Amidst the financing and platform development, SHEIN faces a "betrayal" from PDD Temu.

Before the host Amazon launched an attack, the Chinese cross-border e-commerce platform SHEIN and Temu, a subsidiary of Pinduoduo (PDD.NASDAQ), were already engaged in a fierce battle.

On July 17th, Temu filed a lawsuit against SHEIN in the United States District Court for the District of Massachusetts.

The complaint alleges that SHEIN, using its market position, engages in monopolistic practices and bullies suppliers, specifically by forcing suppliers to sign a "loyalty agreement" that prohibits them from supplying Temu.

Temu believes that SHEIN's business practices result in higher prices for goods and fewer choices for consumers, hindering the development of the ultra-fast fashion market in the United States.

A spokesperson for SHEIN later stated in a statement that "Temu's lawsuit has no legal basis and we will actively defend ourselves."

This is not the first time that both parties have resorted to legal action. As early as December last year, SHEIN sued Temu in the United States, accusing it of trademark and copyright infringement, as well as "false and deceptive business practices." In March of this year, SHEIN submitted a revised complaint, further accusing Temu of trademark counterfeiting and infringement, copyright infringement, business defamation, and unjust enrichment.

Behind the litigation dispute is SHEIN's foray into the territory of Amazon and Temu. In May of this year, SHEIN announced a transition to a platform model, introducing more third-party sellers, aiming to transform from an independent site specializing in affordable clothing to a more comprehensive e-commerce platform with a wider range of categories.

Amazon holds nearly 40% of the market share in the United States, and its self-built comprehensive logistics network enables "next-day delivery" efficiency, forming an temporarily unassailable moat.

In comparison, SHEIN, a platform in transition, is in the same ecological position as Temu, which also focuses on low-priced small commodities.

Over the past decade, relying on China's complete industrial chain and excess production capacity, SHEIN has rapidly risen in a faster way than fast fashion - with sales reaching $29.7 billion in 2022, surpassing the sales of the ZARA brand for the first time.

However, integrating the supply chain and implementing a low-price strategy are also strengths of Pinduoduo.

As it approaches its rumored listing this year, how will SHEIN respond to competition? The latest valuation of tens of billions of dollars, which is a 30% discount from the original estimate, may reflect some subtle changes in market expectations.

Faster than fast fashion

Founded in 2008, SHEIN started as a cross-border e-commerce platform selling wedding dresses and gradually expanded its clothing categories, extending its reach to the upstream of the industry chain. By using digital means to strictly control costs and ensure that all suppliers in each link can make money, the ultimate result seen by the outside world is the extreme "small orders, quick response."

In terms of production efficiency, ZARA, the pioneer of fast fashion, takes 14 days from sample development to production, while SHEIN has shortened the process to as fast as 7 days.

As a result, SHEIN can release more styles to the market compared to traditional fast fashion, increasing the probability of hitting popular items. Subsequently, based on market feedback, production is increased to stabilize unit costs and achieve profitability. In 2018, SHEIN's explosive rate reached 50%, and the average price per item was only half of ZARA's.

In 2022, SHEIN's annual sales reached $29.7 billion, surpassing the sales of ZARA's single brand for the first time, and its sales volume exceeded ZARA's in the first half of this year.

According to Euromonitor International, the United States is one of SHEIN's largest markets, with sales of $8 billion last year. According to Bloomberg data, in November last year, SHEIN accounted for 50% of sales among a group of fast fashion competitors, while H&M accounted for only 16% and ZARA for 13% during the same period.

So far, SHEIN has completed five rounds of financing totaling over $4.2 billion, with investors including Sequoia China, IDG, Tiger Global Fund, and others. After the $2 billion Series D financing last year, SHEIN's valuation reached $100 billion, second only to ByteDance and Ant Group.

However, after the $2 billion Series D+ financing in May this year, SHEIN's valuation dropped to $66 billion, and there were rumors that SHEIN would go public within the year, which SHEIN denied.

A SHEIN spokesperson also told TradeWind01, "There is definitely no plan to go public in the short term."

Just as SHEIN completed its latest round of financing, founder Chris Xu announced that SHEIN would transition to a platform model. This means that after challenging the fast fashion pioneer ZARA, SHEIN has chosen to launch an offensive against e-commerce giant Amazon.

