The legal problems of Shein, the Chinese fashion giant that advances in Brazil

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With rapid expansion around the world, the company faces lawsuits and complaints against its business model. Shein organizes fashion shows to promote its online sales GETTY IMAGES The Chinese brand Shein is successful in Brazil and around the world due to its extremely low prices and wide variety of offers. But its rise in the fast fashion market is not without problems. In Japan and the United States, the online clothing company is facing legal problems due to complaints from its competitors, while in China the government is investigating the brand. Its expansion has put Shein in the eye of the storm as the company seeks to enter the stock market. Japanese clothing store Uniqlo is suing the brand for allegedly copying one of its bags, nicknamed ‘Mary Poppins’. The lawsuit demands that Shein stop selling its product, which Uniqlo says is too similar to its mini shoulder bag. It is an “inferior and illegal” copy, Uniqlo claimed. The Uniqlo bag became famous on social media for being compact and, at the same time, very spacious. Hence the nickname ‘Mary Poppins’: in the film starring Julie Andrews, the nanny takes hundreds of objects out of her magical bag. Shein, founded in China but headquartered in Singapore, has not commented on the process so far. Uniqlo stated this Thursday (18/1) that it is seeking compensation of close to US$1.1 million (R$5.4 million) for what it considers a violation of its intellectual property. Shein is one of the giants selling cheap clothes online GETTY IMAGES The legal war against its rival in the US Temu store is also a fast-growing online shopping platform. While Shein holds the largest share of the US fast fashion market, Chinese company Temu became the country’s most downloaded app last year. Within months, Temu made its mark in the United States and its business grew rapidly. In Brazil, the online sales platform is not yet well known, but it has already had an application available for download since the middle of last year and was expected to start deliveries by the end of 2023. Its business model is close to names like Amazon and Shopee, where strategies include selling directly from the factory, with lower prices than the competition. The brand directly rivaled Shein in the US, and the two giants are now locked in a legal battle. Shein sued Temu alleging that the company hired digital influencers to make unfavorable comments against its brand on social media. Temu already reported its rival to the US justice system for alleged theft of intellectual property and for violating the country’s antitrust law by preventing its suppliers from working with the competitor. Temu alleged that Shein used alleged “mafia-style intimidation tactics” to force its suppliers to sever ties with the company. The clothing store classified the lawsuit as “meritless” and promised a legal counteroffensive. “We believe this lawsuit is without merit and will defend ourselves vigorously,” the brand said. Research in China The company has opened some stores. Customers often wait in long lines to get in GETTY IMAGES At the same time, the Chinese government is conducting a review of the company’s data handling and sharing practices, according to The Wall Street Journal. The Chinese internet regulatory body is studying how Shein treats the information of its partners, suppliers and workers in China and whether the company has the capacity to protect this data, according to the newspaper heard from sources close to the matter. The government would also be interested in the type of data collected in China that the company will disclose to regulators in the United States as Shein seeks to go public in the country. The brand did not comment on the matter. Shein Expansion in Latin America Shein manufactures clothing in Brazil and plans to open a store in Mexico Getty Images The fashion giant began manufacturing clothing in Brazil in 2022 and now plans to ship products from its Brazilian factory to other Latin American markets. The director of Brazilian production, Fabiana Magalhães, commented that “the idea is that by 2026 Brazil will be ready to supply Latin America”. The company has a network of warehouses around the world, including distribution centers in Brazil and Mexico. Considered a key country in its expansion strategy across Latin America, Shein intends for Mexico to enter its “integrated markets” scheme, offering products from external sellers alongside its own products. Marcelo Claure, president of Shein for Latin America, said last year that the country could even become not only a supplier to Central America, but also potentially take over the United States market. Shein’s growing presence in Latin America comes as the company faces opposition from some lawmakers in the United States who advocate eliminating a tariff exemption used by e-commerce companies that ship low-cost products from China directly to buyers, according to the Reuters news agency. A similar idea was put up for debate by former president Jair Bolsonaro, to control what he described as “unfair competition” between Chinese companies and local producers. The topic was discussed again during the Lula government, which proposed increasing the import tax for international purchases of up to US$50 made on digital platforms. But the Ministry of Finance has not yet made a final decision on the issue and the tax remains zero. Harsh criticism The company is criticized for its environmental impact, alleged theft of intellectual property and for working with suppliers that do not respect labor laws Getty Images Shein, very popular among young people, has been criticized for its fast fashion business model based on production of a large volume of clothing items, with a lot of turnover and at very low prices, which generates a strong environmental impact. The harshest criticism comes from journalistic investigations that accuse the brand of working with suppliers that violate labor laws. The company defends itself by saying that it has carried out “periodic internal audits” and that it operates a “strict” code of conduct that complies with the law. “When violations are detected, we take additional action, which may include termination,” Shein said. Regarding intellectual property rights, the brand has been criticized for allegedly copying the work of little-known designers, something Shein denies. A senior executive at Shein told the BBC in late 2021 that they have a team that reviews new designs offered by their suppliers before they are offered on their website, to try to filter out possible imitations. Since its launch in 2008, the company, founded by Chinese entrepreneur Chris Xu, has become one of the largest online fashion marketplaces in the world. In 2022, its market value was estimated to be around $100 billion, although that estimate fell significantly during a fundraising round last year, according to Reuters.

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