Fast-fashion feud: Temu sues Chinese rival Shein in US for bullying suppliers

PDD-owned Temu has filed a lawsuit in a US court, alleging that Shein has threatened and intimidated manufacturers into exclusivity agreements
The global marketplace has become increasingly important as China’s economic growth and retail sales slow down

E-commerce

Dylan Butts

Published: 9:00pm, 19 Jul 2023

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Two of China’s fastest-growing online retail platforms are engaged in an unusual legal battle in the United States, as their bare-knuckle rivalry spills over to the courtroom in one of their biggest and most lucrative markets.

Temu, a unit of Shanghai-based PDD Holdings, sued its competitor Shein, founded in Nanjing and headquartered in Singapore, alleging antitrust and consumer rights violations, according to a complaint filed on July 14 at the District Court of Massachusetts. Temu seeks unspecified monetary damages.

“Shein has engaged in a campaign of threats, intimidation, false assertions of infringement, and attempts to impose baseless punitive fines,” Temu wrote.

“For a long time, we have exercised significant restraint and refrained from pursuing legal actions. However, Shein’s escalating attacks leave us no choice but to take legal measures to defend our rights,” Temu said in a separate statement.

Shein said the lawsuit was “without merit” and vowed to “vigorously defend” itself, according to an emailed statement on Wednesday.

The logo of Temu, an e-commerce platform owned by PDD Holdings. Photo: Reuters

The global marketplace has become increasingly important to Chinese firms amid sputtering economic growth at home. Retail sales in the world’s second-largest economy rose by just 3.1 per cent in June from a year ago, down from 12.7 per cent growth in May, as consumers tighten their purse strings.

While competition in China’s e-commerce market has become increasingly brutal, the likes of Shein and Temu have managed to find new opportunities in overseas markets thanks to low-cost products churned out mostly by Chinese manufacturers.

In the US – Shein’s largest market after Brazil – the company has been on a winning streak since the start of the Covid-19 pandemic. In January 2020, it made up 12 per cent share of the country’s fast-fashion sales. By November 2022, its share rose to 50 per cent, surpassing big-name competitors such as H&M Group, Zara, ASOS and Forever 21, according to Bloomberg Second Measure.

But Shein’s rise has been threatened by Temu, which launched in the US in September, sells a wider assortment of products, and markets itself as an even cheaper option to Shein.

Temu saw downloads jump 57 per cent in the first quarter of 2023, topping rankings on both Apple’s App Store and Google Play, according to mobile intelligence firm Sensor Tower.

In its Massachusetts lawsuit filed last week, Temu alleged that after it entered the US, Shein began forcing clothing manufacturers to sign loyalty oaths or face “onerous fines and penalties”.

“Shein knows that manufacturers need [its] volume and its access to the US market, and it is, therefore, able to coerce manufacturers into arrangements that force manufacturers not to do business with Temu,” the PDD subsidiary said.

Temu claimed that as of May, Shein had pressured around 8,338 manufacturers into signing exclusive-dealing agreements. As a result, merchants had to pull more than 10,000 listings from Temu, the company said, adding that the outcome harmed US merchants and consumers.

Clothes displayed at Shein’s headquarters in Singapore. Photo: Bloomberg

As the business rivalry between Shein and Temu heats up, so do their legal feuds.

In a lawsuit filed earlier this year in a Chicago District Court, Shein alleged that Temu had infringed on its trademarks and copyright, and used unfair business practices, such as impersonating its brand on social media and working with influencers to disparage its business. Temu’s bid to dismiss that case is pending.

But the challenges faced by Temu and Shein go beyond their own rivalry.

As scrutiny of Chinese apps grows in Washington, lawmakers last month introduced bipartisan bills in Congress that proposed to remove a US export exemption that allows companies like Temu and Shein to ship low-value Chinese goods to the country duty-free.

In April, a federal government report accused Shein and Temu of posing data risks, and raised concerns about imports of illegal items, such as those that violate intellectual property or the US 2021 Uygur Forced Labour Prevention Act.

Separately, Shein is defending a lawsuit from a group of designers, who sued the company in a Los Angeles Federal Court last week, alleging copyright infringement of their designs and products.

Temu said on Wednesday that its lawsuit against Shein is aimed at putting the market back in order.

“Our legal measures aim to bring the other party back to the rule-based fair competition, which will benefit all participants in the ecosystem, including consumers, suppliers, and service providers,” Temu said.