Ugly side of fashion giant Shein revealed as retailer slammed by rivals for ‘unfair tactics’ to keep prices low
IT is the world’s largest fashion retailer, which has been endorsed by Khloe Kardashian and Katy Perry.
Chinese online juggernaut Shein launched 12 years ago, yet it is tipped for a historic and controversial £50billion float on the London Stock Exchange as early as this autumn — the biggest in more than a decade.
Britain’s addiction to the ultra-low cost clothing means an estimated 520,000 items are shipped a day to Brits.
Today a Sun on Sunday probe reveals how Shein, which had sales of £1.55billion in 2023 yet operates with just 33 staff in its UK arm, has been accused of exploiting a tax loophole.
According to latest figures from Companies House, the fashion giant’s pre-tax profits doubled year on year to £24.2million and it paid £5.7million in taxes, up from £2.3million the previous year.
Now rivals have slammed Shein for using “unfair” tactics to keep its prices at rock bottom, while being able to fork out on glossy adverts around the country and on the London Tube network, which carries five million passengers a day.
Shein uses the so-called “de minimis” rule, which allows shipments of less than £135 to be exempt from import duties.
Last night, one chief executive told the Sun on Sunday that the loophole was “a wheeze that saves Shein millions of pounds”.
He said: “It’s an unfair playing field — of course it is. We all have to pay duties to ship clothes to customers here. But because their shipments are individually packed, they don’t?
“At a time when the Government can’t stop talking about this £22billion hole it needs to plug, why doesn’t Chancellor Rachel Reeves go after some of these big players that are obviously not paying the right amount of tax and duties?”
Superdry founder and CEO Julian Dunkerton has previously said it would be in the UK’s interests to get rid of the loophole.
Boohoo CEO John Lyttle has also urged the Government to close it.
Last month, US President Joe Biden announced he was closing a similar loophole, which allowed imports of individual packages of up to £600, ramping up pressure for change in the UK too.
Tax expert Dan Neidle says that Shein is avoiding tax of eight per cent on footwear and 12 per cent on clothing.
This amounts to an average saving of ten per cent — as much as £155million — that the company does not have to pay in tax.
Chinese company Super Smart Service processes Shein’s UK orders, with clothes costing on average £7.90, along with other companies including Amazon and eBay from a warehouse in Cannock, Staffordshire.
Super Smart Service’s turnover has more than doubled from £23.4million in 2020 to £56million in 2023 — and its profits have also doubled from £3.5million to £7.3million over the same period.
By using this third-party logistics partner, Shein can ship directly to customers in the UK.
Multi-billionaire
It also means items are not held as stock in warehouses here, which avoids storage costs — driving down prices even further.
The company, which has switched its headquarters to Singapore to reduce the Chinese government’s influence, is only considering listing in the UK after it was told it was not welcome on the New York stock exchange.
Shein has offices in Westminster, in a building that was once the headquarters of MI6.
There is also an office in Manchester — the same city that is home to rivals Boohoo, PrettyLittleThing as well as Missguided, which Shein acquired last year.
Shein was founded in 2012 by Sky Xu, also known as Xu Yangtian, who is already a multi-billionaire at the age of 40.
The mysterious boss, who largely keeps a low profile, reportedly flies so under the radar that employees joke they do not recognise him at the office.
At a time when the Government can’t stop talking about this £22billion hole it needs to plug, why doesn’t Chancellor Rachel Reeves go after some of these big players that are obviously not paying the right amount of tax and duties?
Sun source
He was born in Zibo, a manufacturing city in China’s Shandong province, where his parents were workers in state-owned factories.
He went on to study international trade at Qingdao University of Science and Technology.
One person who worked with him described him as bespectacled, “shy” and a lover of golf.
He shook up the supply process by ditching the traditional method of exporting abroad.
The company, which staged celebrity-packed fundraising virtual festivals during Covid, has tech wizards who use complex algorithms to scour trends from Google, social media and online shoppers to work out what will be a fashion hit.
Clothes are then made in hundreds of factories in Panyu, a district in Guangzhou, southern China, which the retailer dominates so much the hub is called Shein Village.
