Investments worth millions

The retailer has announced plans to invest €250 million ($270 million) over five years in its UK and European development. Of this, €200 million ($216 million) will be invested in a 'circular fund' to support textile recycling businesses, according to Reuters. According to the company's executive chairman Donald Tang, Shein may be the initiator of the adoption of this sustainable solution, given its reach. The remaining €50 million ($54 million) is to go to research and development or manufacturing facilities in Europe and the UK, respectively. Tang did not provide specifics for the agency, but hinted that it would be more about supply chains.

For those whose business is being destroyed, a helping hand is being offered

Part of the $50 million investment would also go into activities to attract European and British brands and designers to promote through the platform, as the domestic garment industry is not competitive due to the very low prices that Shein has. The move comes in response to persistent criticism of delivering to consumers directly from Chinese factories, of which there are around 5,400 in Guangzhou, China, and a small but growing number in Turkey. In addition, the company is taking advantage of European Union tax breaks on packages priced below €150 ($162) and £135 ($173) if delivered to the United Kingdom.

The potentially dangerous software

In addition to cheap fashion, Shein plans to offer its own supply chain software, which is currently being tested by a few select suppliers. This does not sit well with cyber and national security experts. In an interview with CNBC, they said they view the retailer's plan to offer its own logistics technology as a potential risk given its close ties to China, despite moving its headquarters to Singapore. They point out that incorporation could pose significant risks, including market competition, data leakage and espionage, and that the U.S. supply chain operates on application programming interfaces (APIs), is tightly interconnected and often lacks robust cybersecurity measures. The supply chain is therefore vulnerable to abuse, especially for smaller companies. In this context, data from Exiger, a supply chain research company also used by the US government, is worrying. These point to Shein's huge supply chain, which, in addition to 44 direct suppliers, also includes more than 50 000 entities, including brands such as Forever21.

Controversial data protection

Despite Shein's claims of compliance with international data protection standards, authentication of certificates remains unclear. Shein states that it stores sensitive data locally within relevant markets and works with US payment processors. However, mistrust is raised by a 2018 case, for example, where an affiliate of Romwe, along with its parent company Zoetop, was accused of a data breach where 46 million accounts were stolen, including 800,000 accounts of New Yorkers.

New York, London, Hong Kong

These events are happening at a time when the marketplace is trying to go public. As recently as last November, it filed for an initial public offering (IPO) on the New York Stock Exchange (NYSE), but that appears to be off the table for the time being due to strict regulatory controls on the supply chain and in the wake of allegations of forced labor, and especially because of strained relations between the U.S. and China. It is also subject to similar scrutiny at the London Stock Exchange (LSE), where it made the same application in early June, according to Reuters. Amnesty International even takes the hardline view that allowing an IPO would be an embarrassment to the London Stock Exchange. However, the company also has a backup plan. As the Financial Times recently reported, if the plan to subscribe for shares in London doesn't work out, it will try its luck in Hong Kong (SEHK). The downside of going public there, however, would be little to no competition, low demand and a weak valuation.

Request for a detailed explanation

Chinese companies generally have it tough in the West. Not only because of the regulations on stock exchange entry, but also because of other laws that are more stringent for non-European companies. One such law is the Digital Services Act. Shein, along with rival Temu, have been asked by the European Commission to detail how they comply with rules relating to online content such as protection of minors, transparency or protection against manipulation and harmful content. The request, to which they had to respond by 12 July 2024, was the result of complaints from consumer organisations. Both companies expressed their commitment to cooperate with the Commission and to comply with the relevant laws.

The fight against counterfeits

Among other things, the European Union will require Shein to increase the control of the range of products on offer and to prevent counterfeiting. The regulation, which will come into force in August, aims to tighten supervision of intellectual property. Indeed, Shein has been in the crosshairs of lawyers for several years and has been involved in more than 90 lawsuits in the US alone for allegedly ripping off designs. Despite the accusations, the company says it uses its own designs, or third parties have to declare that the goods are in line with the intellectual property of other brands. It uses artificial intelligence to detect potential mismatches, which has seen claims for IP infringement drop several-fold, according to the company's head of strategic and corporate affairs for North America and Europe, Peter Pernot-Day.

Olívia Lacenova, principal analyst at Wonderinterest Trading Ltd.