Shein Faces Customs Probe and Battles Surging Fast-Fashion Threat (2024)

South Africa‘s garment sector has some questions about how Shein does business in the textile-producing nation.

The South African government is investigating the fast-fashion giant’s operations after local fashion trade groups complained that the Christian Siriano collaborator might be taking advantage of tax policies to skirt higher tariffs, The Wall Street Journal reported Monday. The complaint is similar to issues raised in the U.S. around the de minimis loophole, which allows inbound shipments valued at $800 or less to dodge duties, taxes and fees.

A Shein spokesperson said the companycomplies with local laws and regulations in the markets where it operates.

The news comes as Shein goes head-to-head with a surging new threat. A lawsuit it filed in December in the U.S. District Court of Illinois pits the company against Temu, the Chinese fast-fashion rival whose Super Bowl coming out party catapulted its ultra-cheap clothing into the U.S. consumer consciousness.

Last week, Shein offered its rebuttal to Temu’s opposition to the 11-charge complaint that accused Temu of stealthing as Shein on social media only to direct users to the Temu app. The suit also says Temu directed influencers, who were paid according to an affiliate marketing business model, to make untrue and libelous claims about Shein. Furthermore, Shein’s attorneys argued, Temu infringed upon its trademark on four items of clothing.

Estimates are that over the last two years, Shein has been sued at least 50 times for trademark and copyright infringement, often choosing to settle with plaintiffs rather than defend its practices.

Temu, which according to its website means “team up, price down,” began business in 2022 in Massachusetts with the backing of multinational, China-linked PDD Holdings Inc., the owner of group buying platform Pinduoduo. Its aim is to beat Shein at its own game—fast fashion at the cheapest prices—and in its first year claims $14.7 billion in revenue, $2.2 net income and $4.6 billion net cash.

Shein argues the newcomer went too far in 68,567 incidences where Shein’s name showed up in headline ads for Temu, which it says confuses customers and hurts its bottom line.

Temu, in its rebuttal of the false advertising claims, said it only used the name Shein as part of a keyword bank, and denies creating fake social media accounts.

“Temu did not make the fake Twitter accounts,” the defense’s March 10 rebuttal reads, blaming the influencers trying to “game” Temu’s affiliate marketing referral programs for any misinformation.

In its response, also filed March 10, Shein lawyers said the issue is not about keywords, but rather stealing the trademark and attempting to “reap the goodwill [Shein] developed in its name.”

“Temu combined keyword advertising (an otherwise legal activity where a competitor’s trademark may be purchased for search purposes but not depicted in actual ads to consumers) with Google’s keyword insertion feature (also an otherwise legal activity when competitors’ distinctive and famous trademarks are not used as keywords)—knowing and intending that the Shein marks searched by users would then be inserted into the resulting ad’s headline, resulting in the Shein mark being depicted in Temu ads to consumers,” Shein’s attorneys wrote. “This is no different, for example, than depicting Tesla in online ads by Ford.”

They further contended that Temu’s ignorance of the “deceptive tweets in the imposter Twitter accounts,” is an unsatisfactory excuse because Temu itself “created all of the affiliate links and uses those links to track referral traffic to its website and the resulting payment for these referrals.”

Shein’s legal team cited examples of product disparagement and trade libel.

“Shein is not the only cheap option for clothing! Check Temu.com out, cheaper and way better quality,” one influencer wrote, while another’s post read, “Looking for clothes better than Shein but cheaper than revolve? Check Temu.com out.”

Temu’s motion to dismiss filed on Feb. 8 described Shein’s lawsuit as an attempt to “make war” with a young rival and that a court injunction would only “stigmatize, shackle and distract a new competitor.”

Temu attorneys argued that the actions of their counterparts were “sanctionable,” citing a visit from Shein representation in November when counsel allegedly told them cooperation and negotiation was pointless because they were “under client pressure to proceed because Shein was ‘at war’ with a new competitor.”

