Shein seeks to package its method of “small-batch, on-demand production” and sell it as a service to other brands and designers. So reads a letter to its investors that the Wall Street Journal (WSJ) says it has reviewed.
Although founded in China, the fast-fashion brand now operates out of Singapore, with offices in the US, Western Europe and Brazil, and has long-term partnerships with some 5,000 suppliers, many of them in Guangzhou, China. As we detailed in our article on France’s proposal to regulate fast fashion in the EU, Shein has digitalized its system and made it proprietary. In principle, the system would enable brands to test new designs on the market before they engage in mass production, match raw materials purchases to what is needed, and keep inventories low – all through data analytics.
As MSN speculates in its summary of the WSJ article, one reason Shein might seek to enter a B2B business is the resistance it is encountering in the US.
Shein applied for an IPO on the New York Stock Exchange back in 2020, but the US Securities and Exchange Commission (SEC) seems reluctant to authorize the deal. The brand has therefore begun to look to the exchanges in London, Hong Kong and its home base of Singapore.
The China problem
The SEC’s reluctance might be due to Congressional allegations of forced labor in China. The Select Committee on the CCP (Chinese Communist Party) in the US House of Representatives singled out Shein and especially one of its chief competitors, Temu, in the Interim Report it released in June of last year, titled Fast Fashion and the Uyghur Genocide. Back then Chairman Mike Gallagher said: “Temu is doing next to nothing to keep its supply chains free from slave labor. At the same time, Temu and Shein are building empires around the de minimis loophole in our import rules.”
This “loophole” results from an amendment to the Tariff Act of 1930 by the Trade Facilitation and Trade Enforcement Act of 2015, signed into law by President Obama. As the press release from US Customs explains, the amendment “raised the value of a shipment of merchandise imported by one person on one day that generally may be imported free of duties and taxes from $200 to $800.” Shein and Temu, the reader might recall, operate direct-to-consumer (DTC).
“Temu and Shein alone,” the Interim Report concludes, “are likely responsible for more than 30% of all packages shipped to the United States daily under the de minimis provision, and likely nearly half of all de minimis shipments to the U.S. originate from China.” This amounts to 600,000 packages per day, both brands combined, according to the report.
To judge by the report, Shein is engaging in legal activity that some in Congress dislike – the use of a provision of law to move lots of merchandise in the US. The report does not allege that Shein is using forced labor, is benefiting from the forced labor of a supplier or, indeed, has any suppliers in Xinjiang, the region where China is keeping Uyghurs in camps. Shein itself, however, has published no outright denial that we can find.
The company website offers a “Workplace Health and Safety Statement,” last amended in September 2022. This speaks of “safe, hygienic and healthy” places to work, but it defines such places by the terms of “local and regional laws.” And the law in China would seem to permit labor camps.
Otherwise, Shein announced in December 2022 a three-to-four-year plan to spend $15 million refurbishing “hundreds of factories in its supply chain” and followed this up in April 2023 with a five-year plan to spend $70 million to “empower its ecosystem of third-party manufacturing suppliers, and the workers within.” Shein’s clearest response to criticism deals with the de minimis controversy.
In July 2023 it wrote an open letter to the President and CEO of the American Apparel & Footwear Association, observing that Congress had instituted the policy to “shield consumers from extra costs on low-value purchases and to expedite shipments from retailers to individual households.” Because there is no “universal supply chain management standard,” however, “American consumers receive goods every day from other retailers that may not adhere to globally accepted responsible sourcing and manufacturing practices.” It goes on to propose a reform that would “create a more level, transparent playing field – one where all retailers play by the same rules, and where the rules are applied evenly and equally, regardless of where a company is based or ships from.”
Where the Interim Report does allege forced labor, or at least its probability, is with regard to Temu.
The other big online marketplace
Temu was founded recently (September 2022) in Boston but is incorporated in the Cayman Islands and is owned and operated by the Chinese firm Pinduoduo Inc., also known as PDD Holdings, which trades on the Nasdaq.
According to the report, Temu has 80,000 suppliers, and it “conducts no audits and reports no compliance system to affirmatively examine and ensure compliance with” the Uyghur Forced Labor Prevention Act (UFLPA). The report quotes Temu as admitting that it “does not expressly prohibit third-party sellers from selling products based on their origin in the Xinjiang Autonomous Region.” In short, the report says, Temu fails to maintain “even the façade of a meaningful compliance.”
Rather than offer a statement on labor practices, the Temu website names the company’s values: empowerment, integrity, inclusion and diversity, and social responsibility. PDD’s website offers financial information only.
