Shein is a fast fashion giant that has become known for their affordable clothing and quick production cycles. But it seems like they can’t seem to get a break.
Last year, the company had already experienced a major setback when its plans to go public in New York were scrapped after US legislators raised concerns about alleged labor malpractices as well as lawsuits by competitors. They also highlighted “deep links to China” of the company.
Experts and analysts are now wondering if Shein’s UK ambitions will suffer the same fate that its US plans did.
In its most recent funding round, the China-founded company that registered $45bn of sales on its site and made over $2 billion in profit for 2023 was valued at $66billion. Its IPO is likely to be priced around this figure.
Tax dodging and the impact of tighter regulations
Superdry chief Julian Dunkerton, who spoke earlier this week against Shein for “dodging taxes”, urged the UK Government to close the loophole that allowed the fashion giant to send individual parcels to its customers directly without having to pay any import duties.
Dunkerton was making reference to the rule which exempts import duties for shipments weighing less than 135 lbs.
Shein does not have to pay import duties on low-value packages that it sends from abroad directly to its customers.
Tax exemptions had little effect before the advent of online markets.
The US and EU are now facing increased competition from Chinese low-cost competitors and the state treasuries miss out on possible tax revenues.
Simon Roberts was the CEO of Sainsbury in July. He also spoke out for changes, aiming to create a level playing ground for all retailers. Lord Wolfson, Next’s CEO, has also called for a similar change.
The US took the initiative to close this tax loophole earlier this month and proposed new rules that would eliminate the exemption of Chinese products in an effort directly targeted at Shein and Temu.
US claimed that this tax “de minimis rule” has allowed the two companies to undercut their competitors’ prices. However, Shein and Temu both wanted to emphasize their success was not due solely on the rule of taxes but rather on their respective business models.
Shein said that it also supported the reformation of de minimis to ensure rules are applied “equally” and “equally”.
According to reports, the EU is also preparing plans for scrapping the threshold of 150 euros under which certain items are eligible for duty-free purchases.
Nils Pratley wrote that “it is unclear how much Shein’s model of business would be affected if they had to pay customs duties.” Pratley said that some investors may need convincing in this regard.
Donald Tang, Shein’s Executive Chair, has in the past argued that Shein embraces reforms in the name “fair competition throughout the world,” and claimed that tax breaks “are not foundational to our business success.” One suspects outside investors would like to see evidence supporting the second claim. Consumers are primarily interested in the fact that clothes are extremely cheap. The customs duty benefit does not seem irrelevant.
Environmental issues, labour violations and design copying
Shein has been accused of using forced labor in its supply chain, as well as claiming that it exploits regulatory loopholes for the purpose of gaining an advantage over competitors.
A human rights group urged Britain’s financial regulator in June to block Shein’s LSE listing, as it was using Uyghurs as slave labour for some of the cotton suppliers the company had contracted with in the Xinjiang area.
Amnesty International UK said that Shein’s possible London listing could be “a badge of shame” to the London Market because the “questionable standards” of Shein in terms of labour and human right are.
Shein has a policy of zero tolerance for forced labor and only sources cotton from regions approved by the company.
Shein’s 2023 Sustainability report, published in August, admitted that it had found child labor and failed to pay minimum wages in two factories in the supply chain of Shein last year.
Both cases have been resolved quickly, with the company terminating their contracts and offering other benefits to underage workers.
Public Eye, a Swiss non-profit organization that carries out investigations on a regular basis, found in ‘this year’s investigation of the Shein garments produced by workers who work over 70 hours per week.
In the latest WIRED report, it is documented that gig workers are using platforms such as Bilibili to vlog about the precarious conditions of Shein’s fulfillment centres.
Shein is not only under scrutiny because of its labour practices, but also sued for copying the designs of fashion giants Uniqlo or H&M.
The Italian antitrust agency opened an investigation on Thursday into the Dublin-based firm that ran Shein’s app and website. They were investigating possible misleading claims about environmental issues made by Shein’s website.
Shein is also under fire for her promotion of disposable clothes and contribution to pollution.
What will happen to Shein? Experts give their opinions
The US has decided to not list the company on their bourse after the lawmakers of the US raised the concerns mentioned above. However, it is still unclear whether the UK will be forced to follow suit.
In the UK, signs of pressure from politicians over its inclusion on the list have already begun to appear.
Liam Byrne (Labour MP, who chairs the Parliament’s Business and Trade Committee) called for the government earlier this month to carefully examine Shein to determine if there are any possible links with forced work.
Byrne said to the Financial Times that he wanted a British version from 2021 of the Uyghur Forced Labor Prevention Act, which prohibits companies in the US from using cotton from Xinjiang. He said:
I believe that there is no Uyghur Forced Labor Prevention Act here in Britain. Therefore, it’s up to the ministers themselves to ensure that Shein meets all of the best standards for protections against forced labor. A Labour government may want to take this issue up.
David Schwimmer, the chief executive of London Stock Exchange Group last month, denied that there would be a “lowering” of standards to attract fast-fashion retailer.
Schwimmer, who did not comment directly on Shein’s case, has stated that the governance and disclosure system of the stock exchange is “very beneficial for the companies because it allows them to have the transparency and scrutiny they need and also the ability of the investors to participate in the management.”
The former B&Q chief, Sir Ian Cheshire (who was also the ex-chairman of Barclays) said this week it would be best for the firm to list on the London Stock Exchange, as listed companies in the UK are required to adhere to certain standards of environmental quality.
He told BBC Today that the alternative would be for Shein to list on a different exchange. This “might let them just do what they wanted”, he said. He stated:
It is important that companies moving to London are on the front line of [green] transformation and move in the right directions.
The government can fix this tax imbalance to give retailers a fair playing field.
Shein’s plans for a London IPO are still clouded by uncertainty.
The question is: Will Shein’s London dream be affected by the scrutiny surrounding “tax avoidance” and allegations of labour abuses? This post may change as new information becomes available
