Timothy McLaughlin is a contributing writer for The Atlantic, with a recent article titled "The Mysterious, Meteoric Rise of Shein." Read the article here (sign-in required).
In this podcast, Motley Fool host Mary Long caught up with Timothy to discuss:
- How fast fashion became ultra-fast fashion.
- Why Shein's leaders may be staying quiet.
- How an export and tax loophole is driving business for Shein and Temu, and why that could change.
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Timothy McLaughlin: There's certainly people who say, I never use that website or I'm not downloading that app. I stay off it. I think people don't realize or maybe unaware that even if you're not using Shein or Temu, they probably changed the way that you're shopping.
Ricky Mulvey: I'm Ricky Mulvey, and that's Timothy McLaughlin, a contributing writer for the Atlantic who's got a story titled The mysterious Meteoric Rise of Shein. Shein is a fast fashion company that's taken off in the US, selling long-sleeved T-shirts for $7 and jeans for under 20 bucks. The website is packed with flash sales and offers that almost sound too good to be true. Even if you haven't shopped there, Shein has changed the landscape for online commerce. Even Amazon has launched a competitive offering. My colleague Mary Long caught up with McLaughlin to talk about his reporting and the questions surrounding this mysterious company.
Mary Long: You wrote an article that was published in the Atlantic a couple months ago about the mysterious and meteoric rise of Shein. This company started in 2012, though there are some sources that cite actually 2008 as the founding date. Today, over a decade later, little is still known about the company, especially its financials. It is privately held but it's estimated that, this is a company that brings in over $30 billion in revenue, over $2 billion in profits, its latest valuation so that the company was worth more than $60 billion. Tell us about this meteoric rise. How did Shein get it start and how did it get to be the behemoth that it is today?
Timothy McLaughlin: What we do know from the reporting that I did that many other people have done on the company, Chinese language media about its early start is that Chris Shu, the founder who also goes by a few other names, originally worked in search engine optimization and used those skills that he had after graduating from university to start some smalish e-commerce websites. Now, there was two other founders at the time in this part of the history, I think, is a bit fuzzy because two of the other founders who used to speak to the media have now stopped talking to the media.
There is some of their telling of what happened out there but in short, they said that Chris took the company that they built together that was selling products online and seized the company that they had worked to build up. He took control of the company accounts, locked them out of the office, and then continued on and ended up building the company into what it is today. I think one of the key things is that at first, this was essentially drop shipping. They were just selling products from other companies. Only later on did she and Chris Shu start making their own products under their own brand and selling them. There are a few still spots where it's unclear exactly what happened. That's because the founder has, to my knowledge, never given an interview about how this started. Now they cite the company as having three other founders. We do know that the three other "founders" are the four people make up the core members of the team that they all handle different aspects of the company. One of them has talked a little bit to the media.
The other three remain a bit of a mystery. I think Chris Shu, there are, as I pointed out in my story, photos that purport to be him out there. They're not him. They're a photo from a professor at Cornell University who told me that he regularly gets emails from people complaining about products, want to talk to him about the website. He's actually an extremely accomplished professor at Cornell. I think he works in bio-mechanical engineering. He's won a heap of awards. He has nothing to do with the website. You can if listeners are interested, you can look at the Wall Street Journal story that calls him the most anonymous CEO in the world and notice that there's no photo picture with that story.
It's illustrated. I spoke to the illustrator in Brazil, and he was provided photos from the newspaper of Chris Shu to base those drawings off of, but there's no actual photo of him that ran with the story. I think they go to great lengths to keep him, I guess, out of the spotlight, under wraps. There's a huge debate or there was a huge debate on the Internet in China of whether where he went to university is where he really said he went to university because there are photos of him at graduation. Some people think he's standing in front of buildings at a different university rather than one that he said. There's a huge amount of speculation, of intrigue, of rumors floating around about him. I think a lot of that is because he's just exceedingly low key and under the radar. Like I said, there's not even really a good photo of him out there on the Internet at the moment.
