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Shein's controversial rise: How the fast-fashion giant is shaking up Europe's retail industry

Shein's controversial rise

As the online fast-fashion retailer Shein ramps up its efforts to win favor in Britain before its initial public offering (IPO), there is a notable increase in resistance from both Europe's retail industry and its legislators. This growing opposition highlights a complex interplay of economic, ethical, and competitive concerns surrounding Shein's operations in the region. The company, known for its ultra-low prices and rapid turnaround of fashion items, is viewed by many as a significant disruptor to traditional retail markets.

This disruption has triggered a multifaceted backlash from European industry players who are grappling with the implications of Shein's aggressive market strategies. This tension between Shein's expansion plans and European stakeholders' protective measures encapsulates a broader debate about the future of global trade, fair competition, and sustainable business practices.

Amidst the ongoing European Union elections, which see citizens from 27 countries casting their votes, European manufacturers of fabrics, clothes, leather goods, and shoes are actively urging future EU policymakers to safeguard the 1.5 million jobs within their sector. These manufacturers argue that the influx of low-cost products from companies like Shein constitutes a form of market "dumping," undermining local industries and leading to potential job losses. This plea to policymakers comes at a critical juncture, highlighting the interconnectedness of industrial policy and electoral outcomes.

The manufacturers' call to action underscores a broader concern about the economic sovereignty and resilience of the European manufacturing sector, which is increasingly feeling the pressure from global competition and market liberalization. The discourse around protecting local jobs and industries is not merely an economic argument but also a political one, reflecting deep-seated anxieties about globalization and its impact on national economies.

Industrial policy has emerged as a pivotal issue in the European elections, with apparel manufacturers, retailers, and e-commerce companies striving to place the issue of cheap imports from China firmly on the political agenda. These stakeholders are invoking language similar to that used by EU officials concerning Chinese overcapacity in electric vehicles, framing the debate around the need for fair competition and market regulation. This strategic alignment with broader EU concerns about Chinese economic practices highlights a concerted effort to influence policy directions and protect European industries.

By drawing parallels with the electric vehicle sector, European apparel stakeholders are attempting to broaden the scope of the discussion, making it clear that the challenges posed by Chinese imports are not isolated but part of a larger pattern of economic disruption. This framing is designed to resonate with policymakers and the public, leveraging existing concerns about Chinese economic influence to galvanize support for protective measures.

The textiles, footwear, and leather industries in Europe are significant contributors to the continent's economy, boasting annual revenues exceeding 200 billion euros (approximately 220 billion USD). These industries house renowned fast-fashion brands like Zara and H&M, alongside some of the world's most prestigious luxury brands. Despite their substantial market presence and financial clout, the industry groups emphasize that 99% of the companies within these sectors are small or medium-sized enterprises (SMEs).

These SMEs are particularly susceptible to the pressures of intense global competition, as they lack the resources and scale of their larger counterparts to absorb market shocks and competitive threats. The industry's structure, dominated by SMEs, underscores the delicate balance between maintaining competitive markets and protecting local businesses from predatory pricing and unfair trade practices. This dynamic illustrates the broader challenges faced by European industries in navigating globalization while ensuring economic sustainability and job security for millions of workers.

Poland's e-commerce association has released a report asserting that Chinese state subsidies provide an unfair advantage to online marketplaces like Shein. According to the report, these subsidies enable Shein to offer extremely low-priced items, such as $5 T-shirts, $15 jeans, and $1 earrings, directly to consumers around the world. This pricing strategy, the association argues, undercuts European businesses, which cannot compete with such low-cost models without similar subsidies or supportive measures.

This argument highlights a critical aspect of the competitive landscape: the role of state support in shaping market dynamics and the need for a level playing field. The Polish e-commerce association's report is part of a broader narrative seeking to highlight the structural inequalities in global trade and the impact of state intervention on market competition. This discourse aims to influence both public opinion and policymaking, advocating for regulatory measures that can mitigate the competitive disadvantages faced by European businesses.

In response to these allegations, Shein has firmly denied receiving any Chinese state subsidies. A company spokesperson stated, "There is no truth to the allegation that Chinese state subsidies help support SHEIN's business and its expansion worldwide." This rebuttal is part of Shein's broader strategy to manage its public image and address the criticisms leveled against it. While most of Shein's products are manufactured in southern China, the company is actively expanding its supply base in other regions, including Brazil and Turkey.

The spokesperson added, "We expect our Turkish supply chain partners to increasingly support us in serving the European market." This diversification of supply chains is a strategic move by Shein to mitigate risks associated with over-reliance on a single geographic region and to better integrate into different markets. By building a more geographically diverse supply base, Shein aims to enhance its resilience and responsiveness to market demands, thereby strengthening its competitive position globally.

In France, Shein is making efforts to improve its public image amidst increasing legislative scrutiny. French lawmakers in the lower house of parliament approved a bill in March that seeks to impose penalties on fast fashion products to mitigate their environmental impact. This legislative move is part of a broader trend in Europe towards greater regulation of the fashion industry, particularly concerning its environmental and social impacts. Raphael Glucksmann, an EU lawmaker leading the French Socialist Party's list in the elections, is a staunch supporter of this bill and a vocal critic of Shein. Glucksmann's advocacy highlights the intersection of environmental policy and consumer protection, emphasizing the need for sustainable business practices in the fashion industry.

