Sued by many parties one after another: why did SHEIN become a "shared defendant" in the industry?
Written by Xiang Yu
According to a report, the listing was not approved, investors sold at a 7% discount, the valuation shrank by one-third, and Shein, which suffered setbacks one after another, slipped into the abyss.
In addition, Peter Pernot-Day, head of strategic communications for the UK and the United States at SHEIN, was interviewed by CNBC in response to the recent spate of negative news. In the interview, Pernot-Day said that SHEIN's listing in the United States is in sight, and the valuation of investors' secondary sales does not necessarily reflect the value of the real world.
Peter Pernot-Day, Head of Strategic Communications for the UK and the US at SHEIN
Shein tried to regain the confidence of the capital market by publicly shouting, but the slightly pale response may not be able to dispel investors' doubts.
According to data released by OpenSecrets, SHEIN's lobbying spending in 2023 increased by 657% compared with the previous year, and the number of lobbyists hired has also increased from 8 to 14, which is enough to show that the regulatory pressure faced by SHEIN in the United States is also multiplying, and the prospect of an IPO is still uncertain.
As a frequent visitor to the courthouse, SHEIN is either in the dock or on the way to a lawsuit: on February 1, according to the American "Sourcing Journal" magazine, SHEIN's Singapore headquarters company (RoadGet Business PteRecently, a new lawsuit was filed in the Northeast District Court of Illinois to initiate temporary restraining order (TRO) motions against dozens of cross-border sellers on AliExpress, Temu and other platforms.
What is TRO? According to industry insiders, TRO, as one of the gray products of the American legal community, can be said to be "American-style bullying" into reality, by applying for a temporary injunction to restrict small and medium-sized businesses from producing or selling copyrighted products listed in the lawsuit, and small and medium-sized businesses with unequal legal resources and information are likely to not know how to respond, resulting in frozen funds or even closing stores.
However, this time, small and medium-sized merchants chose to stay warm: 22 cross-border sellers hired overseas lawyers to actively respond to the lawsuit and objected to SHEIN's motion for a preliminary injunction. According to foreign media reports, a seller's lawyer pointed out that SHEIN has been using TRO as a tool for anti-competitive programs to force merchants to pass only SHEIN** products.
Not only that, at the moment, Shein is obviously in the target of public criticism, and has eaten two or three lawsuits in a week, becoming a "shared defendant" in the industry
On January 16, Uniqlo's parent company, Fast Retailing***, announced on its official website that Uniqlo had filed a lawsuit with the Tokyo District Court on December 28, 2023 against three entities under SHEIN, including SHEIN Japan. The reason is that the company determined that the form of the imitation products sold by SHEIN was very similar to that of its own product "dumpling bun";
Coincidentally, on January 15, a British jewelry designer, Emma Farley, on a BBC morning show, accused SHEIN of stealing intellectual property, plagiarizing its hedgehog-style designs, and selling them with extremely low quality and knockoffs. The designer angrily stated that each of his products is shipped in environmentally friendly packaging, while SHEIN is shipped in plastic packaging.
On January 22, according to information released by the California court, the American fashion brand for love & lemons sued SHEIN for infringement.
The successive negatives will inevitably shake the morale of investors. According to Bloomberg, SHEIN's investors are trying to discount private market transactions by about 30%**A person familiar with the matter told Bloomberg that Shein's investors have valued the company as low as $45 billion, well below the valuation of about $66 billion in SHEIN's funding round in May last year. Even at such a depressed price point, they are struggling to find buyers, which increases the likelihood of further valuations.
However, shein "don't you think, I want me to feel", the once unrivaled fast fashion giant, now saddled with the infamy of "the fashion industry's ***", what happened in the middle?
There is a passage in "The Way of Heaven" about the strong culture and the weak culture: the strong culture is the culture that follows the laws of things, and the weak culture hopes to "get out of the ordinary". Looking back at SHEIN's series of moves, it is not difficult to see that it is going farther and farther on the road of "exceptional acquisition". The first is the exceptional acquisition of original copyrights.
Uniqlo's lawsuit against SHEIN at the beginning of the year once again unraveled the tip of the iceberg of SHEIN's "shared defendant history": in June 2023, three graphic designers filed a 52-page complaint in federal court in California, claiming that SHEIN stole and ** exact copies of its creative works without consent, and also engaged in systematic and criminal copyright infringement, in serious violation of the Fraud Impact and Corrupt Organizations Act.
Going back further, from big brands such as Zara, H&M, Tribe Tropical, UGG, Levi Strau and other big brands to niche designers, they have all accused SHEIN of infringement. In the eyes of the outside world, Shein is a whimsical copy and does not refuse to come - in November last year, SHEIN even caused controversy over the sale of stamps with a similar pattern to the family's original ice cream "Taberu Ranch Milk". According to an investigation by Wall Street**, SHEIN has faced at least 50 federal lawsuits abroad for alleged copyright and trademark infringement in the past three years.
Combined with the litigation documents, a clearer "SHEIN copyright exceptional acquisition roadmap" surfaced.
In the name of cooperating with internal anti-corruption, solving operational difficulties, and discussing potential cooperation, SHEIN deceived cooperative merchants into SHEIN's office in Guangzhou; A children's clothing merchant revealed that in the office on the 24th floor of SHEIN's headquarters, he was interrogated by four SHEIN legal officers.
