Mounting lawsuits and legislation threaten Shein’s US takeover plan

To become a Vogue Business Member and receive the Sustainability Edit newsletter, click here. Scrutiny against ultra fast fashion retailer Shein is coming to a head in the US, where a pileup of lawsuits and investigations could threaten its plans for a takeover of the market — if Congress decides to take legislative action. Potentially in jeopardy is Shein’s ability to cheaply transport products into the US, a key mechanism that lets the company keep its prices so low. Last month, the House Select Committee on the Chinese Communist Party published a report accusing Shein, as well as rival Temu, of shipping products to US consumers by abusing a method they said allows it to avoid import duties. “De minimis” shipping allows companies to ship packages valued at less than $800 into the US duty-free and with less scrutiny from customs. The rule “was intended to reduce the burden on US customs agents from inspecting packages of minimal value”, the report said — yet, it is “foundational” to both Shein and Temu’s business models. This week, Shein’s executive vice chairman Donald Tang sent a letter to the American Apparel & Footwear Association urging it to engage with lawmakers on “a complete makeover” of the de minimis shipping rule. It’s presumably an attempt to preempt any move by lawmakers to eliminate it entirely, given the red flags that they have raised about it in recent months. Shein’s letter argued that the rule needs “to create a level playing field for all retailers”, and asked for support from the industry association and its members “in identifying policy solutions to create a more competitive landscape for retailers and more transparency for consumers”. The shipping method is connected to concerns about forced labour, which have also been heating up. The June report followed a public request by the Select Committee a month earlier for information from Shein and three other fashion companies on steps they were taking to ensure their products sold in the US were not produced with forced labour. A separate bipartisan group of US senators in February called on Shein to increase supply chain transparency, citing concerns that American consumers “may be inadvertently purchasing apparel made in-part with cotton grown, picked, and processed using forced labour”. Shein said in a statement that it has zero tolerance for forced labour and no contract manufacturers in the Xinjiang region. At the same time, Shein is now facing simultaneous lawsuits, by both independent designers as well as fast fashion giant H&M, for copyright infringement. The case by H&M, filed in Hong Kong, is a rare case of legal action by an established fast fashion rival, according to Bloomberg, which reported an H&M spokesperson saying that Shein “in multiple cases has infringed on our designs”. A separate lawsuit filed last month by three independent designers in California federal court accuses Shein of copying their creative designs. While designers have accused many brands, including H&M and Zara, of stealing their designs in the past, the California case goes further by alleging Shein’s core business model relies on copyright infringement and racketeering, and cites the Racketeer Influenced and Corrupt Organizations (Rico) Act of 1970, a law typically used to fight organised crime. Shein regularly engages in “egregious copyright infringement” — going beyond taking inspiration from a design “a bit too liberally” and instead making “truly exact copies”, the lawsuit says — which in turn “constitutes racketeering”. A Shein spokesperson says the company does not comment on pending litigation. Shein is “a greater societal threat than TikTok”, according to the lawsuit, because beyond raising data security and privacy concerns, it contributes to problems “such as environmental damage, sweatshop (or worse) labour conditions, tax avoidance, child safety, as well as the subject of this lawsuit, large-scale and systematic intellectual property theft from US designers large and small”. (TikTok CEO Shou Zi Chew testified at a US Senate hearing in March over the company’s data practices, and the app has been banned from government devices and in the state of Montana.) At the same time, Shein is embroiled in a lawsuit with rival Temu, which says the company has violated antitrust laws and engaged in other illegal anticompetitive practices and describes the US market as the “primary theatre of this war”. (The case follows a lawsuit that Shein had filed against Temu last year for trademark and copyright infringement.) The Temu lawsuit, filed in Massachusetts court, accuses Shein of forcing suppliers in China to sign loyalty oaths, promising they will not manufacture for Temu or face retaliation if they do. Shein, a Chinese company with its headquarters in Singapore, has become a lightning rod for environmental criticism. Its production speed and volumes far outpace those of more established fast fashion brands, which were themselves coming under fire for encouraging people to think of clothes as disposable. Shein’s explosion onto the marketplace, critics say, has accelerated that shift in the wrong direction from what the planet needs; H&M is said to release around 25,000 different products per year and Zara, 35,000; in the same timeframe, Shein’s product drops are estimated at 1.3 million. Producing that volume of clothing at that speed cannot possibly be done sustainably, experts say — both because of the need for cheap materials (64 per cent of Shein’s materials use polyester, making Shein the world’s largest user of the petroleum-based material, according to Bloomberg) and cheap, potentially exploitative labour, and also because there is no place in the world for people to responsibly put all of those clothes when they’ve finished with them. In a