Shein, in response, has argued that the bill would negatively affect French consumers' purchasing power, framing the legislation as a potential threat to consumer welfare rather than a necessary regulatory measure. This debate encapsulates the broader tensions between economic accessibility, regulatory intervention, and environmental sustainability.

To counter these criticisms and legislative pressures, Shein has announced plans to expand its second-hand clothing resale platform, "Shein Exchange," to France, followed by the UK and Germany. Initially launched in the United States in late 2022, this platform aims to promote more sustainable consumption practices by facilitating the resale of used clothing. This initiative is part of Shein's broader strategy to address environmental concerns and improve its corporate social responsibility profile.

By expanding "Shein Exchange" to major European markets, the company seeks to align itself with growing consumer demand for sustainable fashion options and to mitigate some of the criticisms related to its environmental impact. This move reflects a strategic pivot towards sustainability, aiming to balance the company's business model with emerging regulatory and consumer expectations.

Although Shein has not commented on its IPO plans, the company is actively engaging with officials in Germany as part of its broader strategy to build positive relationships with key stakeholders. Last month, Lionel Lim, Shein's associate director of global government relations, hosted an "ESG breakfast roundtable" in Berlin. The event included attendees from the government, trade associations, and business partners, as noted in a LinkedIn post by Lim. This roundtable is indicative of Shein's efforts to engage in dialogue with various stakeholders and to address concerns related to environmental, social, and governance (ESG) issues.

By facilitating such discussions, Shein aims to demonstrate its commitment to responsible business practices and to build a network of supportive allies in the political and business communities. This proactive engagement is part of a broader strategy to navigate the complex regulatory and competitive landscape in Europe and to secure a favorable position in the market.

European retailers have increasingly criticized tax loopholes that they believe benefit Shein and other foreign e-commerce platforms. Under current EU regulations, individuals can order parcels valued at less than 150 euros (170 USD) from abroad without paying import duties. The equivalent threshold in Britain is 135 pounds. This regulatory framework is seen as giving an unfair advantage to foreign e-commerce platforms, allowing them to compete on unequal terms with local businesses. The debate around these tax loopholes highlights the complexities of modern e-commerce and the challenges of regulating a rapidly evolving market.

Theo Paphitis, chairman and owner of UK retailers Ryman and Robert Dyas, expressed his frustration to Reuters, stating, "It's beyond belief that the government hasn't clamped down on a gaping tax loophole that allows giant companies from abroad to sell in the UK without paying customs, or contributing to the cost of the retail economy, at the expense of British companies that are paying their fair share." Paphitis's comments reflect a broader sentiment among UK retailers who feel disadvantaged by the current regulatory framework.

The perceived inequities in tax policy are seen as undermining the competitive position of local businesses, which must adhere to stricter tax and regulatory standards. This issue of tax fairness is central to the broader debate about the future of retail and e-commerce, highlighting the need for comprehensive policy reforms to address the challenges posed by globalization and digital commerce.

Germany has also called for EU-wide reforms to address these issues. The main retail association, Handelsverband Deutschland, has noted that Finance Minister Christian Lindner has indicated Germany's support for eliminating the 150-euro duty-free limit at the European level. This support from Germany underscores the broader consensus among European nations about the need for regulatory changes to ensure fair competition.

The debate around these tax thresholds is part of a larger discussion about the future of e-commerce regulation in Europe, highlighting the need for coordinated policy responses to address the challenges posed by global market dynamics. The calls for reform reflect a growing recognition of the need to balance market openness with protective measures that safeguard local industries and ensure fair competition.

Shein maintains that the duty-free treatment of low-value parcels is not essential to its success. The company attributes its ability to keep prices low to its on-demand business model and flexible supply chain. This business model allows Shein to respond quickly to market trends and consumer demands, minimizing waste and maximizing efficiency. By leveraging a flexible supply chain, Shein can produce small batches of items, reducing the risks associated with overproduction and unsold inventory. This model is a key factor in Shein's competitive advantage, enabling it to offer low prices while maintaining profitability. Shein's emphasis on its business model and supply chain efficiency is part of its broader strategy to counter criticisms and demonstrate its resilience in a highly competitive market.

Simon Wolfson, chief executive of Next, has also urged the UK government to review the loophole, despite acknowledging the administrative complexity of taxing millions of small deliveries. Wolfson's comments highlight the practical challenges of implementing regulatory changes in a complex and dynamic market environment. The debate around these tax loopholes reflects the broader challenges of regulating digital commerce and ensuring fair competition in a globalized economy. The calls for reform underscore the need for innovative policy solutions that can address the unique challenges of the digital age while ensuring a level playing field for all market participants.

In Britain, the Labour Party, widely expected to take power following the July 4 election, has met with Shein regarding its potential London stock market listing. This engagement reflects the broader political and economic significance of Shein's expansion plans and the potential implications for the UK's financial markets. However, some British lawmakers have raised concerns about Shein's suitability for listing, calling for greater scrutiny of its supply chain and labor practices.

These concerns highlight the broader ethical and regulatory issues associated with Shein's business model and the need for comprehensive oversight to ensure responsible business practices. The debate around Shein's potential listing in London encapsulates the broader challenges of balancing market openness with regulatory oversight, highlighting the need for robust governance frameworks that can address the complexities of modern business practices.

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