shein temu lawsuit

Temu and Shein which are among the top five apps in the US are at loggerheads and have filed lawsuits against each other while simultaneously fighting it out over suppliers in China.

Notably, despite the US-China tensions amid the growing clamor for banning ByteDance-owned TikTok, Chinese apps are popular in the US and four of the top five apps in the country are Chinese, according to Apptopia.

chinese apps in the US
Site: Appotopia

Both Temu and Shein are popular among US users looking for bargain deals. The two companies are however fighting it out to win over users.

In December, Shein sued Temu over intellectual-property infringement and alleged that Temu misled users into believing that the two were the same companies – while they were actually competitors.

Notably, while Shein has the first mover advantage, Temu has gradually increased its market share and according to Ernest Analytics in June, its sales in the US surpassed Shein for the first time ever.

To put that in perspective, Temu’s US sales were just 1% of Shein’s in September 2022. Barring March 2022, Temu has managed to increase its US market share every month since then.

temu versus shein
Source: The Wall Street Journal

As the two giants battle it out for market share, they are also engaged in other battles – including in US courts.

Temu and Shein Have Sued Each Other

Earlier this month, Temu sued Shein over anti-competitive practices accusing it of threatening and intimidating suppliers.

“Shein has engaged in a campaign of threats, intimidation, false assertions of infringement, and attempts to impose baseless punitive fines and has forced exclusive dealing arrangements on clothing manufacturers,” said Temu’s complaint filed with the US District Court for the District of Massachusetts.

Temu alleges, “Shein has required all of the approximately 8,338 manufacturers supplying or selling on the Shein Platform to execute Exclusive-Dealing Agreements, which prevent those manufacturers from offering products on the Temu Platform or supplying products to sellers on the Temu Platform.”

It also complained that due to Shein’s actions, merchants pulled 10,000 listings on its platform. It further alleges, “Shein knows that manufacturers need Shein’s volume and its access to the U.S. market and it is, therefore, able to coerce manufacturers into arrangements that force manufacturers not to do business with Temu.”

Shein meanwhile said that the lawsuit lacks “merit” and it would “vigorously defend” itself.

Alibaba Also Paid a Mammoth Fine to Settle the Antitrust Case

Notably, such exclusive deals were quite common among Chinese e-commerce companies, and in 2021 Alibaba paid a record $2.8 billion fine to settle the antitrust case. China also imposed a $533 million fine on food delivery company Meituan in an antitrust case.

The country took these actions as part of the wider tech crackdown. However, it has since ended the crackdown and is instead warming upto private tech companies.

Coming back to Temu and Shein, along with the US, Europe has also been a battlefield for the two companies and they are gaining market share at the cost of Amazon and eBay. According to GWS Research, Amazon lost 1 million app users in the UK this year while Shein’s users rose from 1 million to 2 million in a month.

Temu on the other hand attracted 3.5 million users within one month of its launch in the country. The app has taken Britons by storm and users spend 18 minutes on average on the app which is over twice what they do on Shein, Amazon, and eBay.

Shein and Temu Fight It Out Over Suppliers

As they fight for global dominance, Shein and Temu are also looking to woo more suppliers in China. The Wall Street Journal reported that current and former Shein employees say that last year Temu poached employees from Shein – especially in operations and supply chain.

It also added that users on the Chinese job-seeking site Maimai say that Shein is offering incentives to employees to put in more working hours and in some cases asking them to put in 242 hours every month.

Incidentally, PDD which is Temu’s parent company ranks second when it comes to working hours for tech workers while Shein comes fifth.

Meanwhile, even as both these companies are engaged in a tough battle for market share, they are working to dissociate themselves from China amid the US-China tensions.

Meanwhile, US regulators have intensified the scrutiny of both Shein and Temu as their business model revolves around the “de minimis” provision of Section 321 of the Tariff Act of 1930, which waives import tariffs if the value of imported shipment does not exceed $800.

Shein and Temu Face Regulatory Heat in the US

A report released by the House Select Committee on the Chinese Communist Party found that Shein and Temu accounted for 30% of the shipments made under the de minims rule.

The report also alleged that both these companies were doing little to keep their supply chain free from slave labor and Gallagher said in the report that “Temu is doing next to nothing to keep its supply chains free from slave labor.”

Representative Raja Krishnamoorthi, an Illinois Democrat and a co-author of the report said, “The initial findings of this report are concerning and reinforce the need for full transparency by companies potentially profiting from C.C.P. (Chinese Communist Party) forced labor.

At stake is the global market for fast fashion which according to Statista was $106 billion in 2022 and is expected to rise to $185 billion by 2027.

fashion market size
Source: Statista

Given the expected rise in the market for fast fashion, investors have been pouring money into privately-held companies in the industry.

However, the valuations in the space have come down in line with the slump in the startup industry. In the most recent funding round, Shein, which is headquartered in Singapore has cut the valuation to $66 billion which is only about two-thirds of its valuation in the previous funding round.

Shein reportedly held initial talks with investment bankers to select the bookrunners for the US IPO – the company, meanwhile, denied that it has any plans for an IPO yet.

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