve not only Brazil but eventually neighboring countries in Latin America by manufacturing faster and designing products that meet the needs and desires of customers because the company is closer to the customers, said Claure.
“We have always had a roadmap to ‘localize’ our business,” Claure said. He added that since last year Shein has been testing a local marketplace to connect Brazilian sellers to consumers in the country. Local factories are part of this strategy.
The entrepreneur, from a Bolivian family, worked as SoftBank Group’s COO between 2018 and 2020 and was responsible for WeWork’s restructuring and subsequent IPO, as well as the creation of the Japanese conglomerate’s specific fund to invest in technology in Latin America in 2019.
He was also CEO of US telecom operator Sprint Corporation between 2014 and 2018.
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Production costs
Claure said that Shein talks with authorities around the world who want local manufacturing from the Chinese retailer, but Brazil was chosen because of the size of the market and the product’s fit with Brazilians.
Asked about the higher cost of manufacturing in Brazil, Claure said that “there is a huge misconception that people automatically assume that China’s manufacturing cost is low.”
According to the billionaire, the cost of manufacturing in China “has increased a lot,” and Shein runs up huge supply chain costs to move individual orders from China directly to the Brazilian consumer.
Shein has carried out sufficient analysis to eliminate such supply chain costs and to be able to import large quantities of goods at a “very favorable” tax price, according to Claure, as the company’s imports are based on the cost at which the product is sold.
“We want to be able to transform those goods into finished goods in Brazil, and we will be able to keep the same or lower prices. We have done that analysis. Obviously, that will require a lot of time to set up these factories, develop training, adapt them into a new way of digital manufacturing on demand, and so on”, Claure said.
Taxes and an export hub
Regarding the Brazilian government’s measures to increase revenue from sales made by international e-commerce companies, Shein’s chairman in Latin America said that the government “did the right thing” by maintaining the import tax exemption on purchases of up to $50 for individuals.
“That gives us a lot more conviction that we want to keep investing in Brazil (...) we are happy with the outcome today,” he said.
Earlier this week, the Brazilian government reversed its decision to tax imported products on purchases of up to $50, a plan that addressed a demand by large retail companies in Brazil and could represent an extra tax collection of $8 billion a year, according to estimates by the Finance Ministry. However, the government has not yet defined how the intended tax levied on foreign retailers will work.
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The levy would affect large Asian e-commerce companies that sell in Brazil, such as Sea’s (SE) Shopee, from Singapore, and China’s AliExpress, which is owned by Alibaba (BABA), as well as Shein.
Claure told Bloomberg Línea that he told Finance Minister Fernando Haddad that the rules are not clear:
“There is confusion in the market, there is the exemption or there is not the exemption. My advice to him [Haddad] was to set the rules, whatever they are, and we will be very happy to abide.”
President Luiz Inácio Lula da Silva reportedly told Haddad that he wanted an administrative solution negotiated directly with the e-commerce industry.
“We told Haddad that we will conform to whatever the rules the government sets for everybody. To make sure our commitment is very clear, we left a letter signed by myself and by our CEO [saying] we are committed to Brazil, committed to creating 100,000 jobs, committed to enabling 2,000 Brazilian manufacturers to manufacture our products, and that we will make Brazil Shein’s export hub for Latin America,” he said.
“For us, it is very normal to tell all governments in the world that we will conform to whatever laws, taxes and regulations they want to impose, we just ask them to level the playing field and make it available to everybody. All platforms should pay the same,” Claure said.
Foe his part, Haddad said Shein asked for a meeting Thursday morning to announce that it will join the tax authority’s compliance plan and that it is willing to do whatever is necessary to, with all e-commerce, normalize relations with the Treasury.
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If the compliance rule with the tax authorities is valid for all companies in the sector, Shein said it will absorb the costs and will not pass them on to the consumer, according to Haddad.
According to Haddad, the assurance that costs will not be passed on to the consumer “is a guarantee from Shein.”
“We still have a few steps to go, but the principles are established: fair play, equal conditions, whoever has the best product and the best price wins the sale”, said the minister, who will still meet with governors to discuss ways of collecting taxes, as he said.
And, according to Claure, “Haddad, in the end, is the authority. The Brazilian government will decide what is the best way [in which] they want to manage the different marketplaces or cross-border marketplaces and we will conform to whatever rule they make (...) All we are asking is that we have clear rules of engagement and that they apply to all players. And as long as that is the case, we feel very comfortable because we have a superior business model”.
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