Shein and Temu ‘At War’
Call it the clash of the Chinese-founded e-commerce titans.
Temu has filed a lawsuit against Shein, accusing its rival of anticompetitive conduct through the use of threats, intimidation and false assertions of infringement to “coerce” clothing manufacturers in China into exclusive agreements that preclude them from working with anyone else.
More from Sourcing Journal
“In response to Temu’s entry and lower prices, Shein chose not to compete on the merits by offering better prices, terms, service, or quality to maintain or expand its U.S. business,” wrote Whaleco, the legal entity that operates Temu in the United States, in a complaint filed with a federal court in the district of Massachusetts on July 14. “The intent and effect of Shein’s anticompetitive conduct is to exclude Temu so that Shein can charge higher prices to consumers while offering a smaller selection and lower quality than Shein would if it faced competition from Temu.”
The allegations come after Roadget Business, the company that owns the Shein trademarks and global website, served Whaleco with papers charging Temu with trademark and copyright infringement, impersonation of the Shein brand and the use of social media influencers to make “false and deceptive statements.” Last month, it extended its complaint to Twitter, which it said has refused to comply with a subpoena demanding undeleted data related to so-called “fraudulent” accounts that operated on the platform before their suspension, including IP addresses and device settings that could unmask the perpetrators responsible.
“Temu does not want to compete with Shein; it wants to be Shein, and if it is not deterred and enjoined, not only will Roadget continue to be irreparably harmed, but United States consumers and other intellectual property rights holders will as well,” said Roadget Business.
It denounced its Boston-based competitor as “no garden variety counterfeiter” but one that is “flagrantly misappropriating and tarnishing its primary competitor’s reputability, popularity, and substantial investment by passing itself off as Shein through an overarching scheme of counterfeiting, infringement, impersonation, gross and egregious data privacy violations and trade secret theft.”
Shein is fending off its own deluge of litigation, including one that a group of designers filed in Los Angeles federal court last week accusing it of violating the Racketeer Influenced and Corrupt Organizations Act, better known as RICO, for “systemic and repeated” copyright infringement.
Temu pointed to Shein’s legal troubles in a rebuttal to its lawsuit in March.
“Since inception, Temu has been named as defendant in only one lawsuit alleging intellectual property infringement, which Temu strongly and categorically rejects all allegations and is vigorously defending its rights,” a spokesperson told Sourcing Journal. “Coincidentally, this [is the] only case [that has been] brought by Shein, which has been named as [a] defendant in more than 70 intellectual property infringement cases by international rights holders and independent artists since 2019.”
The story of Shein, which broke into the United States in 2017, has been described as one of meteoric success. Known for its ultra-trendy, mind-bogglingly cheap tops, dresses and swimsuits, which it pumps out at a rate of more than 6,000 new styles a day, the Singapore-headquartered firm amassed a significant following during the pandemic, capturing 50 percent of the U.S. fast fashion share, or more than Fashion Nova, H&M and Zara combined, by November 2022, according to Bloomberg Second Measure, which parses credit and debit card transactions. At its height, Shein was valued at $100 billion, though the number has contracted to a slightly more modest $65 billion as it creeps closer to an IPO.
Temu washed onto American shores in September. It promised the same bargain-basement prices as Shein and sold not only garments but electronics, kitchen appliances and home improvement tools. Buoyed by a Super Bowl spot that encouraged viewers to “shop like a billionaire,” in February the PDD Holdings-owned firm hit 50 million app installs in a matter of months, according to mobile research firm Apptopia, neatly ousting Shein as the most downloaded shopping app on both Google Play and Apple’s App Store. Data firm YipitData estimates that Temu’s gross merchandise value grew from $3 million in September to $192 million in January. In May, Bloomberg Second Measure found that U.S. spending on Temu was 20 percent higher than at Shein, which started expanding its offerings using a similar third-party marketplace concept.