Mary Long: There's this obvious juxtaposition to be made because at least in the US, but elsewhere as well, we can venerate tech CEOs. Why especially with that in mind, why is it that, do you think that Shu chooses to keep such a low profile? To call it a low profile is also a bit of an understatement like to remain so deeply anonymous.
Timothy McLaughlin: I think part of it is the political climate in China right now. We've seen financiers, tech entrepreneurs, high-flying individuals in the business world in China been slapped down pretty hard by the government. Jack Ma, I think, is probably the one that most people know vanished from the scene for a while during the crackdown on the tech sector in China a couple of years back. That's not, I guess, uncommon that these people go off the radar for a while, whether what the state's involvement in that is, I think, is difficult to know. But I think there is now a desire to stay pretty low-key.
I think, you know, the age of wanting to be the high-flying Chinese executive, wanting to be on the billionaire list or things like that, I think people would much rather avoid all of that because there is a lot of attention that comes with that. We do know from other reporting on the company that the Chinese government is interested in what they're doing, that they do keep tabs. I don't want to say, keep tabs, but they're certainly watching what the company does, given its size and the attention that's attracted, especially, again, because of the geopolitical climate. I think that probably there is a desire to stay very low-key. I think that's also that leads into the reason people might ask, why is the company in Singapore? They go to great lengths to present themselves as a Singaporean company. Even though we know most of the productions in China, most of the sales are happening outside of China. Again, something that has become a trend in the past couple of years. Probably, again, people mostly know Bite Dance and TikTok, moving their headquarters here and talking about being a Singaporean company. Singapore washing a term that some of the more hawkish people in DC use for the practice now. I think all of that is wanting to stay off the political radar, continue business as usual without stepping on the toes of the state.
Mary Long: Shein is certainly sits at the intersection of lots of different geopolitical issues, and I want to touch more on those a bit down the line. But it also sits at the intersection of the conversation about fast fashion. That said, it is not the world's first fast fashion company. Before Shein came onto the scene, when did fashion first become fast?
Timothy McLaughlin: Certainly, the brands that people would be aware of that get mentioned as the first generation of this would be like H&M, I think, would come to mind, Prime Mark for British consumers, Zara, that first wave, I think that people are aware of. I think what Shein did is obviously the difference or one of the major differences: they don't have brick-and-mortar operations. It's all online, which is hugely beneficial during the pandemic. They were not shuttering places, paying rent, laying off employees because they were all online. In that moment, it was very helpful to their business.
I think those are the first not first, but maybe the ones that people are familiar with. I think the argument that people will make is that Shein of when from fast fashion to hyper-fast fashion or ultra-fast fashion is something that some people use to describe it. I don't think people have settled on a term just quite yet. But certainly something, I guess, new and faster. As you mentioned in the intro there, the number of products that they're brucing of designs that they're putting out hugely exceeds those more traditional fast fashion brands that people might be aware of.
Mary Long: How exactly is Shein able to take fast fashion from fast to hyper-fast and beat even Zara and H&M at this fast fashion game?
Timothy McLaughlin: I guess I touched on this a little bit of the intro. A bit of it is still unknown. They talk about, and they have offered or begin to offer up their technology to other companies. They announced that a few months back. It is still, I think, a challenge to know exactly what's going on, but we do know the basics, and I think the basics are that they are producing much smaller batches of products than traditional fast fashion. They don't do runs of 10,000 items.
They're producing a couple hundred of items spread across dozens and dozens of really small producers, primarily in Shenzhen in China. What that does is it allows them to keep down their overhead and their warehousing fees. I think those are two things that are very important in the fashion industry. When you have an excess of clothes, two things happen. Not only, say you make a T shirt, it's terrible. The style doesn't really catch on. You have 10,000 pieces of clothing, you have the issue of one, you have to pay to store it, takes up space where you could be storing other stuff. Two, you might end up selling that at an end-of-year sale at a huge discount.
