Several South African online shopping retailers are up in arms over Chinese-founded multinational e-commerce disruptors Shein and Temu, with complaints of alleged anti-competitive practices.
SA’s e-commerce body, the Ecommerce Forum South Africa (EFSA), says it has been inundated with complaints from its members this year, against online retailers Shein and Temu, with claims of “unethical tactics”.
However, Shein and Temu have denied the allegations.
Shein, which introduced its offerings to SA in 2020, has grown to garner around 250 000 South Africans shoppers who are attracted by its low-cost ‘fast fashion’, according to the Marketing All Product Survey.
US-headquartered Temu opened its virtual doors locally in January, when its founder Pinduoduo began the first phase of its African expansion almost a decade after establishing the company in Shanghai, China, in 2015.
Over the last few years, new online players have entered the market, shaking up the local landscape, which is increasingly being dominated by multinational shopping sites, such as Temu, Shein, AliExpress and Wish.
The EFSA tells ITWeb that it has received a range of complaints from local retailers, varying from accusations of misleading advertisements, anti-competitive prices and exploiting import tax loopholes.
“We have had a considerable number of complaints. These relate entirely to two global e-commerce companies – Shein and Temu,” says Alastair Tempest, EFSA CEO.
“The main issues raised by members are the extremely low prices the South African businesses can’t compete with and using large advertising budgets to prevent anyone else from promoting their products.
“There is also the perceived failure to adhere to South African laws, which allegedly gives them unfair advantages – and reduces their overheads. Many are also asking what government is doing to protect South African business and the manufacturing sector.”
In terms of adhering to import tax laws, Tempest alleges the two e-tailers use a tactic they employ successfully in other parts of the globe. When they receive an order, they separate it into multiple packages so that each has a value which is less than the R500 which consumers are allowed to bring into SA, duty- and tax-free (the “de minimis” rule).
Once they have taken these packages through customs, they then put them together in a parcel and deliver them, he explains.
“Importing textiles to SA attracts a 40% tariff (on top of which the seller adds VAT), therefore the way in which they have avoided tariffs (duties) and VAT gives them an unfair advantage over local retailers of over 55% of value,” claims Tempest.
“Temu’s effect has been even more immediate, with well-established e-shops informing us they have seen their first quarter sales dropping by at least 15% to 20%. Its prices are so low that the question arises: is this actually dumping of goods?”
Dumping is when a foreign-based seller sells at low costs to undermine domestic production.
“There is a feeling that if these very low prices are allowed to continue, this will undermine South African production – potentially leading to local companies going out of business, and therefore to increased unemployment,” he adds.
The Southern African Clothing and Textile Workers Union and National Clothing Retail Federation have over the years been complaining to the Department of Trade, Industry and Competition (DTI) about Shein’s alleged tax aversion tactics.
In March, the DTI told News24 it had opened an investigation into Shein’s practices; however, findings have not yet been released.
While Temu’s business model is based on a multi-segment marketplace, where listed third-party sellers offer a range of product categories, including fashion, household goods, home appliances, toys and electronics, Shein sells directly to customers. Its on-demand model sees it introduce products in small batches and restock them based on customer demand.
Shein has grown into a global e-commerce giant, with sales estimated to exceed $30 billion for the period January to December 2023, according to Reuters. It operates in over 150 countries and has moved its headquarters from China to Singapore.
Responding to ITWeb’s questions about its business model, a Shein spokesperson points out: “Contrary to some common misperceptions, we keep prices affordable because we fully harness the power of technology, work extremely efficiently, with minimal over-production, and have no physical retail network or wholesale intermediaries.
“We can then pass on these significant cost advantages to our customers – this is Shein’s competitive advantage.”
The e-tailer says it goes without saying that it complies with all relevant local tax, trading and customs laws in the countries in which it operates.
“We pay all applicable local taxes, and we have an in-house team overseeing our tax compliance across EMEA, comprised of seasoned international sector experts who manage a robust compliance infrastructure capable of evolving with the developing international tax environment,” the spokesperson explains.
Equitable supply chain
Temu, with over 350 million app users across the globe, was the most downloaded app in the first quarter of 2024. In March alone, the app was downloaded over 41 million times globally, making it more popular than Amazon’s marketplace app, according to research firm Statista.
According to reports, the company generated in the range of $15 billion in gross merchandise value in 2023, with analysts forecasting Temu will generate a global gross merchandise value of more than $30 billion this year.
Responding to the complaints received by the EFSA, Temu tells ITWeb it minimises additional costs often incurred by traditional retailers by directly linking customers with leading manufacturers, removing unnecessary intermediaries and associated costs.
“Our objective is to democratise access to the global supply chain, ensuring equitable opportunities for all. The large volume of orders processed through Temu allows us to secure economies of scale, leading to more favourable freight and delivery terms, which in turn, lowers the costs for our customers. Manufacturers on our platform typically see higher profit margins than they would through traditional retail channels or when selling to wholesalers.”
The e-commerce firm denies deploying any anti-competitive tactics and the use of large advertising budgets to prevent local rivals from promoting their products.
“We are committed to complying with the laws and regulations of the markets where we operate, and South Africa is no exception. Temu competes fairly in the free market, just like any other advertiser, facing the same competitive forces. While the media has focused on digital advertising, what is under-reported is the role of word-of-mouth recommendations,” states the company.
Last year, US lawmakers opened an investigation into Shein and Temu for reportedly failing to prevent goods made by forced labour from being sold on their platforms and for lack of consumer data privacy.
They are also under investigation by the European Union and Romanian consumer protection bodies, for allegedly not adhering to those regions’ trading laws.
In an e-mail interview with ITWeb, SA’s consumer protection body, the Consumer Goods and Services Ombud (CGSO), says while it has been inundated with consumer complaints against online retailers, none of the consumer complaints received this year are against Temu.
“From 1 January to 22 April 2024, we received 569 complaints about online shopping sites, which makes up 16% of total disputes received so far for 2024. We haven’t received any complaints against Temu so far; however, we received three complaints against Shein this year,” states Liaquat Soobrathi, consumer ombudsman.
South Africans have over the last few months taken to social media and review site Hellopeter to complain about Temu and Shein.
Out of 125 reviews of Temu on Hellopeter, 85 are negative. Since its local launch, Shein has received 627 reviews on the site, with 433 being negative.
“In terms of Section S5(1)(a) of the Consumer Protection Act 68 of 2008, the CGSO is limited to addressing disputes that occur outside the borders of South Africa, and as such, does not possess jurisdiction over Shein and Temu, as these transactions are deemed as cross-border purchases.
“Consumers are therefore referred to the National Consumer Commission in terms of S11(2)(7)(1) of the Consumer Goods and Services Industry Code of 2015,” explains Soobrathi.
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