February 21, 2024

A nasty lawsuit between Temu and Shein shows an uphill battle for US shoppers


Hong Kong
CNN

Temu has sued Shein in the United States, accusing his rival of violating antitrust laws by attempting to monopolize suppliers and engaging in other allegedly illegal conduct.

The lawsuit, filed Friday in Massachusetts federal court, is a significant escalation of the two’s contentious legal battle Fast fashion upstarts have been embroiled in for months.

It follows another complaint from Shein, who sued Temu in December over an allegation mobilizing social media influencers to disparage Shein online.

In the new suit, Temu claims that Shein has “engaged in a campaign of threats, intimidation, false declarations of infringement, and attempts to impose baseless fines” on clothing manufacturers believed to be working with Temu.

Shein has also been “forced” into exclusivity deals with clothing manufacturers to prevent them from working with Temu, the complaint says.

Both companies came in China and did their names as online retailers specializing in a supersonic version of fast fashion, defined as the rapid design and production of inexpensive goods that respond to major trends.

In some ways, they are taking on industry giants like Zara and H&M

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in their own game, by making items faster and being more digitally savvy with customers.

Sing born the two giants in US market share during the pandemic, and Temu has held a strong position since launching last year, according to analyst firm Bloomberg Second Measure.

However, the new litigation shows how the race is heating up on an emerging industry battlefield.

“This shows how competitive the environment is,” said Michael Felice, a partner in Kearney’s communications, media and technology practice.

In his lawsuit filed last week, Temu claimed that his recent arrival into the United States had led to a confrontation with Shein.

Temu, which is owned by PDD along with the popular Chinese e-commerce giant Pinduoduo, was launched in September. It serves as an online one-stop shop for everything from home goods to clothing to electronics at incredibly low prices.

The company’s platform came quickly the most downloaded app in the United States, where it is still in the top two on iOS and Android app stores, according to Sensor Tower.

As a result of its rapid growth, “Shein now sees itself as ‘at war’ with Temu and is engaged in an elaborate and anti-competitive scheme aimed at suppressing Temu’s business,” Temu said in a court filing.

“The US market is the main theater of this war.”

To force the manufacturers’ hand, Shein tried to “lock down” the supply chain by forcing them to sign loyalty agreements, promising not to do business with Temu, the latter alleged.

He also claimed that Shein issued fines and penalty notices to suppliers who worked in Temu, in an attempt to send a stern warning to businesses that “it would not accept any manufacturer doing business with Temu”.

Like Shein, most of Temu’s suppliers are based in China and “are not familiar with the U.S. legal system and do not have the funds to seek independent counsel,” Temu said.

“The intent and effect of Shein’s anti-competitive behavior is to exclude Temu so that Shein can charge consumers higher prices while offering less choice and lower quality than Shein would have if there was competition she has to overcome,” argued Temu.

In response, a Shein spokesperson told CNN “We believe this lawsuit is without merit and will vigorously defend ourselves.”

Sing took off in the United States two years ago, attracting young customers to its platform through an addictive mobile shopping experience and a wide selection of trendy clothes.

The firm is now “by far” the market leader in ultra-fast, commanding more than 75% of the US market share last year, according to Temu.

But there are signs that its smaller rival is catching up or even racing ahead: In May, total US spending on Temu was less than 20% on Shein, according to Second Measure.

In recent months, the two have increasingly turned on each other, with battle lines being drawn on social media.

Sing sue Temu in Illinois federal court in December, alleging that the latter enlisted online influencers “to make false and misleading statements” about Shein to promote his own goods.

He claimed that Temu asked them to make statements such as: “Shein is not the only cheap choice of clothes! Check out Temu.com, cheaper and much better quality.”

The newcomer provided guidelines for influencers to make those statements, creating false advertising, Shein alleged.

Temu filed to dismiss the suit, but the case is still pending.

The company has stated that it strongly and decisively denies all allegations, and that its rights are being vigorously defended.

“For a long time, we have exercised significant restraint and refrained from pursuing legal action,” Temu told CNN in a statement Tuesday about the new law.

“However, Shein’s increasing attacks leave us with no choice but to take legal action to protect our rights and the rights of those merchants doing business on Temu, as well as the rights of consumers to a wide range of affordable products.”

Temu also claims that Shein “unilaterally changed its contract” with manufacturers, effectively forcing them to give up their intellectual property rights to Shein, which he then used to go after “the same merchants” on Temu .

Killing Shein has already hurt Temu’s business, the latter claims.

The company has repeatedly falsely accused its smaller competitor of copyright infringement “to interfere with sales of products offered for sale on Temu,” the latter said in its complaint.

As a result, more than 10,000 product listings have been pulled from Temu since last October, he added.

The ongoing spats show how “of course each of them [company] it’s a threat to the other person,” Felice said.

“Given this dynamic, the lawsuits are not surprising, each seemingly trying to establish legitimacy in the courts by delegating the other.”

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