What Shein argument is is that they produce smaller batches, and they can do this because of, again, a unknown tech advances that they've made that allow them to predict or guess a little bit of what people's styles or trends might be based on shopping data and things like that. Then they can make smaller runs, which saves them money, ultimately saves the consumer money and gets the products out to the market faster. There are certainly questions around where a lot of the artwork and designs are coming from. The company is facing I mean, I haven't checked recently, but at any given time, dozens and dozens of lawsuits over copyright issues taking artists drawings or designs, slapping them on t shirts, on phone cases, on things like that. Generally, what happens in those situations is that the company settles them, pays out the artists and moves along.
We do know from reporting from Wired magazine that I cited in my piece that this cost them quite a bit of money and that they are certainly concerned from a monetary standpoint about it. There are, again, questions on how far they're going to regulate it. There are, like I said, a lot of cases playing out now. I should say these are not just, independent artists. They've been involved in lawsuits with tons of brands that people probably know Oakley, Stoic. The list Doc Martin, the list goes on and on. That is also, I think a big issue with the company that people have been looking at.
Mary Long: I want to focus on this technology piece because it sounds like that is in some ways, Shein's secret sauce. The Wall Street Journal reported earlier this year that Shein would start selling its supply chain technology to other brands. If that is a part of Shein secret sauce, why sell it out to potential competitors or existing competitors?
Timothy McLaughlin: A couple of things. We do know there are Chinese security companies and other companies in China that have gotten a better look, I think, what's going on here and there's some interesting pieces in Chinese language media about how this all works. We do know that they're hoovering up like a huge amount of data when you're on the website, what you're clicking on, how long you're hovering above items. This goes for the app as well, because the app, I think, is really important to mention because that's where this all started.
I think the app is if we're talking about the tech, not the production side, but the consumer side, I do think, the app is an interesting one to look at because it is really gamephy the shopping experience. There is a lot of interactive stuff. It is keeping you on the app for a while, and it's part social media, part shopping, part community discussion on fashion. It is, I think a very interesting product that they have there on the phone. In terms of the production side, yes, the technology and the design center and how they go about producing the stuff, they have started, according to the journal report that you mentioned, though we haven't seen any, I guess, more news on who's taking them up on that. I think there are looking for ways to diversify, and they're looking for new ways to make money off what they have besides just selling the clothes.
I think that offers a good opportunity to them. I think that story, and I asked questions about this, again murky on the extent of what it would be, what exactly it would look like, what companies would have access to if any of the companies have taken them up on that. I think it's an interesting story. I'm interested to see if there's follow-up or further reporting on what this all means because that story was out there, then we haven't seen much about it since then.
Mary Long: When we think about these hyper-fast fashion retailers, Shein plays in the same space as Temu, and now Amazon is breaking into this space as well. They recently launched Amazon Hall. All three of these sites offer the same idea. Anything you want for what's effectively pennies or something close to it. Interestingly, the sitewide strategy also seems pretty similar. You bombard people with options, emojis, offerings, all these glittery sparkly things, so they can't really process what's going on. Obviously, price is something that brings a person to any of these sites but what if all three of these are playing the same game and trying to beat each other out in a game of pennies, and there's so much stuff to choose from, why is one consumer going to one site over another? Do any of these actually have a mote or a differentiator that distinguishes them from the others in the game?
Timothy McLaughlin: I think you pointed out something good there. You're very interesting with Amazon and the halls. When I was writing this story, there's certainly people who say, I never used that website or I'm not downloading that app. I stay off it. I think people don't realize or maybe unaware that even if you're not using Shein or Temu, they probably changed the way that you're shopping because they are forcing competitors like Amazon to change the way that they're presenting products and bringing them to the market and selling them to consumers.
