Why is government investigating Shein, the world’s most popular fashion brand?

The Department of Trade, Industry and Competition (dtic) is investigating Shein, the world’s most popular fashion brand, after union and industry complaints that the fashion giant is using loopholes in import tax to sell its clothes for such low prices in South Africa.

Chris Xu, an entrepreneur and search engine optimisation specialist founded Shein, pronounced “she-in” in the city of Nanjing in 2008.

Starting out as another low-cost apparel seller, Shein grew to become an international online-only fashion giant with sales jumping from $10 billion in 2020, according to Bloomberg, to an unbelievable $100 billion in 2022.

According to a report compiled by Money.co.uk, Shein overtook giants such as Nike and Adidas as the most-Googled clothing brand, and Zara and Macy’s in online sales.

A spokesperson for the dtic did not want to comment apart from confirming the investigation.

ALSO READ: Shein kicks Zara off top spot on Top Brands of 2022 list

Union and industry are worried about business model

The Southern African Clothing and Textile Workers’ Union (SACTWU) and the National Clothing Retail Federation of South Africa (NCRFSA) asked the dtic to intervene because they believe that Shein purposely sends orders to South African customers in small packages of lesser value to avoid paying the higher import duties local clothing retailers pay for consignments.

Government charges tariffs of between 40% and 45% on imported clothing depending on the value but Shein could pay as little as 10% to 20%. Import duties are supposed to protect the local industry against cheap imports.

Etienne Vlok, national industrial policy officer at SACTWU, says workers and the industry are very concerned about Shein’s business practices, as it is bad news for workers, job creation, the economy and the industry.

“Shein is undermining all our objectives to create jobs and cut carbon emissions by using the loophole of paying less import duties on small packages that was meant for individuals. We believe it is important to close this loophole for Shein and make it pay the normal import duties just like everybody else.”

Vlok says there is also concern that Shein is, therefore, not paying other taxes, such as VAT, either. “Shein’s business model comes from the last century and is based on two parts: exploiting workers and not caring about the environment.”

According to Vlok the clothes are of very bad quality and do not last long, which means you have to throw it away and buy more, which is totally against the current principles of sustainable fashion.

ALSO READ: Greenpeace warns of Shein clothes containing ‘hazardous chemicals’

Strict policies for fashion retailers

Fashion retailers that import clothing usually have strict policies about workers’ rights and the impact on the environment and they regularly send representatives to countries where it is produced to check on these issues. In the case of Shein this does not happen, which means that there is no accountability.

Vlok urges consumers to think twice before they spend money on cheap fast fashion that is produced without much consideration for workers’ rights and the environment.

Michael Lawrence, executive director of the NCRF, says for his organisation the important factor is that consumers must be able to spend their money with confidence that they will get value for their money.

“However, there must also be a system in place to protect them. If you sell items in South Africa, it must be labelled to show the country of origin, but these clothes do not. And how do you know an item is really made from cotton? There are many techniques these days that can make any cheap fabric look like cotton. What is happening here is commercially destructive.”

This the first time a government confirms an official investigation into Shein and its import practices. Shein is now based in Singapore and sells directly to consumers in more than 150 countries. The Indian government banned the app in 2020 along with many others as a retaliatory move against China.

ALSO READ: Despite the controversy, fast fashion is still quite popular

A shadow over Shein

Shein does not own factories but sources the items from 6 000 clothing factories in China before selling it on its platform. Google and Facebook are filled with Shein advertisements, but its main strategy is using influencers.

However, various investigations have cast a shadow over Shein’s success. Synthetics Anonymous 2.9, a report on the sustainability of fashion pointed out that the manufacturers’ rapid use of virgin polyester and large consumption of oil churns out the same amount of CO₂ as about 180 coal-fired power plants.

A Wired investigation first pointed out how workers and consumers suffered due to the production of the clothes and a Channel 4 documentary, Inside the Shein Machine, showed that Shein employees work 18-hour shifts with 1 day off per month. In one factory, workers were paid $20 per day, but if they made mistakes, $14 was deducted.

Other investigations showed workers working in unsafe workshops with no windows and emergency exits, while many did not have contracts or were paid the minimum wage.

Shein then released a statement that said: “We know we have a responsibility to safeguard the welfare of workers in our supply chain. In light of the recent report in the news, we launched an investigation into the claim that 2 of our suppliers had unacceptable working conditions at their facilities”.

When asked for comment on the investigation, Shein responded with one sentence: SHEIN operates in compliance with local laws and regulations in the markets in which it operates.

On its South African site Shein says it uses technology and its in-house expertise to comply with relevant customs laws and regulations.

“Shein’s in-house customs team uses a Customs Compliance Guide drawn from a global list of customs laws and regulations to comply with customs, shipping, and commerce laws on a global scale.”

This article was updated with added comment from Shein.