statement, Shein said it is taking steps to address its environmental impact, “including the launch of Evolushein by Design, our product initiative aimed at accelerating the use of preferred materials and scaling responsible manufacturing processes”, the spokesperson said. Garments must consist of at least 30 per cent preferred materials, which for Shein includes recycled polyester, “forest-safe viscose” and deadstock. An influencer trip in June, in which Shein paid for a group of US-based creators to visit some of its facilities in Guangzhou, China, resulted in backlash after the influencers posted glowingly about what they saw. They were attacked for aligning themselves with a company accused of gross human rights and environmental violations, and blamed for not scrutinising more closely whether what they were seeing was truly representative of the company’s overall practices. At the same time, Shein’s rise has been swift and seemingly unstoppable: it generated $23 billion in sales last year and raised $2 billion in its latest fundraising round, which valued the company at $66 billion, according to the Wall Street Journal (although that valuation is a major drop from its high of over $100 billion in early 2022). And, in February, it predicted its revenue would double to nearly $60 billion by 2025, according to the Financial Times. The company clocked its highest profit ever in the first half of this year, growth it attributes heavily to its “continued momentum” in the US, where rumours of an IPO have swirled but the company has denied or refused to talk about. Meanwhile it’s launching more popup stores in the US, expanding into categories beyond clothing — most recently with a marketplace that looks positioned to compete with Amazon — and is also producing a reality TV show. Despite all of the criticisms, there are many customers out there who shop based on price alone, or on size availability, and Shein is often praised for its inclusive sizing. Shein plans to continue expanding its business and operations in the US, and is not going down without a fight. “As a member of the business community, Shein will engage policymakers and participate in discussions that will help us continue to add value to the US economy, support our American workers, and bring industry-wide benefits to consumers,” a spokesperson for the company says. In addition to the call for the overhaul of de minimis shipping, the company is quickly expanding its presence in Washington, DC. Shein spent $600,000 on lobbying in just the second quarter of this year, according to government records (following $230,000 in the first quarter), to focus on “legislative and regulatory issues impacting the apparel industry and e-retailers, including trade related matters, [and] general education regarding Shein’s presence, operating footprint, and economic impact in the United States”. Potential action Will Congress actually take action against Shein? In a political climate where there’s little that Republicans and Democrats in Washington agree on, Shein is an exception. Concerns about the company and its practices have grown on both sides of the aisle, with lawmakers from Democratic senators Elizabeth Warren and Sheldon Whitehouse to Republican senators Bill Cassidy and Congressman Mike Gallagher taking action on one Shein-related issue or another. “It feels like the perfect storm of things that are top of mind to various interest groups. They’re pissing people off in more of a bipartisan way than we’ve seen in a really long time,” says Rachel Kibbe, CEO of consultancy Circular Services Group and executive director of the American Circular Textiles group. Shein has gained momentum in the spotlight in a way that few issues outside of national security do, and certainly more than most social or environmental issues, which have become extremely partisan in the US. What’s clear is that there is such a strong convergence of often-disparate issues — environment, human rights, intellectual property, data privacy, trade policy and US-China relations — that it could be enough for opposing lawmakers to come together to take meaningful action. And, there’s some precedent that Congress is willing to put parameters around online marketplaces. The Integrity, Notification, and Fairness in Online Retail Marketplaces (Inform) for Consumers Act passed in June will make it easier for the Federal Trade Commission to crack down on online sellers engaging in illegal practices. “I’d say there’s a 50-50 chance Shein, Temu and others are forced into more disclosure and higher costs,” says Sucharita Kodali, VP, principal analyst at advisory firm Forrester. “If that happens, the company will slowly die on the vine. No one wants expensive, poor-quality merchandise.” What that needs to look like in order to force real change from Shein, or a shutdown entirely, is another question mark. That’s for Congress to determine, but critics say if nothing else, the momentum is there. “I’ve had conversations behind closed doors with policymakers where they’re upset about their practices for one reason, and I say, ‘Yes — it’s also about the waste,’ and that opens up a whole other conversation and an education opportunity that they wouldn’t necessarily have taken an interest in,” says Kibbe. “They view it as another reason that reinforces their own convictions — that ultra fast fashion should be more scrutinised. It sort of rounds out the complexity; it’s not just a one-sided argument.” Comments, questions or feedback? Email us at feedback@voguebusiness.com. More from this author: Where fashion is leading on US environmental policy — and where it’s falling behind Weighing the future of fashion’s alternative materials, post-Mylo EU’s textile waste proposal overlooks fashion’s main dumping grounds

Make better business decisions

Make better business decisions