Day: April 11, 2023

Concerns about Shein and Temu Expand from Sustainability to Sourcing and Trade

Background: What sets Shein and Temu’s sourcing strategies apart from other US fashion brands?

Leading US fashion companies have increasingly turned to sourcing diversification to reduce supply chain risks and market uncertainties. For example, industry surveys and firm-level analyses consistently found that prominent US fashion brands and retailers typically source from more than 10-20 countries. Notably, “reducing China exposure” is a growing trend among US fashion companies, given the concerns about the rising US-China trade tensions and geopolitics.

Instead, Temu and Shein are notable for their reliance on Chinese suppliers, with Temu primarily shipping products directly from China rather than US-based distribution centers. This business model may be explained by two factors.

One is to leverage China’s strengths in making apparel products with greater varieties and smaller quantities. In other words, while countries like Bangladesh and Cambodia may be better suited for sourcing large orders, “Made in China” can remain overall price competitive for a wide range of products requiring a smaller minimum order quantity. In this way, China can offer greater flexibility to Temu, which intends to manufacture various products while controlling costs.

Another possible reason is to take advantage of the “de minimis rule.” Under US customs law, specifically the Trade Facilitation and Trade Enforcement Act of 2015, import duties are generally waived for goods with a value of $800 or less per person per day. Therefore, Temu’s shipping from China to US consumers is likely to be eligible for the benefits.

Discussion question: What shall we do about Shein?

Further reading: