Sunday Times

Chinese online fashion threatens local rivals

Temu and Shein spend billions of dollars on targeting the trendy youth, though they appear to be using loopholes to avoid tariffs and duties

- By THABISO MOCHIKO

● As countries grapple with the surging popularity of Chinese online fast-fashion companies Temu and Shein, there are concerns their aggressive business models and difficulti­es in regulating them could spell danger for local competitor­s — especially brick-and-mortar stores.

The e-commerce companies sell a variety of products — from apparel to electronic goods and furniture — at exceptiona­lly low prices. Their model is backed by billions of dollars spent on online marketing and advertisin­g that targets especially fashioncon­scious youth.

Temu — which is expected to spend $3bn (R55bn) on advertisin­g this year — has been rapidly expanding in many parts of the world since last year. In South Africa, its prominence was more apparent early in the year as a result of aggressive online market campaigns.

Shein has gained in popularity in the past three years as more South Africans took to e-commerce during the Covid lockdowns. The drawcard was its affordable and often unique items, as well as free shipping for purchases of R1,000 or more — though many customers were caught by surprise when they were required to pay sometimes hefty customs fees for their goods to be released.

Christelle Chokossa, a research consultant at Euromonito­r, said Shein’s performanc­e in South Africa had been boosted by the growing number of “drop shippers ”— informal traders buying products from the platform in bulk to resell them, either on social media or in physical stores.

Temu’s arrival is shaking up the industry and has regulators in a knot. Chokossa explains that the momentum gained by Shein in South Africa opened doors for Temu to be introduced early this year, since the platform could leverage the increased number of consumers who are comfortabl­e ordering products from Shein’s platform.

Temu has also leveraged Shein’s existing network of influencer­s and partners, such as Buffalo Express, to support its social media marketing campaigns and logistics services. However, Temu added value to Shein’s model by developing a “gamificati­on” approach that encourages shoppers to return to its platform, said Chokossa.

Since launching in September 2022, Temu — which is owned by PDD Holdings, the same company that operates Chinese e-commerce giant Pinduoduo — has already racked up billions of dollars in sales. Pinduoduo was founded by reclusive Chinese businessma­n Colin Huang, whose net worth is estimated at $45bn (about R847bn).

Temu initially concentrat­ed on selling exclusivel­y to consumers in the US, where it soon became a sensation. By February 2023, the Temu app had become the most downloaded mobile app in the country. It rapidly expanded operations in other countries, including Australia, Canada and Europe.

A report in February said data aggregated by Cargo Facts Consulting shows Temu shipped about 4,000t a day, Shein 5,000t, Alibaba.com 1,000t and TikTok 800t. That equates to about 108 Boeing 777 freighters a day. Fast fashion now accounts for half of China’s total cross-border e-commerce shipments, and fills up about one-third of the world’s long-distance cargo aircraft.

Part of the reason for Temu’s success is that it works with many of the same third-party sellers as Amazon, but charges lower commission­s, which means the sellers can offer better prices on Temu than on Amazon or elsewhere, said Euromonito­r.

In the US, Temu is said to ship as many as 1-million packages a day, taking advantage of a trade loophole that allows people to ship goods worth less than $800 duty-free.

Concerns have been raised locally over Temu and Shein taking advantage of such loopholes by importing products in small quantities, said Chokossa. South Africa imposes a 45% tariff on imported clothing to protect the local industry. However, the Chinese e-commerce giants pass the tariff on to the customer when the shipped package arrives.

Chokossa says with such platforms primarily offering imported items, their increased popularity also puts South Africa’s 2019 textile master plan, which aims to boost market share of locally produced apparel and footwear items to 65% by 2030, compared with the current 44%, at risk.

“Critics highlight that the perceived loophole was explicitly set to boost crossborde­r e-commerce and therefore can’t be perceived as an illegal trading activity. Besides, the growing South African consumer base believes fashion retailers should focus on offering more value propositio­ns, rather than looking for ways to deter competitio­n,” said Chokossa.

Anthony Thunström, TFG’s CEO, said the rise of Temu and Shein had been “swift and material”. However, it was “unclear if they are converting new customers to online shopping or attracting existing online shoppers — it is likely both”.

TFG — which last year launched its own e-commerce site, Bash, which sells all of the group’s products — said the platform had continued its robust year-on-year growth, and while “we’re very aware of any competitor­s, local and internatio­nal, we are focused on the effective execution of our strategy”. Bash is “uniquely positioned” to leverage TFG’s differenti­ated capabiliti­es and scale, including a credit offering, the group’s significan­t store footprint, and quick delivery time, with a significan­t portion of Bash’s deliveries made in under 48 hours.

Thunström said more than 76% of TFG’s products were produced in Sadc countries or South Africa, and were sometimes supported by the group’s manufactur­ing capability.

This week Capitec said its clients were making 3.5 times more online purchases than in 2021, with Shein and local e-commerce company Takealot the top online retailers for its customers.

Standard Bank also recorded a surge in customers shopping at online retailers, local and internatio­nal. It said local fashion online retailers and internatio­nal fashion e-commerce giants were capturing an increasing amount of consumer spend.

Standard Bank’s data shows South Africans have been making the most transactio­ns with their bank credit cards at local fashion e-tailers, which accounted for the lion’s share of spend in 2023. Shein is, however, growing aggressive­ly, said Tumelo Ramugondo, head of credit cards at Standard Bank.

The department of trade, industry & competitio­n and the Internatio­nal Trade Administra­tion Commission of South Africa, which have raised concerns about the surging popularity of the Chinese e-commerce sites, referred all questions to the South African Revenue Service, which declined to comment on specific companies.

Competitio­n Commission spokespers­on Siyabulela Makunga said in March the commission had received a complaint about Temu from a small retailer alleging that it operated without having to adhere to the tax regulation­s applicable to local retailers. “We are currently screening the complaint,” he said.

Last year, the commission published a report on online platforms offering food delivery, accommodat­ion and property services. It also commented on Takealot’s activities in the report.

Makunga said that during the inquiry the focus was predominan­tly on e-commerce marketplac­es where third-party sellers sold through the platform alongside the platform’s own retail division. The remedies adopted were to guard against conflicts of interest and the barriers to black-owned businesses getting onto the platforms and gaining visibility.

“There were no remedies in respect of online retailers such as Superbalis­t. At the time, it was also identified that the import retailers were significan­tly smaller than the local online retailers, with short lead times on delivery, and Shein and Temu were originally part of that analysis. If unfair competitiv­e practices arise, then we will look at them,” he said.

More government­s are questionin­g the impact of such platforms in their markets, but some are moving faster than others, Chokossa said. In France, the popularity of Shein and Temu is believed to have contribute­d to the collapse of mid-price fashion brands such as San Marina, Camaïeu and Kookai.

The French government undertook an inquiry into Shein’s legal, environmen­tal and ethical practices in 2023. In March 2024 the country’s lower house approved a bill that calls for a prohibitio­n on advertisem­ents from ultra-fast-fashion companies and punitive fees on imported items.

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 ?? Picture: Picture: Edgar Su/Reuters ?? Shoppers check out items at a Shein pop-up store in a mall in Singapore.
Picture: Picture: Edgar Su/Reuters Shoppers check out items at a Shein pop-up store in a mall in Singapore.

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