Will Shein’s shine eclipse SA industry?

Local clothing manufacturers have been dealt a number of blows in recent years, including the rise of international fast fashion retailers

Chinese online fast fashion outlets Shein and Temu have experienced meteoric gains in South Africa. While pinched consumers might be rejoicing in their rapid rise, these retailers threaten to inflict a new blow to the country’s clothing and textile manufacturers just finding their feet after China’s initial incursion in the 2000s.

A year ago, business and labour stakeholders in the clothing industry called on the government to investigate whether fast fashion behemoth Shein was exploiting tax loopholes to gain an upper hand in the South African market.

Shein, which has outpaced rivals H&M and Zara in terms of global market share, has made significant inroads in the local market since its South African debut in 2020. According to data from consumer spending researcher Reveal, Shein has nearly as much market share as Superbalist, which launched more than a decade ago.

Earlier this year, reports swirled that Superbalist owner Takealot was looking to sell the online fashion retailer in the wake of Shein’s rapid rise. Takealot, which will also eventually have to contend with US juggernaut Amazon’s entry into the South African market later this year, never confirmed this speculation.

Although there seems to be some progress in bringing Shein to heel since the government began its investigation into the matter, questions remain about the retailer’s compliance to trade rules, say industry stakeholders.

Meanwhile, another fast-growing fashion brand, Temu — which launched in South Africa earlier this year — is now also stepping on toes.

Etienne Vlok, the South African Clothing and Textile Workers’ Trade Union’s national industrial policy officer, noted that Shein’s ultra-low prices appear to be subject to greater scrutiny. This observation is largely anecdotal, based on social media posts by Shein customers complaining of higher prices.

The union initially complained about Shein when the retailer’s cheap prices raised red flags of possible tax avoidance. “The products seem to be coming into the country in three different ways,” Vlok said.

“All ways are problematic, because it means that the necessary taxes are being avoided — creating an unfair playing field and giving the products an unfair advantage over others sold inside South Africa.”

South Africa’s current duties regime includes an exception on products that are worth less than R500, Vlok noted. So-called de minimus thresholds — which exempt cheaper imported goods from customs duties and taxes — were put in place before high-volume traders could take advantage of offshore online retail.

The second way is through a dispensation that allows South African consumers to receive two gifts a year without having to pay duties. Vlok said that large offshore online retailers may be claiming shipped items as gifts.

Moreover, there is the possibility that couriers are simply not paying the correct duties — calculated based on the specific items they have delivered, rather than a rough estimate.

“Based on what we’ve seen in the market, this seems to be much better now. Sars [South African Revenue Service] seems to have put in mechanisms to ensure that couriers are paying the right duties on goods,” Vlok said, adding that the other two loopholes have yet to be addressed.

Both Shein and Temu have previously denied exploiting tax loopholes in South Africa and in other countries.

“We are concerned that it is taking very long,” Vlok added. “We’re seeing a lot of other countries move quite quickly. We think that we should be doing the same.”

The National Clothing Retail Federation has recently again raised its concern that offshore online retailers may be getting away with dodging taxes or import duties.

Michael Lawrence, the federation’s executive director, noted that the small parcels create a number of dilemmas for local customs authorities. “They are a lot more difficult to stop and investigate, because of their sheer volume.”

There appears to be little correlation between the duties and the VAT charged by couriers and the actual value of the items shipped to customers, he said.

According to Lawrence, Sars has reported a huge increase in the number of small parcels being shipped by offshore online retailers in the past five years. But there has been no indication from the agency or government whether they have discovered any discrepancy between the actual and declared values of these deliveries.

“We are waiting on a response from the DTIC [department of trade, industry and competition] and Sars on whether they are satisfied that our concerns are baseless and they are satisfied that the law and the regulatory architecture is being correctly followed … and are they willing to give us any explanations on these perceived discrepancies. I think that is a very fair request on our side,” he said.

The department of trade and industry referred the Mail & Guardian’s query on the issue to Sars, which did not respond to the publication’s request for comment.

Vlok said the proliferation of lowpriced imported products in the South African market affects every part of the clothing value chain — from manufacturers to retailers. Lawrence said the hit is more acute for manufacturers.

Offshore online retailers such as Shein and Temu are not sourcing from local manufacturers, whereas local brands are more likely to, Vlok said.

Vlok noted that Shein’s and Temu’s market share is still relatively small compared to the big local fashion retailers, many of which still have brick and mortar stores.

“But their rise is absolutely meteoric. It’s just enormous. And so our concern is more about what will happen in the next year or two,” he said.

South Africa’s clothing and textiles industry is far more stable than it was in the 2000s and 2010s, during which there were huge job losses, he said, adding that during the mid2000s the industry shed 10 000 to 15 000 jobs every year.

“Our concern is that it hasn’t turned around and started growing yet,” he said, noting that the pandemic and the floods in Kwazulunatal had considerable consequences for the industry.

A2014 paper by the University of Cape Town’s Southern African Labour and Development Research Unit found that increased import penetration from China in the 2000 dealt a blow to South African manufacturing output and employment.

According to the paper, Chinese competition crowded out South African exports of manufactured goods to the European Union, the United States and a sample of subsaharan African countries by about 8% from 2001 to 2010.

That said, the influx of Chinese imports also had a positive effect, lowering the price of goods for poorer households and reducing local inflation and interest rates.

Design industry expert Shingai

Nyagweta was somewhat less concerned about Shein and Temu’s threat to manufacturers, noting that smaller local brands have already had to contend with the likes of H&M and Zara.

“For smaller brands, their customers fall more into the affordable luxury to luxury market, just because of where we do business,” Nyagweta said.

“Because, when you look at it, if your competition is Shein or Temu — and for that matter other fast fashion brands like H&M, Zara, Cotton On — then you are not selling into the right market. For smaller brands, their customers fall more into the affordable luxury to luxury market, just because where we do business.”

Nyagweta said this tendency towards a more luxury market is the result of South Africa’s more stringent labour laws, which inevitably push up production costs.

“I would hate to see local manufacturers try to compete, because we know the first thing that will go is labour costs. And fair wages are so important for the people who sit and make these clothes,” she said, noting that local brands have the opportunity to expand to overseas markets.

“I think there is space for everyone to be successful. And there is also space for all consumers to shop within their means.”

‘Even worse was the National Health Insurance Bill. This bill is simply unimplementable – there is no way it can be funded. It risks doing serious damage to the private healthcare sector and triggering an exodus of staff from the medical system.’