People could say, I don't use that or this or that. It 100% is impacting the way people shop and the way websites work, e-commerce, even if you're not using it, because they have become so successful and they've done so well that they are forcing the traditional big players like Amazon to adapt and change the way that they're serving customers and also the way that they're dealing with their sellers on their own platforms. In terms of what's different, there isn't a huge amount of difference at this point. I think we see for many shoppers the disappearance of brand loyalty. That doesn't seem to matter that much anymore. Is the cheapest price, whether it's from Amazon Basics or an unbranded Shein or just a Shein brand or Temu brand, it doesn't on certain items, people simply seem to no longer care if it's from a brand that they've heard of or, a pair like a pack of white T-shirts, whether it's just the cheapest price point possible.
I think that what Amazon is likely going for is familiarity, people obviously in the United States very familiar with it. People certainly younger generation, more familiar with, Shein and Temu it's growing but I think that they are hoping Amazon's certainly hoping that people who are already on the website that are using it for groceries or prime deliveries or streaming, that they can then reel those people in with the same cheap options on clothing and other items that are available on the other websites already. I think it's an interesting space to watch to see how the competition continues. Shein obviously exploded huge, but also seems to be struggling in terms of we see its valuation that has dropped from around 100 million down to 66, down to 50 billion not million. There's been a slide there, there's questions over there listing when or if that's going to happen. I think interesting to watch how the three of them compete into space going forward.
Mary Long: Once upon a time, Shein was eyeing an IPO in the US. That idea has died. What happened to that plan?
Timothy McLaughlin: For the past at least I think three years there has been stories that have been leaked or floated, that the IPO is coming really soon. It's right around the corner. Now where you are definitely in the back half of 2024, we do know that the latest target would be in the UK for London listing yes, the US was certainly originally the intended location from the reporting that's out there. That didn't happen, I think for a number of reasons, there's just a huge amount of scrutiny on the company in the US. Also, there's scrutiny in the company from the company in China and whether and from authorities there because the production and their most employment continues to happen there, that gives the Chinese government a level of control over the company and where it can go. Now, for the past year-ish or half year, at least, the reporting and the talk has been the listing in London. Like I said obviously, we're almost into December here, and that hasn't happened yet. I think people are watching that.
They're always also been floated by people in the financial journalism world that they could always return closer to home and head to Hong Kong, certainly a city that is looking for big listings at the moment, that's looking for some good financial, economic news. That would be a splash you get for Hong Kong. It would certainly play into Hong Kong's current plan of trying to integrate itself more with the mainland and with the mainland market.
That one is just speculation. London seems to be the spot for now but, I think a lot of waiting and seeing if and when this thing is going to happen, the company did take on a lot of funding from some big firms who one would assume at some point would like to see returns on the investment that they made, some of them as early as almost ten years ago now. Definitely, a lot of eyes watching where they go. For London, some people have asked why there. I think the stock market there is in pretty bad shape. It would be a big boom for the UK to get a big listing like this.
The IPO would probably be very large. It would also maybe help the new government of the UK show that they are willing to do business with China and be a little bit more accommodating on the geopolitical front there. We talked about how Shein sits at the intersection of not just the fast fashion world, but also in the middle of a lot of hot geopolitical issues. One of those issues that I didn't fully realize until reading your story is about this loophole in import taxes and import duties that Shein gets to pay. Maybe you can walk us through this a bit. What is the de-minimis clause, and how is that relevant to the Shein story?
Timothy McLaughlin: Yes, I should have mentioned de-minimis earlier. It is a piece of legislation or law, rather, in the United States that I think very few people really paid attention to except trade wanks and maybe some people in the freight import, export business until very recently because of the connections to China. What it allows for is for small packages to come into the United States if their value is below $800 is the threshold right now. They are subject to very little inspection entering the United States, and they are free from paying taxes and tariffs on those packages. With a website like Shein, where many of the items, as you said earlier, cost a few cents or a couple of dollars, you can obviously order a lot of stuff, and the company can ship it into the United States with very limited oversight and also avoiding paying taxes and tariffs on the items that are coming in. Critics call it a loophole.
