Chinese linked e-commerce companies shake up US market

Two Chinese-linked online marketplaces are shaking up the e-commerce market with extremely low prices, even as the firms face concerns from consumers about labor practices.

The rapid rise in popularity of Temu and SHEIN has been so sudden that Amazon now sees the two firms as its biggest rivals, according to a recent report by The Wall Street Journal.

China-operated Temu launched in September 2022 and now has 51 million U.S. users, while Chinese-founded fashion and lifestyle retailer SHEIN has almost 14 million U.S. downloads.

Christopher Tang, a professor at the University of California Los Angeles Anderson School of Management, said an American tax loophole known as the de minimis rule makes both companies’ low prices possible.

Born from U.S. concerns that labor costs to collect import duties would be more than the taxes collected, the de minimis rule allows companies to ship products worth less than $800 into the U.S. without paying import duties.

“They don’t really need to pay the tax,” Tang told VOA. “That’s why they can pass all the savings to the consumers.”

Tang said SHEIN’s particularly effective internet-based business model allows them to reduce expenses.

“Besides selling online, they also do not really advertise that much. They use influencers. They use what we call social commerce, so they use Instagram, TikTok, Facebook to promote the products.”

“SHEIN’s model really uses a lot of data analytics to predict which model is going to sell well,” Tang added.

Temu, on the other hand, has a unique model of engaging customers through gaming, coupons and text message alerts, Tang said.

“By promoting all these products on the platform and also the app, they push the products every day on your cell phones,” Tang said. “This is a very exciting business model that I think that U.S. companies found difficult to beat.”

But some consumers have complained about Temu and Shein to the Better Business Bureau, or BBB, a nonprofit which rates companies’ customer service. Complaints include product quality, shipping delays and customer service.

“Temu is engaged with BBB and is working to respond to and address the concerns raised by the consumers,” BBB spokesperson, Melanie McGovern told VOA.

McGovern said customers should ensure they are aware of the risks of shopping at any company before making purchases.

“BBB always encourages consumers to look at the company’s BBB business profile for the latest information,” McGovern said. “It’s on the consumer to do that homework, to do that due diligence, to look at the profile, read through everything and then make their decision from there whether or not they’re going to shop at that retailer.”

For some customers, issues with SHEIN and Temu go beyond customer service. A congressional committee report last year found that Temu and SHEIN’s supply chains may use forced labor.

“American consumers should know that there is an extremely high risk that Temu’s supply chains are contaminated with forced labor,” said the report from the House Select Committee on the Chinese Communist Party.

In December 2021, the United States passed the Uyghur Forced Labor Prevention Act in response to allegations of human rights abuses in China’s western region of Xinjiang. China denies the allegations.

“It’s really convenient, but obviously it’s coming from not a lot of great labor practices,” said Vee Witzel, a 20-year-old student at the George Washington University in Washington and occasional Temu shopper. “I know it’s not good for the people working for the company, so it’s a little moral dilemma for me.”

Zahaan Riyaz, 20, also a student at GWU, said he has avoided buying from e-commerce sites.

“I understand it to an extent, just because they’re cheap options, and people these days are looking for cheap options, especially in colleges,” Riyaz told VOA. “Fast fashion causes a lot of problems in regards to workers’ rights, especially in foreign countries, and also it creates a lot of waste.”

Tang said it is tough for lawmakers or consumers to prove allegations of dubious labor practices because identifying “who produced the garments and where is not easy to track and trace, because the supply chain is not that transparent for many companies.”

A SHEIN spokesperson said the company aims to satisfy its customers and takes steps to satisfy U.S. labor law.

“SHEIN’s loyal customer base is the foundation of our business. We are committed to delivering a great shopping experience for our customers,” the spokesperson wrote to VOA.

“SHEIN has a zero-tolerance policy for forced labor. We take visibility across our entire supply chain seriously, and we are committed to respecting human rights. To comply with U.S. law, we require our contract manufacturers to only source cotton from approved regions.”

A Temu spokesperson did not respond to a VOA request for comment.

Tang said he believes American shoppers will buy from Temu or SHEIN, no matter what, because of their low prices.

“American consumers like good deals, so these kinds of good deals are difficult to beat,” Tang said.