The US government has accused Chinese-backed 'fast fashion' digital platforms Shein and Temu for data and other business practices risks, along with engaging in unfair market practices.
The US-China Economic and Security Review Commission (USCC), created by Congress in 2000, said in its latest report that these platforms primarily rely on US consumers downloading and using Chinese apps to curate and deliver products.
"These firms' commercial success has encouraged both established Chinese e-commerce platforms and startups to copy its model, posing risks and challenges to US regulations, laws, and principles of market access," the report mentioned.
Shein has outpaced competitors -- including Zara and H&M -- to take a dominant position in the US market, a business model that other Chinese firms are seeking to replicate.
Shein and several other Chinese fast fashion firms have faced a high volume of copyright infringement accusations and lawsuits for intellectual property (IP) rights violations.
"Shein and similar companies present a range of challenges to US interests, including difficulties monitoring supply sources and obstacles in ensuring fair market practices with US competitors. These companies also exploit trade import exemptions," the report alleged.
Shein's business model is distinguished by its reliance on tracking and analysing user data.
Founded by Chris Xu, a Chinese national with a background in search engine optimisation, Shein draws on customer data and search history with the assistance of artificial intelligence (AI) algorithms to discern emerging fashion preferences and patterns.
"With these rapid insights, Shein can begin manufacturing and delivering clothes to market ahead of competitors. To aid its data collection, the company's app also requests that users share their data and activity from other apps, including social media, in exchange for discounts and special deals on Shein products," said the USCC report.
Temu has also replicated Shein's process of quickly manufacturing and shipping clothing to US consumers.
Temu and Shein rank in the top five free apps on the Apple Store, ahead of retailers Amazon and Walmart.
"Like Shein, Temu's success raises flags about its business practices. Temu's lack of affiliation with established brands has brought concerns of product quality as well as accusations of copyright infringement," the report noted.
Numerous other established and emerging Chinese e-commerce firms seek to penetrate the US market by modelling their strategies on Shein and Temu's businesses.
Chinese e-commerce firm LightInTheBox, listed on the New York Stock Exchange since 2013, has invested heavily in a social media strategy that mimics Shein's.
Chinese state media outlet Sixth Tone reported that there are more than 10 other startup-style Chinese firms founded since 2019 emulating Shein's business model and expanding their US presence, including Cider, Urbanic, ChicV, Doublefs, Cupshe, and JollyChic, the report said.
"Given the rapid increase in the market share of Shein and other Chinese e-commerce firms in the US, the government should be vigilant in ensuring that these firms adhere to US laws and regulations and are not granted unfair advantages over US firms," it stressed.