With an 18% market share, Shein is the largest fast fashion retailer in the world. Despite its rapid growth, the company has faced ongoing controversy, primarily due to concerns regarding its suspiciously fast and low-cost production processes. Now, increasing regulatory and economic pressures, alongside bad press, could significantly threaten its dominance.
The European Union has launched an investigation into Shein amid concerns about the sale of potentially illegal goods that violate consumer protection laws. This poses a significant risk to the company due to its strategic financial model, which relies on the mass shipment of millions of low-cost parcels. European Trade Commissioner Maroš Šefčovič has estimated that four billion lower-value parcels will enter the EU this year - three times the number in 2022- fuelled largely by Shein’s business model. Under current regulations, parcels valued at less than €150 are exempt from customs duties and are not subject to routine checks. As a result, the vast majority of Shein’s shipments bypass scrutiny before arriving at consumers' doorsteps.
A key concern in this investigation revolves around the sale of hazardous products, such as toxic toys. In response, EU executives have proposed scrapping the €150 exemption threshold, which could have severe consequences for Shein. Not only would this damage the company’s public image, but it would also result in longer and more expensive shipping for customers. Both factors threaten Shein’s financial model, potentially driving consumers away.
The EU is not the only region posing a threat to Shein’s success. In 2023, 28.2% of Shein’s global sales came from the United States, making it the company’s largest consumer market. With Donald Trump returning to office, discussions around tightening regulations on small, tariff-free parcels could jeopardise Shein’s presence in the U.S. in a similar manner. If stricter import policies are introduced, American consumers could face the same issues as those in the EU, with higher costs and longer delivery times, consequently weakening Shein’s competitive advantage.
The UK has also become increasingly wary of Shein’s operations. British MPs have grown suspicious of the company, particularly after Shein refused to answer questions about the integrity of its supply chain. The most pressing concern is whether Shein uses cotton sourced from Xinjiang, a region accused of using forced labour, a question the company has avoided responding to on several occasions. If regulatory measures are imposed in the UK, other countries may follow suit, further straining Shein’s global operations.
Shein’s reliance on international shipping makes these regulatory challenges even more critical. Despite starting off in China, Shein does not sell products domestically, meaning its entire business model depends on global shipping. In addition to this, reports show that the average price of Shein dresses has risen by 28% in recent months, making its offerings less competitive. If prices continue to climb, consumers may shift to alternative brands that are not drowning in controversy.
Should these factors erode Shein’s market dominance, there could be positive implications for domestic economies. Stricter shipping regulations may encourage consumers to buy from local retailers, potentially boosting domestic firms and contributing to GDP growth. While Shein has revolutionised fast fashion, its future now hinges on its ability to navigate mounting regulatory pressures and shifting consumer preferences.
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