Why fast fashion is at the heart of Temu and Shein’s lawsuits

Retail pundits said Shein and Temu are vying for global dominance – and they’re trying to do so by growing their respective markets. These ongoing court cases show that the two companies have in fact found an e-commerce market where there is considerable demand for their low-cost products. But both companies clearly see space as unforgiving — and that they’re willing to use any strategy to outdo each other.

Temu was launched in the United States in September last year. It saw an increase in downloads and daily active users after airing its first commercial in the United States during the Super Bowl on February 12. Temus downloads even surpassed US retail giants like Target in February 2023, Modern Retail previously reported. Temu allows Chinese suppliers to sell to buyers and ship directly to them without having to store products in US warehouses.

Temu, which has positioned itself as a brand offering deeply discounted products in a number of categories, is aggressively marketing in the United States to entice more Americans to visit its website and download its app. The strategy seems to be working; Comscore data seen by Modern Retail shows that Temu topped Target’s unique monthly visitor count in January 2023 and steadily increased its monthly active users in the US and continues to be ahead of Target as of May 2023. Temu also topped Shein’s traffic numbers in the US in October 2022 and maintains its lead in May 2023, according to Comscore data.

Separately, Shein, valued at around $100 billion, overtook Amazon in terms of shopping app downloads in US stores in 2021. To bolster its presence in the US, Shein focused on its new marketplace launched in May. Shein also expands beyond fashion and beauty products and wants people to buy more than just clothes in its marketplace.

While Temu has launched a much wider assortment of products, it’s clear from the lawsuit that it sees fast fashion as a major battleground, said Sky Canaves, senior analyst, retail and e-commerce at Insider Intelligence. “That’s because apparel is the largest retail e-commerce category in the United States,” she added.

In its complaint, Temu alleged that Shein is engaged in a “campaign of threats, intimidation, false claims and attempts to impose baseless punitive fines and imposed exclusivity agreements on clothing manufacturers”. Temu’s complaint states that Shein views Temu’s entry into the United States as a “disruption of Shein’s easy dominance in a lightning-fast fashion”, and therefore an existential threat to his business. “The US market is the primary theater of this war,” Temu noted in its complaint. Shein told Reuters last week that the lawsuit was “without merit and we will defend ourselves vigorously”.

This year, 18.8% of total US e-commerce sales, worth $214.09 billion, will come from the apparel and accessories category, as forecast by Insider Intelligence. And the apparel and accessories category is expected to reach $321.46 billion in 2027.

Temu, in his lawsuit, also said that clothing accounted for more than 90% of Shein’s sales, and Temu sells in the same category at a 10-40% discount.

Canaves said that for both companies, it’s really the battle for their “main appeal to consumers,” which is the ultra-low-cost and fast-fashion products that both companies offer.

“And they have the ability to air dirty laundry and accuse their competitors of something unseemly and maybe that also impacts how consumers think of the company,” Canaves said.

But Temu is not the only one to complain. In March 2023, Reuters reported that Shein filed a lawsuit in the U.S. District Court for the Northern District of Illinois accusing Temu of writing “false and misleading statements” given to social media influencers while promoting Temu. According the complaint, Temu gave influencers so-called social media guidelines that included statements such as, Shein isn’t the only cheap option for clothes! Check Temu.com, cheaper and much better. Also, looking for clothes that are better than Shein but cheaper than Revolve? Visit Temu.com. to be used for publication. At the time, a spokesperson for Temu told Reuters that the company “strongly and categorically rejects all allegations and vigorously defends its rights”.

According to Jason Goldberg, director of business strategy for Publicis Group, the lawsuits “exemplify how aggressively they are fighting for market share in the United States and how willing they are to use any tactics.” [to do that].”

Canaves pointed out that Temu is represented by Boies Schiller Flexner, which she says is one of the largest and most successful law firms in the country. “That says a lot about the kind of muscle they’re willing to flex in this business.”

Ultimately, Canaves said, this is just the start of a long and ugly legal war between Temu and Shein. “I think we are just at the very beginning of what are going to be many legal battles between these two companies, not only in the United States but also in other parts of the world. It’s gonna get ugly. It’s a hyper-competitive market.

Canaves said that ultimately “Temu and Shein will converge more on broader categories and strategies” as Shein builds its third-party market and Temu also looks to enhance its offerings with higher margin products.