As countries grapple with the surging popularity of Chinese fast-fashion companies Temu and Shein, there are concerns their aggressive business models and difficulties in regulating them could spell danger for local competitors — especially brick-and-mortar stores.
The e-commerce companies sell a range of products — from apparel to electronic goods and furniture — at incredibly low prices. Their model is backed by billions of dollars spent on online marketing and advertising targeting especially fashion-conscious youth chasing new trends.
Temu — which is expected to spend spend $3bn (R55bn) on advertising this year — has been rapidly growing its presence in many parts of the world since last year. In South Africa, its prominence was more apparent early in the year as a result of aggressive online market campaigns.
Shein started gaining popularity in the past three years, as more South Africans began embracing e-commerce during the Covid-19 lockdowns. The drawcard was its affordable and often unique items, as well as free shipping for a basket of purchases worth R1,000 or more — though many customers were caught by surprise when they were required to pay sometimes hefty customs fees for their goods to be released.
Christelle Chokossa, a research consultant at Euromonitor, said Shein’s performance in South Africa had been boosted by the growing number of “drop shippers” — informal traders buying products from the platform in bulk to resell them, either on social media or in physical stores.
The entrance of Temu into the market is shaking up the industry and has regulators in a knot. Chokossa explains that the momentum gained by Shein in South Africa opened doors for Temu to be introduced early this year, since the platform could leverage the increased number of consumers becoming comfortable ordering products from its competitor Shein’s platform.
Additionally, Temu leveraged Shein’s existing network of influencers and partners, such as Buffalo Express, to support its social media marketing campaigns and logistics services. However, Temu added value to Shein’s existing model by developing a gamification approach that encourages shoppers to return to its platform continually, said Chokossa.
Since launching in September 2022, Temu — which is owned by PDD Holdings, the same company that operates Chinese e-commerce giant Pinduoduo — has already racked up billions of dollars in sales. Pinduoduo was founded by reclusive Chinese businessman Colin Huang, who has an estimated $45bn (about R847bn) net worth.
Temu initially concentrated on selling exclusively to consumers in the US, where it soon became a sensation. By February 2023, the Temu app had become the most downloaded mobile app in the country. It rapidly expanded operations in other countries, including Australia, Canada and Europe.
It was reported in February that data aggregated by Cargo Facts Consulting showed that Temu shipped about 4,000t a day, Shein 5,000t, Alibaba.com 1,000t and TikTok 800t. That equates to about 108 Boeing 777 freighters a day. Fast fashion now accounts for half of China’s total cross-border e-commerce shipments, and fills up about one-third of the world’s long-distance cargo aircraft.
Part of the reason for Temu’s success is that it works with many of the same third-party sellers that Amazon does, but charges them lower commissions, which means the sellers can offer better prices on Temu than on Amazon or elsewhere, said Euromonitor.
In the US, Temu is said to ship as many as 1-million packages a day, taking advantage of a trade loophole that allows people to ship goods worth less than $800 duty-free.
The growing South African consumer base believes fashion retailers should focus on offering more value propositions, rather than looking for ways to deter competition
— Christelle Chokossa, Euromonitor
Concerns have been raised locally over Temu and Shein taking advantage of such loopholes by importing products in small quantities, said Chokossa. South Africa imposes a 45% tariff on imported clothing to protect the local industry from cheap imports. However, the Chinese e-commerce giants pass the tariff onto the customer when the shipped package arrives.
Chokossa says with such platforms primarily offering imported items, their increased popularity also put South Africa’s 2019 textile master plan, which aims to boost market share of locally produced apparel and footwear items to 65% by 2030, compared with the current 44%, at risk.
“Critics highlight that the perceived loophole was explicitly set to boost cross-border e-commerce and therefore can’t be perceived as an illegal trading activity. Besides, the growing South African consumer base believes fashion retailers should focus on offering more value propositions, rather than looking for ways to deter competition,” said Chokossa.
Anthony Thunström, TFG’s CEO, said the rise of Temu and Shein had been “swift and material”. However, it was “unclear if they are converting new customers to online shopping or attracting existing online shoppers — it is likely both”.
TFG — which last year launched its own e-commerce site, Bash, which sells all its products, from fashion to homeware — said the platform had continued its robust year-on-year growth in spite of this, and while “we’re very aware of any competitors, local and international, we are focused on the effective execution of our strategy”. Bash is “uniquely positioned” to leverage TFG’s differentiated capabilities and scale, including a credit offering, the group’s significant store footprint, and quick delivery time, with a significant portion of Bash’s deliveries made in under 48 hours.
Thunström said more than 76% of TFG’s products were produced locally in Sadc countries or South Africa, and were sometimes supported by the group’s own manufacturing capability.
This week Capitec said its clients were making 3.5 times more online purchases than in 2021, and Shein and local e-commerce company Takealot were the top online retailers for its customers.
Standard Bank has also recorded a surge in customers shopping at online retailers, both local and international. It said local fashion online retailers and international fashion e-commerce giants were capturing an increasing amount of consumer spend.
Standard Bank’s data shows South Africans have been making the most transactions with their bank credit cards at local fashion e-tailers, which accounted for the lion’s share of spend in 2023. Shein is, however, growing aggressively, Tumelo Ramugondo, head of credit cards at Standard Bank, said.
The department of trade, industry & competition and the International Trade Administration Commission of South Africa, which have raised concerns about the surging popularity of the Chinese e-commerce sites, referred all questions to the South African Revenue Service, which said it would not comment on specific companies.
Competition Commission spokesperson Siyabulela Makunga said in March the commission had received one complaint about Temu from a small retailer that alleged it operated without having to adhere to the tax regulations that were imposed on local retailers. “We are currently screening the complaint,” he said.
Last year, the commission released a report on online platforms offering food delivery, accommodation and property services. It also commented in the document on Takealot’s activities.
Makunga said during the inquiry the focus was predominantly on e-commerce marketplaces where third-party sellers sold through the platform alongside the platform’s own retail division. The remedies adopted were to guard against conflicts of interest and the barriers to black-owned businesses getting onto the platforms and gaining visibility.
“There were no remedies in respect of online retailers such as Superbalist. At the time, it was also identified that the import retailers were significantly smaller than the local online retailers, with short lead times on delivery, and Shein and Temu were originally part of that analysis. If unfair competitive practices arise, then we will look at them,” he said.
As more governments took steps to query the impact of such platforms in their markets, some moved faster than others, said Chokossa. In France, the popularity of Shein and Temu is believed to have contributed to the collapse of mid-price fashion brands such as San Marina, Camaïeu and Kookai.
As a result, the French government initiated an inquiry into Shein’s legal, environmental and ethical practices in 2023, and by March 2024 the country’s lower house had approved a bill that calls for a prohibition on advertisements from ultra-fast-fashion companies and punitive fees to be imposed on items imported.
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