Around 80 per cent of the 7,000 factories in the town work for Shein. Restaurants now serve dishes from all over China to armies of migrant workers.
The company’s own website claims it has 10,000 employees worldwide and sells to over 150 countries.
Instead of making large long-term orders with factories, Shein uses “low-batch ordering,” which means it will get a factory to make 100 items and only increase volumes if it sells well.
The Chinese goods are shipped to Guangzhou Airport using low-cost postal service China Post and sent to the Midlands.
Initially, factories did not want to work with the online retailer.
But when a product goes viral they can hit the jackpot by churning out hundreds of thousands of the same piece.
One factory manager said: “When Shein first arrived, no one wanted to work with them because the orders were too small. By 2020, everyone was working with Shein because their orders were so big.”
Its own website says “customers will receive orders via our UK Courier partners and not need to deal with any custom affairs”.
When Shein first arrived, no one wanted to work with them because the orders were too small. By 2020, everyone was working with Shein because their orders were so big
Factory manager
As well as the tax loophole, Shein has faced controversies including accusations by Stop Uyghur Genocide, which claims there is forced labour in its supply chain. The charity says Shein should be barred from listing on the London Stock Exchange.
In its 2023 Sustainability and Social Impact Report, Shein admitted two cases of child labour and temporarily suspended orders from the suppliers involved. It did not resume business until the suppliers tackled the issue.
It also admitted its carbon emmisions increased by 81 per cent between 2022 and 2023. Shein insisted it has a “zero tolerance” approach to worker mistreatment.
Liam Byrne, chairman of the Business and Trade committee, said: “We can’t allow British business and consumers to be undercut or cheated in a race to the bottom on standards, especially when there are questions about whether forced labour is being used.
“That’s why I’d like to see our new government make good on the promise made, but never delivered, by Conservatives in the 2022 Queen’s Speech, to strengthen the modern slavery act and toughen up requirements on supply chain reporting.”
Alice Price, of GlobalData, said Shein’s low-cost model and response to demand meant it can steal customers from British firms.
She said: “Shein’s burgeoning influence over the UK market is attributed to its unbeatable prices, and its rapid ability to churn out the latest micro trends on a colossal scale. This has allowed it to become a firm favourite among younger shoppers, and steal share away from other online specialists like ASOS and boohoo.com.”
Shein has previously said it complies fully with all its UK tax liabilities.
The company told the Sun on Sunday: “Shein’s success comes from our ability to produce fashionable products. We keep prices affordable through our on-demand business model and flexible supply chain. This reduces inefficiency, takes out wastage of material, and lowers our unsold inventory.
“We pass this advantage to our customers and this has driven our success around the world, not the exemptions that retailers receive under current tax regimes. We will work with policy makers and industry peers to review frameworks.”
HURT TO BRITISH FIRMS
FIVE years ago, most people didn’t know how to pronounce Shein.
Even senior retail bosses would say: “Have you heard of this new Shine?”
Their ignorance did not last long, as they watched customers desert them for an upstart that was doing everything faster and cheaper.
Shein, pronounced She-in after its odd original name She Inside, is now firmly in the spotlight.
It used to be just young shoppers posting their “Shein hauls” of cheap bodycon dresses on TikTok and Instagram. But now the name is on the lips of those in Westminster and the City, as it works on a stock market listing in London.
To boost its British credibility it is now surrounded by an army of highly paid advisers. The company, which has switched its headquarters to Singapore to lessen Chinese government influence, is only considering listing in the UK after it was told it was not welcome on the New York stock exchanges.
Chancellor Rachel Reeves wants to encourage international investment into Britain and stimulate a sluggish London stock market.
But Labour’s Liam Byrne MP, who sits as chairman on the Business Trade Committee, raised concerns about treatment of workers across Shein’s supply chain, not least the opaque world of subcontracting across Chinese workshops.
Then there is the tax loophole of Shein skipping import duties by sending small parcels directly to customers from Chinese factories. The US is clamping down on this and the EU will soon follow.
The high street is facing increasing rates to keep shops open and our online retailers are suffering, partly due to rising competition from Shein.
It seems ridiculous the Government would throw its arms around a business unfairly hurting British firms.
The loophole needs to be closed before a London listing happens.