Is the Chinese online apparel seller Shein a wild success due to an innovative business model — or because of a concerted effort to skirt import duties and workers’ rights?

That Shein is a modern-day e-tailing success story is not in dispute. With a focus on stylish “fast fashion,” the company was founded by Chinese entrepreneur Chris Xu in 2008, initially drop-shipping directly to overseas consumers from third-party wholesalers in China. In 2012, it came into its own as a retailer with a global, fully integrated supply chain, supported by an army of third-party suppliers that grew to their current level of more than 5,000. Revenues hit a reported $24 billion in 2022.

Shein’s innovative approach to e-commerce is based on minimizing inventory and responding, as much as possible, to consumer demand in real time. In the process, it has been able to cut the period from manufacturing to fulfillment from three weeks to five days, according to Anand Kumar, associate director of retail research with Coresight Research. A streamlined supply chain allows Shein to undercut the pricing of other fast-fashion retailers, he adds. Sales were further bolstered by an aggressive marketing campaign over social media, targeting a young, largely Generation-Z consumer base.

“Our business model, focused on creating an on-demand production approach that measures and responds to customers’ needs and preferences, is what drives our growth,” a Shein spokesperson told SupplyChainBrain. 

Shein says it can better match customer demand and supply, as well as minimize production waste, with the help of a digitized supply chain and a strategy of testing new products in small batches of 100-200 items before committing to larger lots.

At the same time, Shein has come under intense criticism over allegations of worker mistreatment at the factories that supply it with product, as well as for taking advantage of loopholes in import regulations that allow it to avoid paying duties.

What, then, is Shein really doing to challenge retail norms? “The short answer is nothing,” claims Ram Ben Tzion, chief executive officer and co-founder of Publican, a digital platform for freight vetting. He says Shein “is very much like other Chinese-based e-commerce retailers. There’s nothing very unique about their drive to be a service infrastructure provider. It is not a supply chain company.”

Ben Tzion acknowledges the company’s strength in quickly creating new clothes in line with actual demand — “not how efficiently it can ship to the U.S.”

He says Shein has benefited greatly from its strategy of shipping orders in small, individual lots. That allows it to take advantage of U.S. Customs’ “de minimis” rule, which accords duty- and tax-free status to imported goods with a value of under $800 per shipment per day by a single importer, as well as exempting such shipments from formal Customs filing requirements.

The de minimis allowance dates back to 1930, when it was put into place “so American tourists wouldn’t have to pay duty when they brought items back from their travels abroad,” says Dave Tu, chief revenue officer of DCL Logistics. It also proved to be of value to apparel manufacturers who were able to import product samples duty-free, before scaling up to full production. The ceiling was raised from $200 to $800 in 2016, opening the door to retailers like Shein who were able to avoid duties on massive volumes of finished goods. An estimated 1.6 billion packages will enter the U.S. on that basis this year, Tu says, with roughly 50% generated by just two retailers: Shein and Temu, the latter another China-based on-line marketplace selling a wide range of inexpensive consumer items.

Bills are currently pending in Congress to reform the de minimis rule, possibly by lowering the threshold or even banning its application to imports from China. Among them is a proposal by Rep. Earl Blumenauer, D-Ore., who is working with a recently formed group called the Coalition to Close the De Minimis Loophole. One idea, says Tu, is to make the flow of imported parcels more transparent through improved documentation. “Right now,” he says, “Customs is flooded with so many packages that it can’t keep up with making sure that items are under $800.”

For its part, Shein says it supports U.S. de minimis reform (although not outright elimination of the privilege). In a 2023 letter to the American Apparel and Footwear Association, Shein executive vice president Donald Tang called for “a complete makeover” of the rule. He wrote that “the de minimis framework should be reformed to create a more level, transparent playing field — one where all retailers play by the same rules, and where the rules are applied evenly and equally, regardless of where a company is based or ships from.”

(Elsewhere in the world, de minimis allowances, which vary from country to country, are also under threat. South Africa, for one, is closing the loophole entirely in July.)

A more serious allegation against Shein concerns the treatment of workers at its producers’ factories. They include accusations of forced labor, low wages, excessive overtime and generally poor working conditions. One report from Public Eye, based on interviews with workers at six factories operated by third-party suppliers in Guangdong Province, alleges that some work 75-hour weeks. Another report alleged the sourcing of Shein’s cotton from China’s Xinxiang Province, the subject of multiple reports of forced labor among the region’s ethnic Uyghur population.

Shein responded that the “small sample size” of the Public Eye report “should be seen in the context or our comprehensive ongoing process to continually improve our supply chain, which involves engaging with thousands of suppliers and workers within the supply chain.”

“Shein has a zero-tolerance policy for forced labor,” the company spokesperson told SupplyChainBrain. “We require our contract manufacturers to only source cotton from approved regions. We take visibility across our entire supply chain seriously, and we are committed to respecting human rights.”

Supply chain innovator or not, Shein finds itself square in the sights of the U.S.-China trade war. And many aspects of the company’s sourcing strategy remain unclear. Notwithstanding legislative action, Ben Tzion says, the ultimate answer to the problem lies in the availability of accurate data, which is needed to drive proper enforcement of U.S. shipping requirements and trade laws. 

“There are technologies today that are able to automatically vet and verify the legitimacy, authenticity and quality of each and every item at scale,” Ben Tzion says. “If a package from Shein [arrives] with clear indication of the manufacturer, we will be able to say within seconds if it’s all right.”

Next: Are we in a “quiet trade war” with China?