Renner and C&A arm themselves to face Shein – 06/09/2023 – Market

The Shein phenomenon in Brazil has cast a shadow over some of the biggest local textile retailers. Last year, according to estimates by investment bank BTG Pactual, Shein earned no less than BRL 7 billion – a 250% jump over the BRL 2 billion recorded in 2021, according to BTG. Local retailers, although they showed net revenue growth in 2022 (sales minus taxes, discounts and returns), had timid advances compared to Shein, between 10% and 25%.

The earnings of the Asian online retailer, recognized for the low prices of fast fashion (fast fashion), with 2,000 new products launched per day, is close to the earnings of large traditional chains in Brazil, such as Riachuelo and C&A, which in 2022 added up to R$ 8 .4 billion and R$6.2 billion, respectively, in net revenue.

Founded in 2008 in China, and now headquartered in Singapore, Shein does not reveal global or local sales. But BTG also estimates that its total sales last year reached US$ 30 billion (R$ 147 billion), which puts it on an equal footing with Zara, created in 1975, whose parent company, the Spanish Inditex, earned 32.6 billion euros (R$ 171 billion) in the last fiscal year, which ended in March.

The vertiginous growth of the Chinese online retailer, achieved especially during the pandemic, makes large national textile retail chains move. Both the Brazilian Renner and the Anglo-Dutch C&A have increasingly invested in operational controls with the use of artificial intelligence, in order to get as close as possible to the Shein model, based on on-demand production, with inventory close to zero.

In the last three years, between 2020 and 2022, C&A alone invested BRL 601 million in technology.

“Our proposal is to be a fashiontec, a fashion company fueled by technology”, said Francislei Donatti, commercial vice-president of C&A Brasil. “The use of artificial intelligence is part of this process”.

The retailer has just hired the American technology and artificial intelligence multinational Palantir, with which it has developed the Integrated Management Flow: a system that provides automated purchase recommendations. The software tells you exactly when and how much to buy each product so you don’t have excess stock in the store – an indication of idle cash.

“The goal is to always have an ideal stock level for the portfolio of best-selling parts”, says Donatti. The system also generates the purchase order automatically, according to demand. According to him, since the adoption of AI in the chain’s stores, the rate of consumers who find what they are looking for in stores has gone from 80% to 90%. “Our goal is 95%.”

On-demand production is, by the way, one of Shein’s strengths. “Brazilian retailers buy stock a year in advance, enough stock for four or six months. They don’t always have the right product in the right place,” says Marcelo Claure, Shein’s president for Brazil and Latin America. “Shein’s model is on demand. We only manufacture what the consumer wants.”

In the Shein model, tests are carried out with 100 to 200 parts in the application. Once demand is confirmed, production is escalated, all in real time.

“We use artificial intelligence to determine two very important factors: what we are going to manufacture and what product each consumer wants. If you open the Shein application and I open mine, Shein will show different products to me and to you”, he says. claure. “It’s something completely different from the traditional retailer, who sets up stands without knowing what the consumer wants,” he says, who has a thousand outsourced designers working around the world.

In the opinion of Luiz Guanais, consumer and retail analyst at BTG Pactual, local retailers have already done their homework to face Shein.

“During the pandemic, the big Brazilian chains –Renner, Riachuelo and Marisa– and C&A sought to invest in technology to leverage digital sales, which until then were not very significant”, he says. “But now the focus is on using technology to be more agile and reduce inventory costs, ensuring more assertiveness in the planning and distribution of collections.”

With this objective, C&A invested in the “push-pull” system, which consists of supplying the store with the models, sizes and colors that that point of sale needs. Something complex, when it comes to 331 stores in different regions of the country, each with 80,000 items for sale.

“Before, we sent a package with sizes S, M and L. Now, the distribution needs to be much more assertive”, says Donatti.

If there is a greater demand for a certain model of size M jeans in a store in the west zone of São Paulo, for example, that model cannot be missing from the rack at that point.

“One of the most frustrating things is to hear from a client: ‘I loved it, but it doesn’t have my size'”, says the executive. “Improving the level of product availability is essential even to lowering entry prices for a collection,” he says.

This is because the price of promotions –products that are left in certain sizes– is included in the final price of the clothes. “If I’m more assertive in selling, the entry price drops.”

Fabio Faccio, president of Renner, agrees. “We’re committed to producing exactly what customers want. When I gain efficiency, the value equation improves for the consumer,” he says.

As an example, the executive cites a model of basic jeans, sold at R$99 in 2019, before the pandemic. “With inflation, the price rose to R$139 last year. But this year, on Mother’s Day, we were able to offer the product again at the price of R$99.”

The retailer’s investments in technology are not open, they are within the approximately R$ 1 billion invested in 2022. But they are already showing a return.

“We were able to reduce stockouts by 87%”, says Faccio, referring to the jargon used by retailers for occasions when consumers cannot find the product they need in the store. Each piece of clothing, both at Renner and at C&A, has a tag with radio frequency identification (RFID), which makes it possible to locate the item inside the store, in the chain of stores or in the distribution centers. This is what guarantees real-time inventory control — something that, in the past, was only done once a year.

In the third quarter, Renner inaugurates the distribution center in Cabreúva (SP), with state-of-the-art technology: there are 312 robots working in the process of picking orders for both stores and customers.

The retailer’s expectation is that the current supply time of the stores, currently up to nine days, is a maximum of three until next year. In e-commerce, 48% of Renner’s deliveries are made within two days, a rate that should reach 80% in 2025, according to the company.

At C&A, robotization within the distribution centers also increased the speed of order assembly: from two hours to five minutes. E-commerce guarantees two-day delivery, with 50% of orders departing within two hours.

In the opinion of MBA professor at FGV (Fundação Getulio Vargas), Roberto Kanter, the lower price charged by Shein in relation to other Brazilian retailers is far from being the only answer to the company’s overwhelming success in the country.

“The Shein customer realizes that there was a curatorship in the design of the products”, he says. “There’s the novelty, the clothes surprise you, and Shein also encourages the idea of ​​customers being influencers. The more photos she posts, the more points she earns. This creates not only loyalty, but a feeling of community, of participating in the same group.”

The president of Abit (Brazilian Textile Industry Association), Ricardo Steinbruch, claims that nobody in Brazil is “against Shein”. “Retailers just want tax equality”, says the executive, who is also president of the board of directors of Vicunha Têxtil, regarding the stir surrounding the collection of taxes by the Asian retailer.

The federal government even signaled with the taxation, but backtracked, and in the sequence Shein announced the start of national production, with 2,000 outsourced garments that will operate on demand.

“Everyone also wants to learn and modernize,” says Steinbruch.