Why the U.S. fast-fashion market is at the heart of Temu and Shein’s lawsuits

Retail experts said that both Shein and Temu are vying for global dominance — and they are trying to do so by building out their respective marketplaces. These ongoing legal cases show that both businesses have actually found an e-commerce market where there is considerable demand for their low cost products. But both businesses clearly see the space as cutthroat — and that they’re willing to use any strategy to outperform one another.

Temu launched in the U.S. in September of last year. It saw a surge in downloads and daily active users after it aired its first ad spot in the U.S. during the Super Bowl on February 12. Temu’s downloads even outpaced U.S. retail giants like Target in February 2023, Modern Retail previously reported. Temu allows Chinese vendors to sell to shoppers and ship directly to them without having to store products in U.S. warehouses.

Temu, which has positioned itself as a brand offering heavily discounted products in a number of categories, is aggressively marketing in the U.S. to get more Americans to visit its website and download its app. The strategy seems to be working; Comscore data seen by Modern Retail shows that Temu surpassed Target’s unique monthly visitors in January 2023 and has steadily grown its monthly active users in the U.S. and continues to be ahead of Target as of May 2023. Temu also surpassed Shein’s U.S. traffic numbers in October 2022 and maintains its lead as of May 2023, according to Comscore data.

Separately, Shein, valued at roughly $100 billion, surpassed Amazon in terms of shopping app downloads from U.S. stores in 2021. To boost its presence in the U.S., Shein has turned its focus towards its new marketplace launched in May. Shein is also expanding beyond fashion and beauty products and wants people to buy more than just clothes from its marketplace.

While Temu launched with a much broader assortment of goods, it’s clear from the lawsuit that it sees fast fashion as a major battleground, said Sky Canaves, senior analyst, retail and e-commerce at Insider Intelligence. “That’s because apparel is the largest category in US retail e-commerce,” she added.

In its complaint, Temu alleged that Shein is engaged in a “campaign of threats, intimidation, false assertions and attempts to impose baseless punitive fines and has forced exclusive dealing arrangements on clothing manufacturers.” Temu’s complaint states that Shein’s views Temu’s entry to the U.S. as a “disruption to Shein’s easy dominance in ultra-fast fashion,” and thus an existential threat to its business. “The U.S. market is the primary theatre of this war,” Temu noted in its complaint. Shein told Reuters last week that the lawsuit was “without merit and we will vigorously defend ourselves.”

This year 18.8% of total U.S. e-commerce sales worth $214.09 billion will come from the apparel and accessories category as projected by Insider Intelligence. And the apparel and accessories category is expected to grow to $321.46 billion in 2027. 

Temu in its lawsuit has also said that apparel accounts for more than 90% of Shein’s sales, and Temu is selling in the same category at a 10-40% discount.

Canaves said for both companies, this is really the battle for their “core appeal to consumers”, which lies in the ultra-low-cost goods and fast-fashion products the two companies offer.

“And they get a chance to air some dirty laundry and accuse their competition of something unseemly and maybe that has an impact on how consumers think of the company as well, potentially,” said Canaves.

But Temu isn’t the only one wielding lawsuits. In March 2023, Reuters reported that Shein filed a lawsuit in the U.S. District Court for the Northern District of Illinois accusing Temu of scripting “false and deceptive statements” given to social media influencers when promoting Temu. According to the complaint, Temu gave influencers so-called social media guidelines that contained statements such as, “Shein is not the only cheap option for clothing! Check Temu.com out, cheaper and way better quality.” Additionally, “Looking for clothes better than Shein but cheaper than Revolve? Check Temu.com out.” to use for posting. At the time, a Temu spokesperson told Reuters that the company “strongly and categorically rejects all allegations and is vigorously defending its rights.”

As Jason Goldberg, chief commerce strategy officer at Publicis Group sees it, the lawsuits “illustrate how aggressively they are fighting for share in the U.S. market and how willing they are to avail themselves of every tactic [to do that].”

Canaves pointed out that Temu is represented by Boies Schiller Flexner, which she said is one of the biggest, most successful litigation firms in the country. “That really says something about the kind of muscle that they’re willing to flex on this case.”

Ultimately, Canaves said, this is just the beginning of a long and ugly legal war between Temu and Shein. “I think we’re just at the very start of what’s going to be many legal battles between these two firms, not just in the U.S. but also other parts of the world. It’s going to get ugly. It’s a hyper competitive market.”

Canaves said that in the end, “Temu and Shein are going to converge more on categories and broader strategies” as Shein builds its third-party marketplace and Temu seeks to upgrade its offerings as well with higher-margin goods.