Temu versus Shein: Chinese fast fashion rivals take antitrust fight to US courts


By AGENCY

A file picture shows products displayed at the Shein Group Ltd headquarters in Singapore. Photo: Bloomberg

If Kate Middleton wears a stylish T-shirt to a polo match, US teenagers will be able to buy replicas of it online the next day in six different colours.

That’s the business model behind ultra-fast fashion, in which companies led by Asian giants Shein and Temu work with overseas manufacturers to move the trendiest styles from Instagram to Generation Z for less than US$10 (approximately RM46), cranking out thousands of new items a day.

Neither Shein nor Temu has store networks or fashion houses.

Yet Shein overtook rivals including Zara and H&M during the Covid-19 pandemic to become the market leader in US fast fashion, according to a January report from Bloomberg Second Measure. Shein was recently valued at US$66bil (RM304bil), according to Bloomberg News.

Now the two titans are locked in a high-stakes antitrust battle centred largely around a US law that is more than a century old.

Temu claims Shein violated the 1890 Sherman Act by possessing monopoly power in the ultra-fast fashion market, which it defines as offering lower prices and far more new styles than traditional fast fashion.

Temu also accuses Shein of bullying key manufacturers into exclusive agreements and threatening to impose fines if they fail to comply.

On July 31, Shein won a temporary restraining order in a separate case accusing Temu of using its copyrighted images in product listings.

The lawsuits illustrate the lengths the two rivals are willing to take their fight over market share in an industry that’s poised to reach US$185bil (RM853bil) in sales worldwide by 2027, up from US$106bil (RM489bil) in 2022, according to Statista data.

Their fight also underscores the growing appetite for US market share among a contingent of Asian e-commerce businesses, including ByteDance Ltd's TikTok and Alibaba Group Holding Ltd‘s AliExpress platform.

Read more: Fast fashion battle: H&M sues rival Shein in Hong Kong court

Temu is a subsidiary of PDD Holdings Inc, a multinational e-commerce group whose Chinese Pinduoduo platform sells goods to US consumers.

Shein, headquartered in Singapore, works largely with third-party manufacturers in China to produce apparel featured on its US shopping site.

It also faces a lawsuit abroad: Shein is being sued by H&M in Hong Kong for copyright infringement on its designs.

Shein didn’t return inquiries about the lawsuits for this story. Temu’s attorney, Philip Korologos of Boies Schiller Flexner LLP, declined to comment. Officials with Temu didn’t respond to inquiries seeking comment.

Shein and Temu’s move to duke it out in US courts reflects that US private antitrust enforcement is more highly developed than in nations that rely on government enforcement, said Kathleen Bradish, vice president of legal advocacy for the American Antitrust Institute.

But it also carries risks: The companies likely will have to turn over internal documents that businesses, especially ones associated with China, rarely let anyone see.

"They are going to have to open to the doors a bit to scrutiny,” Bradish said. "US lawyers are going to see the documents. The judges are going to see the documents.”

Market Demand

Temu launched its US website in September 2022, offering prices 10% to 40% lower than Shein and substantially lower than offered by Walmart Inc and Amazon.com Inc, according to Temu’s lawsuit.

Temu saw month-over-month growth in consumer spending on its US website during the second quarter this year, outpacing US spending at Zara and H&M’s stores and websites, according to Earnest Analytics.

Members of Generation Z, and their parents, are driving demand for fast fashion, said Nora Kleinewillinghoefer, partner with consulting firm Kearney, where she leads its North America fashion and luxury sector.

"If I’m a 16-year-old that wants to look like Kate Middleton, I can just get that for US$20 (RM92)" versus paying the hundreds of dollars that item might have cost from the original designer, Kleinewillinghoefer said.

"I can have a piece of that pop culture, and I can have it in a few days,” she said.

Shein and Temu can also focus resources on product development and marketing to American consumers in part because they don’t have a costly network of brick-and-mortar stores like Zara and H&M, she said.

"They can take a really small subset of product, see what sells, and then scale it,” Kleinewillinghoefer said.

Ultra-fast fashion items are not built to last, she said: "The product is more cost-efficient to produce, and its life-cycle is probably shorter than some of its competitors.”

Fashion Fight

Temu alleges in its lawsuit that Shein dominates more than 75% of the US ultra-fast fashion market, which adds thousands of new styles each day as opposed to the roughly 25,000 a year that traditional fast-fashion players offer.

Attorneys say Shein is likely to argue that ultra-fast fashion isn’t its own market, meaning there is no monopoly power. The company could say it competes either in the traditional fast-fashion market or in the broader retail sector that includes players such as Nordstrom Inc.

Proving the existence of a market requires convincing the court, and a jury, that consumers view it as distinct and won’t turn to other products when prices go up, said Eleanor Tyler, principal legal analyst with Bloomberg Law.

"You’re looking for that market where a monopolist can increase prices and hold them there, without having to back down or lose sales,” Tyler said. "It would mean that it has the power to raise prices and stick it.”

Temu does a good job explaining why ultra-fast fashion should be a distinct market, Tyler said. "They are saying that there is this group of companies that market just massive numbers of products,” she said.

"The price point is different.”

Temu must also prove that Shein engaged in predatory or exclusionary conduct, said Matthew DeFrancesco, partner with FisherBroyles, LLP in New York and an antitrust law professor at the New York Law School.

Exclusive deals can be seen by the courts as pro-competitive. But if the exclusive agreements Shein allegedly entered into were enforced only to hurt Temu, that could be seen as anti-competitive, DeFrancesco said.

"If you can’t get the suppliers you need, you can’t compete,” he said.

Read more: A look inside the fast-paced, ultra-cheap throwaway fashion industry of China

Uphill Battle

It’s also possible that the two companies reach a settlement, DeFrancesco said.

"The companies might do a cost-benefit analysis and decide they don’t want to spend money on lawyers and just resolve this out of court,” he said.

In the meantime, Temu faces an uphill battle. Courts are reluctant to inhibit legitimate competition when trying to capture anti-competitive conduct, said Bradish of the American Antitrust Institute.

"There is a fear on the part of courts to interfere with the business decisions of a corporation,” Bradish said.

The battle could last years, with both sides investing significant resources into the legal claims, said DeFranceso of FisherBroyles.

"These cases can cost millions, easily,” DeFrancesco said. "It’s a very costly affair.”

The case is Whaleco Inc vs Shein US Services LLC, D Mass (No. 1:23-cv-11596, 7/14/23). – Bloomberg

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