During the interrogation, SHEIN employees illegally confiscated the merchant's mobile phone and illegally exported all the transaction records of the merchant's store, such as WeChat and Alipay; At the same time, the merchant was forced to sign the document, otherwise he could not leave the office, the document was dozens of pages long, and it is worth noting that one of the clauses was that "the merchant's goods are copyrighted by SHEIN".
However, for SHEIN, this may be a kind of drinking dove to quench thirst, even if the copyright obtained by exception fills in the design loopholes in front of it, for the larger original demand, it is tantamount to making up for the sky: for SHEIN's "small single quick reaction" model, the "dish" with insufficient original ability is an original sin.
Why is SHEIN so eager for copyright? This can be traced back to its "small and fast SLR" business model, which is to respond quickly to the market with a smaller single volume, launch a huge number of SKUs through small batch production, and expand production immediately when sales are good. The east is not bright and the west is bright, and there is always one suitable for the market - in this way, SHEIN quickly walked at the forefront of fast fashion.
It is not difficult to see that relying on this simple and crude model to start,SHEIN focuses on going fast and volume, and is the "long-term insulator" of the fashion industry, and its original capacity building has been rootless from the beginning. According to the "First Finance" report, a domestic fast fashion brand executive revealed in an interview with his reporter that when he interviewed Shein designers that year, he learned that the KPI assessment of Shein's design position only depends on how many ** can be submitted each month, and aesthetics and texture are not important.
At the same time, Shein also tried to improve its own tonality by acquiring higher-end brands, but failed: in January 2021, TopShop's parent company, Arcadia Group, was trapped by the epidemic and launched a bankruptcy liquidation procedure.
The transformation is not easy, and the scenery is no longer good: In recent years, SHEIN's profits have declined year by year, and in 2022, SHEIN's net profit margin will further decline to 32%, revenue growth slowed to 528%, meanwhile, net profit also shrank significantly, from $1.1 billion in 2021 to $700 million in 2022, a decline of 36%.
On the other hand, SHEIN's desire to "counterattack" is undiminished. According to the Financial Times, SHEIN's management revealed to investors at a roadshow that SHEIN has set its 2025 targets for revenue of $58.5 billion, net profit of $7.5 billion, and GMV growth to $80.6 billion.
It can be seen that SHEIN finally chose to make a desperate bet: trying to break the situation by going public. And this big gamble may push SHEIN further into the abyss.
In January 2023, Reuters reported that "SHEIN is considering restarting its IPO plan in the United States, and it will be listed as early as this year, and the amount of funds raised is not yet clear"; In February, Reuters broke the news again that the main body of SHEIN Holdings had changed, and now the ownership of a series of its trademarks and Guangzhou Shein International Import and Export *** has actually been attributed to a registered company in Singapore (Roadget Business Pte).
In addition, a person familiar with the matter said that the founder of SHEIN is considering changing his citizenship and becoming a Singaporean citizen, so as to bypass China's complex regulations on the company's overseas listing and create conditions for an IPO. At the end of November last year, Reuters broke the news again that Shein had secretly applied for listing in the United States or would launch an IPO in 2024.
However, Shien's listing road was not smooth, according to CNBC, after SHEIN applied for an IPO in the United States, the US legislature stepped up its scrutiny of SHEIN.
If there is no expectation of listing, SHEIN can still develop extensively on the tuyere, ignoring the negative, however, the current SHEIN seems to be standing in the spotlight, and its words and deeds are infinitely amplified, and its "simple and rude" development model has also been criticized by all parties. At the time when major companies are rolling up ESG, SHEIN is further in the crosshairs
In 2021, according to Reuters, SHEIN claimed on its official website that it was certified by the International Organization for Standardization (ISO) and met the strict labor standards set by international organizations such as SA8000, but both ISO and the Social Responsibility International (SCI), which developed the SA8000 standard, denied this. At the same time, SHEIN did not fully disclose the relevant **chain information on the official website in accordance with the requirements of the laws of the United Kingdom and Australia.
At the same time, in 2021, a labor observation team investigation report pointed out that some of the factories used by SHEIN did not meet ESG standards. Some workers said they worked 75 hours a week and only had one day off per month.
For SHEIN, these problems, which may not have been fatal before, have now become stumbling blocks on the road to listing. In this regard, SHEIN did not turn a deaf ear, but actively sought change: SHEIN pointed out in the report that it is working with the Apparel Industry Impact Association (AII) to invest $7.6 million in the non-profit organization to help SHEIN set a **chain carbon reduction target.
At the same time, SHEIN released the EVOLUSHEIN product line in 2023, claiming that it is composed of at least 30% of the preferred materials, and it is produced by a first-class manufacturer that has obtained relevant environmental certification through a third-party audit. However, the accumulation is difficult to return, the labels of "fast fashion" and "not environmentally friendly" are deeply ingrained in SHEIN, and investors often "do not transform, only choose", and the valuation as low as $45 billion means that it is gradually running out of patience with SHEIN.
The bitter sea turns back, and the lost way is returned - it's just that whether the capital market buys SHEIN's "self-transformation" remains to be tested by time.