Defendants argue that any confusion that did result from the alleged 68,567 incidences of Shein showing up in Temu headlines did not likely confuse customers, and furthermore that as of October Google recognized Shein as a trademark and no longer inserts the keywords into ads, so there would be no need for an injunction in any case.

“That is why Shein can find no post-October examples,” Temu’s rebuttal reads.

But Shein says that’s not the case at all.

“Shein is at risk of current and future harm: Temu’s use of keyword insertion to add ‘Shein’ into its online ads continues unabated, with Shein discovering an Infringing Ad [on Jan. 17, 2023],” plaintiffs wrote, adding that neither Twitter nor Google has complied with court orders to hand over evidence. “The evidence shows Temu’s misuse of the Shein marks to attract and divert consumers is ongoing.”

Shein is suing Temu for violating trademarks on four of its actual products. Temu’s “Girls Casual Patchwork Striped Embroidered Pullover T-Shirt,” “Girls Khaki Belt Tunic Trench Coat,” “2pc Boys Autumn Long Sleeve Set Kids Fashion Sports Casual Set,” and “Girls’ Casual Skinny Buttoned Trousers Flared,” are all alleged to not only infringe upon Shein’s trademark in design, but also to be counterfeiting, which brings with it triple the damages should the plaintiffs prevail in court.

The dispute over the alleged duplication of designs was not addressed in either of the March 10 filings, but in the original complaint, Shein entered exhibits showing products and images identical to those on Shein’s website being sold by Temu.

Shein asked the court to order a stop to Temu’s alleged practices and to require it to “account to Plaintiff for Defendant’s profits from the sale of products or downloads of the Temu app and subsequent sales of products originating from the Imposter Twitter Accounts, the Influencer Statements, or any other advertisem*nt in which Defendant unlawfully used the Shein marks.”

“Temu deliberately and strategically launched its website and mobile application in the U.S. while riding off the coattails of the Shein brand,” Shein lawyers wrote in their complaint. “Temu would not be as successful or recognized today if Temu’s fraudulent misuse of the Shein brand was not foundational to Temu’s initial launch in the U.S.”

A Temu spokesperson said it takes IP rights seriously.

“Temu is committed to protecting everyone’s intellectual property rights and has a strict policy against any listing that violates any third party’s IP rights,” the representative said. “Since inception, Temu has been named as defendant in only one lawsuit alleging IP infringement, which Temu strongly and categorically rejects all allegations and is vigorously defending its rights. Coincidentally, this only case was brought by Shein, which has been named as defendant in more than 70 IP infringement cases by international rights holders and independent artists since 2019.”

Shein X Design Summit

While the court battle plays out, Shein soldiers on with building its brand and cozying up to rising design talent. Its inaugural Shein X Design Summit will gather industry powerhouses in Los Angeles on April 1

The event is part of Shein’s commitment to “empowering aspiring entrepreneurs,” George Chiao, the company’s U.S. president, said in a statement.

“Since we launchedSHEINX in 2021, thousands of entrepreneurs have been able to elevate their brands on the global stage through the program,” he continued. “This year, we’re looking to onboard 1,000 more, and we’re excited to partner with visionaries and veterans from across the fashion industry to guide and support the next generation of designers and artists.”

The day-long lineup will give attendees the opportunity to mix and mingle with fashion financier Gary Wassner of Hilldun Corp. and NYFW designer LaQuan Smith, who will share “advice” with aspiring designers. Attendees at the City Market Social House will also hear from Monse co-creative director Laura Kim, celebrity stylist Maeve Reilly, Act of Faith co-founder and Exo Cosmetics founder Evette, influencer and Natasia swimwear designer Racquel Natasha, and Josephine Skriver, model and founder of activewear brand Joja.

Shein said it wants the summit to support independent designers and bring awareness to the Shein X incubator’s resources for talent looking to growing their businesses.