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On March 26, some media reported that SHEIN may face the risk of being called on to close by private institutions in the United States due to suspected tax evasion. Although SHEIN insiders responded that the private institutions' accusations were untrue, the storm did not subside.
Recently, the U.S.-China Economic and Security Review Commission (USCC) under the U.S. Congress released a new report, accusing SHEIN and Temu of various issues. SHEIN is making great strides in the US, but is accused of "five sins" Since its establishment in 2008, SHEIN has been making great strides in the US market with its cost-effective fast fashion products. Last year, SHEIN replaced Shopee and became the world's most popular shopping app with 229 million downloads. In addition, according to a survey by Piper Sandler, a US financial institution, SHEIN's position in the hearts of Generation Z is second only to Amazon.
SHEIN, which created the myth of fast fashion growth, has become a benchmark for many domestic companies going overseas. However, despite SHEIN's rapid progress in this field, it also faces many challenges. The most important one is the regulatory risk from the United States.
In the latest investigation report, USCC accused SHEIN of data risks, procurement violations and trade loopholes, and bluntly stated that it violated local laws and regulations and market access principles.
The report pointed out that with the rapid development of online e-commerce, the scale of the fast fashion industry has reached 106.4 billion US dollars by 2022. With its strong supply chain advantages, SHEIN has surpassed competitors including Zara and H&M, and its market share in the United States has increased from 18% in March 2020 to 40% in March 2022.
At the same time, USCC also accused SHEIN from multiple angles:
1. Supply chain opacity
The report highlights that SHEIN's supply chain is opaque and may contain a large number of illegal products. 2. Impact on climate and environment
The United Nations Environment Programme estimates that the fashion industry produces 10% of global carbon emissions each year, more than all international flights and maritime shipping combined. Fast fashion platforms such as SHEIN have exacerbated this trend by mass-producing cheap clothing.
3. Copyright Infringement
The report stated that SHEIN's products include a large number of counterfeits and have been accused of infringement by multiple brands and merchants, violating intellectual property protection laws.
4. Evading tariffs and customs inspections
The average price of SHEIN products is about US$11. The lower-than-market pricing means Shein can enjoy China's unique 16.5% import tariff and 7.5% tariff exemption.
Committee members believe that SHEIN provides product discounts as a way for users to share their activities on other apps and social media. It can be seen that although SHEIN is in the limelight in the US market, relevant regulatory risks and accusations are constantly fermenting. It is still unknown whether they will affect the normal progress of its business in the US. Temu follows SHEIN in being criticized for its rampant counterfeiting In fact, not only SHEIN, but also Temu, which officially entered the US market in September last year, has also encountered multiple accusations from USCC.
Since its launch at the end of 2022, Temu has quickly gained momentum in the United States, topping the list of shopping app downloads. With its rock-bottom low price advantage and viral fission marketing, Temu has shown amazing sales growth. According to data from New York market research company YipitData, its GMV increased from US$3 million in September 2022 to US$192 million in January 2023.
Temu, which is gaining momentum, has inevitably attracted the "attention" of USCC.
Like SHEIN, Temu targets the low- and middle-income groups in the US market and quickly captures the minds of consumers through high-price products. USCC stated in the report that Temu replicated SHEIN's model of rapid supply chain response, fast new product launch, and high transportation efficiency.
But at the same time, SHEIN's success has also led to its business practices being questioned. On the one hand, the Temu platform is flooded with counterfeit goods and is filled with a large number of products of questionable quality. It is reported that Temu received a total of 235 complaints from the Better Business Bureau last year, and its customer rating was only 2.1 stars.
On the other hand, Temu's parent company Pinduoduo was found by multiple network teams to have malware on its APP for Google Android devices. The software can help the Pinduoduo application bypass user security permissions, thereby accessing private messages and viewing other APP user data.
The report also emphasized that the successful experience of SHEIN and Temu in the US market has encouraged more Chinese companies to flock to the US market in an attempt to copy their business model. Data shows that since 2019, more than a dozen Chinese startups have been established to follow the SHEIN model to conduct business in the US, including Cider, Cupche and Jollychic. It is not difficult to see that not only SHEIN and Temu, but more and more Chinese companies going overseas are making rapid progress in overseas markets by relying on the strong domestic supply chain advantages and excellent business models, and are being sought after and favored by more and more European and American consumers. As the competitiveness of Chinese companies going overseas increases day by day, they are also constantly squeezing the market share of foreign companies.
At present, while Chinese companies going overseas are extending their tentacles into wider overseas markets, they are also being feared for being too prominent.
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