It was much lower until the Obama administration. It was part of a larger trade package that went through, Congress was signed into law by Barack Obama that raised the threshold. It used to be $200. It raised it up to 800. The feeling at the time was that the countries on the US border, Mexico and Canada would also do this. It would facilitate easier trade, and it would also allow Americans to travel abroad and bring back gifts and things like that without declaring them and going through paperwork. I should also say there was a huge amount of lobbying to get the number raised to 800 and even higher in some cases, by shipping companies like FedEx, who obviously benefit from the increased volume of packages that would be moving into the United States. It's sat at $800 for a long time. I don't think a lot of people really like I said, I think, you know, trade wonks and some other people were kind of interested in it became a massive issue really during the pandemic when people were at home, shopping online a lot, and we see this just huge uptick in packages that are coming into the United States using the de-minimis law.
They're coming in this year, probably over 1 billion packages entering the United States. That caught the attention of a lot of lawmakers, again, given the tensions and the situation with China, asking, are these companies paying their fair share? I think that bit of it has been going on for a while now. There's been a lot of legislation that's been introduced. Not a lot of it really moved for various reasons. There are big business groups, again, express shippers who would like to see this stay. Now, I think what happened and why we're all of a sudden seeing a lot more movement on it.
We saw the White House address it. Yesterday, the US economic insecurities on China, the Commission talked about it, as well. I think what has happened is lawmakers and people who are critics of this have started linking it to the fentanyl trade and saying that, hey, this is how fentanyl is getting into United States from China. They're bringing in either the product itself or the chemicals to make it is coming in through this means. When you link it to that and then you start having victims' families come and testify and talk to Congress and stuff, now suddenly there's a huge amount of interest in what is this and how can we change it? I think for the past couple of years it's been sitting there, there's been a lot of talk about it. It's gotten a lot of attention.
It hasn't really moved. Now, all of a sudden, I think we're going to start seeing some changes because of, again, the geopolitical climate and linking this to something that's very serious. By the way, this is by no means saying that Temu, Shein, that anyone of these companies are involved in any way in the drug trade. I'm just saying that this is, I think, how lawmakers who are against this and critics of it have found a much more emotional emotive way to lobby on changing it, and that's gotten a lot more attention. I think that we already saw Biden announced some changes to it, who knows with the Trump administration, how that will go. But certainly seems to be a ton of cross-party support for doing something to change this.
That would be a big blow for Shein and Temu although they're already pivoting. I would point people if they hadn't read it to the rest of the world story that came out I think this week or last week about using family warehouses, which are essentially houses of Chinese immigrants living in the United States and housing the packages there before they go out to shipment. The other issue here is that a lot of companies are shipping the products from China to Mexico or Canada, where they break the packages up into smaller pieces, then bring them into the United States. We see, again, lawmakers calling for some regulation on that, on other sides of the border. Certainly, an issue that I don't think is going away. Again, because it's being linked to fentanyl and the drug trade with China, I think it's going to see some changes coming up at some point.
Mary Long: You've got this newer emotional side to it being brought up, but also in June 2023, just to put some numbers behind it and you cite these numbers in your reporting, the House Select Committee on the CCP found that in 2022, GAP paid $700 million in import duties. H&M paid $205 million. Shein and Temu paid nothing. We've already heard you mentioned, I don't know what the Trump administration is going to do. We've heard a lot about tariffs recently. I can't imagine that certainly being a sticking point moving forward. Tim McLaughlin, thanks so much for the time. Thanks so much for your reporting on this company. Though I'm sure parts of it were frustrating because it is indeed so mysterious but thanks for coming on and spending some time with us on Motley Fool Money. Really appreciate having you here.
Timothy McLaughlin: Thanks so much. I appreciate it.
Ricky Mulvey: We've got a link to Tim's story in the show notes if you want to check it out. As always, people on the program may have interests in stocks they talk about the Motley Fool may have formal recommendations for or against. Don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. The Motley Fool only picks products that it would personally recommend to friends like you. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Mary Long has no position in any of the stocks mentioned. Ricky Mulvey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