However, at the same time, SHEIN's fellow countryman Pinduoduo has also set its sights on the overseas market, and the two are already in direct competition.

Direct Competition

In September last year, Pinduoduo's incubated platform Temu went live, bringing the user acquisition strategy of its parent company Pinduoduo to the other side of the ocean. Within two months of its launch, Temu's GMV exceeded $90 million.

At that time, Pinduoduo's senior management publicly stated at the earnings report meeting that "Temu is not driven by financial indicators." After the turn of the year, they spent $14 million on two 30-second ads during this year's Super Bowl.

In the first quarter of this year, Temu's GMV approached 10 billion RMB. According to internal sources cited by the media, Temu sees SHEIN as its biggest competitor and has even set a goal to surpass SHEIN's GMV at least one day before September this year.

For SHEIN and Temu, both of whom are currently expanding their markets with low-price strategies, having sufficient financial resources is a must.

However, their focus on burning money is different at the moment.

SHEIN is investing heavily in overseas infrastructure to shorten delivery times and reduce costs. It plans to establish three large distribution centers in the United States. The distribution center in Indiana is already operational, the second one in Southern California is scheduled to open in 2023, and the third one is planned for the Northeastern United States. In addition, SHEIN plans to establish a distribution center in Poland, which is an important transit station from China to Europe.

The existence of Temu gives it a relative advantage in overseas distribution. According to a research report from Haitong International, Temu bears part of the cost of overseas distribution. TradeWind01, an account on the platform, learned from sellers of SHEIN and Temu that the delivery time from the warehouses in China to the destination is currently more than ten days.

Pinduoduo has replicated its advantages in the supply side to Temu, reducing costs and providing substantial subsidies in the downstream consumer market.

A seller from Yiwu, Zhejiang, told TradeWind01 that they usually need to stock up for ten days at Temu's warehouse, waiting for sales to determine the popularity of the products. And Temu occasionally requests price reductions, saying "reduce the price or reduce exposure."

However, the seller also mentioned that their product category has already achieved high sales volume on Temu, with daily orders reaching around 1,000 units, ranking first in sales for that category.

This is partly due to Temu's aggressive subsidies on product prices. According to WIRED magazine, Temu's average loss per order in its entry into the US market is $30. According to calculations by China Merchants Securities, Temu's annual losses in Canada, Australia, and New Zealand range from 4.15 billion to 6.73 billion yuan. According to a research report by Zheshang Securities, in certain product categories, Temu's prices can be 53% to 80% lower than SHEIN's.

In May of this year, Temu was sued by fitness equipment brand FitBeast for copyright infringement. Temu was selling replicas of FitBeast fitness equipment on its website for $5, while the original FitBeast product was priced at $25.99 on Amazon.

After various operations, Temu has achieved remarkable results. Sensor Tower data shows that in June of this year, Temu users spent an average of 13 minutes per day on its app, slightly longer than SHEIN users' 11 minutes, and more than double the 6 minutes of Amazon users.

This led to the competition and "dialogue" between SHEIN and Temu being brought to the legal arena. In December of last year, SHEIN sued Temu in the United States, accusing it of trademark and copyright infringement, as well as "false and deceptive business practices."

On July 17th, Temu counterattacked and sued SHEIN in the US, accusing it of monopolistic practices and bullying suppliers using its market position.

According to Temu's data, as of May, SHEIN has required approximately 8,388 manufacturers who supply or sell products on its platform to sign exclusive distribution agreements, and these manufacturers account for 70% to 80% of the total capacity of "ultra-fast fashion merchants."

Temu claims that due to SHEIN's actions, more than 10,000 items have been reduced from the platform. SHEIN's spokesperson later stated in a statement, "Temu's lawsuit has no legal basis and we will actively defend ourselves."

The internal circulation and surplus productivity have contributed to SHEIN and Temu's relative price advantage in the supply, which can also explain the rise of platforms like Pinduoduo in the past.

However, when multiple players target the low-price market, price internalization becomes inevitable. With the unresolved issue of SHEIN's alleged monopoly as pointed out by Temu, it remains uncertain who will have the last laugh in this "internalization" war of low prices.