SAGA OF SHEIN | JANUARY 2025

There are thousands of workshops in Panyu, a city in the province of Guangzhou, that form the heart of Shein’s empire. Way back in 2010s, factories in Panyu predominantly worked for international fashion groups, handling big orders with lead time up to a year from design to shop floor, in what was known as the conventional way.

When the founder of Shein, Sky Xu arrived, he was having a hard time to convince them to take his order—100 pieces of a new item, and only increase if the style would sell well in Shein’s website. It was the “read-and-react” model that the industry was talking about for a very long time which was never fully materialized.

But this time the idea has caught the people’s attention, and first of all, they get paid within a week, instead of the industry standard of 90 days. And by 2000, everyone in Panyu was working with Shein and 7,000 of them are either as a contract manufacturer or someone taking the overflow businesses. With Shein’s order they have to finish within seven days, and this means excessive overtime work is necessary, even if it violates the labor law requirement for sixty-hour week and six-working-day week.

Shein bore down on costs, starting with cheaper materials. There is not so much automation, except orders are coming through the system electronically. It can show how the orders are performing and replenishment comes in electronically in order that the production can counter react.

Workers are paid by their performance, and they receive between $988 and $1,693 on the monthly basis. Not bad for a Chinese workers as many are receiving half of that amount.

Shein’s success has drawn the attention of Temu, another online fast fashion operator, who established its office in Panyu in 2022, and pinching Shein’s staff and workers. Shein sent out words that its suppliers can’t work with Temu, but they registered another name and run their business separately as a way to get around.

Whether we like it or not, Shein is a hot company today. It was making $1.6 billion in 2023 with a turnover of $32.5 billion through its website. In 2022, it was doing $22.7 billion with a growth of 40%+. In 2024, Shein’s net profit was about $1 billion, which was down by 40% from the previous year. This was way below the company’s projected profit of $4.8 billion, although its sales increased by 19% to $38 billion in 2024. 

Shein chose not to sell in China and relocated its headquarters to Singapore in 2021. It attempted for its IPO in New York and was being rejected, and it turned to London. But it will need its approval by Beijing regulators who may not be too happy with Shein for leaving for Singapore.

Lately, the Biden administration has moved in to close a trade loophole, the de minimis, which has been used by Shein and Temu to grow their business in the U.S. It has allowed its daily one million packages that are entering into the U.S. without customs duty. We hope that this has to be restricted with the absolute determination and we would see their counterreaction afterwards.

In any legitimate business, compliances in the raw materials are being used, labor’s rights in all aspects, human rights, and workplace safety are to be observed with reports have to be filed for inspections. We can see that these have all been waived and disregarded by Shein and Temu’s operation. They have destroyed the humanity all because of their selfishness. I wonder how they can pass the moral standard when they are seeking for IPO and the financial institution would risk to underwrite for them. These companies in question won’t be able to obtain the social audit standard SA8000 for instance. 

Not only that, Shein has been under the Italian antitrust scrutiny over green claims. The Italian Competition Authority said that it has launched a probe into Infinite Styles Services Company, who is Shein’s Italian website operator, over what they said officially were potentially misleading environmental claims. Italian officials said the investigation would focus on Shein’s environmental claims in the “#SHEINTHEKNOW,” “evoluSHEIN” and “Social Responsibility” section of its website. They might have misled consumers about the recyclability and the use of green fibers from natural resources.

Shein’s absolute emissions grew from 9.17 million metric tons in 2022 to 16.68 million metric tons in 2023 is telling us the more successful of their operation, the more threat they are going to cause the global warming.

Also Shein is sourcing its cotton in China’s Xinjiang region and use of forced labor have brought negative impact on the image of the company.

Shein said in July that it would invest $280 million in the UK and elsewhere in Europe over the next five years to combat industry waste.

Shein has a business model that allows it to capture the fast-fashion market, not just in the U.S., but also around the world except in China. It has been using a trade loophole that allows packages value at $800 or below to enter into the U.S. market without duty. This is known as the de minimis in the U.S. and the Biden administration had mentioned that it would take executive action to stop textiles to enter the U.S. But Biden didn’t take any action before he stepped down from the office.

In this respect, Europe is less generous as the value of the online purchase would have to have a value of under €150 or $165 in equivalent.

Countries like Turkey and South Africa have recently closed the similar loophole.

Although Shein is based in Singapore, it is using thousands of factories in China, and it still makes Shein a Chinese company. Its attempts to get listed in the New York Stock Exchange was rejected, and since then it has tried hard to get listed in the London Stock Exchange. All these actions are trying change its image as a Chinese company. Its falling profits are a concern for the company as it prepares for its IPO in the London Stock Exchange. Investors are pressing Shein to lower its valuation from $66 billion to $30 billion. With Trump’s move to end a tax exemption for Shein, that can increase its process and further reduce its profitability in the U.S. would make Shein less attractive for its IPO.  

It is spending big amounts for lobbying and allocating more than $50 million to say that its thousands of suppliers are complying with regulations where Shein operates. It’s using of former executives from the world-renowned companies to travel regularly to Washington and to the EU countries to lobby with regulators and politicians, and one of them is Donald Tang, who was with Bear Stearns from Los Angeles. Already for the first two quarters, Shein spent $2 million on U.S. federal lobbying efforts. It is a drop in the bucket in my opinion.

For 2024, it said that the company’s revenue would grow 30% to reach $42 billion. This was already lower than the previous years where the growth was 40%. It is also said that for 2025 the sales may reach $50 billion and we already know that this won’t happen. It is something really ironic for a company who operates under corporate ethics that are questionable.

Under the present circumstance, Shein’s revenue project for 2025, we are using their presentation to investors, will hit $$58.5 billion. It would surpass the combine sales of H&M and Zara.

Shein, together with Temu, they both created the website for bargains that are unseen before. They challenge all the retailers including Walmart and Amazon and to stay in competition would have meant for extremely low prices and fast delivery. It is wrecking the retail industry. The new rules as proposed by the lawmakers would subject about 70% of textile and apparel from China to tariffs that they have avoided under the de minimis exemption.

Shein has engaged business advisors who worked before for the U.S. cooperation to try to negotiate with the U.S. government. They know the trade rules and regulations and can advise Shein in the right directions for negotiation. And under any tariffs, Shein would still have the price advantage over the U.S. retailers, such as Walmart and Amazon, because of its supply chain efficiencies, although the entry-process may slowdown.

With TikTok, another Chinese company who is the most popular social media website, we have found both Shein and Temu have engaged influencers and KOL to promote their products. This is also another important element that can’t be neglected. But both Shein and Temu have bought into the websites of Google and Facebook and they have their presence as well.

To deal with the accusation of forced labor and the use of cotton from Xinjiang, Shein engaged a company that verifies the origin of raw materials to weed out Xinjiang cotton from its supply chain.

Shein is also diversifying its supply chain to new manufacturers in Turkey and Brazil. It has also started to build warehouses in different countries and started to recruit local sellers in the markets to operate for them, and such changes can help to camouflage its real nature and can also find a way to circumvent tariff regulations.         

  These are the facts and questions that would need to be addressed, and Shein would find the rope is tightening around its operation and the business of multiple billions is not built on solid foundation.