The shift in power isn’t lost on Whaleco. In its complaint, the company said that Temu’s “demonstrated ability” to offer hundreds of thousands of new and frequently refreshed products at heavily discounted prices poses a “direct competitive threat” to Shein, distinct from H&M, Zara and others. It said that Temu is “better situated than any other firm to challenge Shein’s dominance and deliver better consumer value” and that its entry into the U.S. market is therefore a “disruption” to Shein’s “easy dominance in ultra-fast fashion,” which it describes as a “separate and distinct” market characterized by high volumes of new styles, rapid design and quick turnarounds from one product to another on tight margins and without the use of middlemen.
“Temu and Shein are at the vanguard of ultra-fast fashion, where technology and highly efficient supply chains meet to satisfy consumer demand for cutting-edge fashions at ultra-low prices,” Whaleco said, noting that an analysis of identical products on both Shein and Temu showed they usually cost 10 percent to 40 percent less on Temu.
Even Amazon and Walmart’s online arms operate on a different business model, acting as “both traditional high-inventory retailers and as platforms for third-party sellers, essentially using an online retail model designed to compete directly with traditional brick-and-mortar retail operations,” the lawsuit said. “By contrast, Shein and Temu add designs quickly and rely on their agreements with capable manufacturers to deliver fashion at breakneck speed.”
The likes of Forever 21 similarly don’t go head to head with Shein and Temu, Whaleco claimed. Unlike “traditional vertically integrated fast-fashion retailers,” the two have “left behind the old seasonal update cycle and high-price infrastructure in favor of a leaner operation and efficiency innovations that enable them to deliver even more up-to-date fashions at a fraction of the price.” Consumers, it said, demand the “unique combination of features that ultra-fast fashion companies offer, and do not consider them interchangeable with traditional retailers or fast-fashion.”
The complaint said that the roughly 8,340 Chinese manufacturers that supply Shein represent 70 percent to 80 percent of the total number of merchants capable of supplying ultra-fast fashion. Temu also said that it’s not aware of Shein enforcing its exclusivity agreements against manufacturers offering similar products on platforms other than Temu.
In other words, in this unique milieu—one that is being scrutinized by Congress for potential forced labor concerns—it’s a cage match. Shein versus Temu.
“As a result, Shein now views itself as being ‘at war’ with Temu and has engaged in an elaborate and anticompetitive scheme aimed at stymieing Temu’s business,” Whaleco said. “The U.S. market is the primary theater of this war.”
Temu alleges that Shein employs multiple strategies designed to lock it out of the competitive space, including strongarming manufacturers into signing “loyalty oaths” pledging not to work with Temu and levying fines and penalties if they do. Shein, the lawsuit said, also sends numerous “false notices” of copyright infringement to Temu meant to “disrupt” its sales of products. “These notices are almost always aimed at products that Temu sells at lower prices than Shein charges for identical or similar products,” the complaint added.
“We believe this lawsuit is without merit and we will vigorously defend ourselves,” a Shein spokesperson told Sourcing Journal.
Whaleco said that its feud with Shein began in October 2022. Since then, more than 10,000 product listings have been pulled from Temu “because of Shein’s scheme,” it claimed. The company further alleged that some manufacturers have asked Temu to remove all of their products from its site in order to “appease” Shein.
Whaleco said that Shein’s conduct violates Sections 1 and 2 of the Sherman Act, the Clayton Act and the Massachusetts Consumer Protection Law while causing common-law tortious interference.
“Appropriate and competitive responses to a new market entrant include offering better terms, features, or prices. Shein instead chose to engage in its anticompetitive scheme of coerced exclusivity, threats, intimidation, and direct financial punishments,” the lawsuit said. “Shein’s conduct is the opposite of competing fairly and within the bounds of applicable law.”
Temu told Sourcing Journal said that the company has exercised “significant restraint” and refrained from pursuing legal actions “for a long time.”
“However, Shein’s escalating attacks leave us no choice but to take legal measures to defend our rights and the rights of those merchants doing business on Temu, as well as the consumers’ rights to a wide variety of affordable products,” a spokesperson said. “Our legal measures aim to bring the other party back to the rule-based fair competition, which will benefit all participants in the ecosystem, including consumers, suppliers and service providers.”
