Bipartisan Backlash Brewing Over Shein IPO
Shein pumped the brakes on its IPO ambition shortly after Russia’s invasion of Ukraine threw capital markets into chaos. Now, a group of U.S. lawmakers could pose another impediment to any revived plan.
On Monday, nearly two dozen members of the House of Representatives led by Jennifer Wexton, a Democrat from Virginia, and John Rose, a Republican from Tennessee, urged the U.S. Securities and Exchange Commission (SEC) to hold off on registering the e-tail Goliath until it can independently certify—“free from state influence”—that it doesn’t use forced labor from China’s persecuted Uyghur minority.
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“We strongly believe that the ability to issue and trade securities on our domestic exchanges is a privilege, and that foreign companies wishing to do so must uphold a demonstrated commitment to human rights across the globe,” they wrote in a letter addressed to SEC chair Gary Gensler.
They go on to mention “credible allegations” of the Singapore-headquartered firm’s use of underpaid and forced labor, fingering, in particular, a Bloomberg investigation that used isotopic testing to find traces of Xinjiang cotton in garments ordered from Shein on two separate occasions, a violation of the Uyghur Forced Labor Prevention Act (UFLPA)
“While Shein claims its products do not utilize Uyghur forced labor and it works with third parties to audit its facilities, experts counter these types of audits are easily manipulated or falsified by state-sponsored pressure,” the letter said, using an acronym for the Xinjiang Uyghur Autonomous Region, where the majority of the predominantly Muslim population resides. “Other experts argue that it is appropriate to presuppose that any product made in the XUAR is made with forced labor.”
Wexton and others have previously questioned if de minimis laws in the United States, which exempt from tariffs any shipment less than $800 in value, are allowing online companies like Shein to circumvent potential customs enforcement. Notably, Representative Earl Blumenauer, the Oregon Democrat behind a bill that seeks to better regulate such imports, is one of the letter’s signatories. Others include James P. McGovern, the Massachusetts Democrat who introduced the UFLPA to the House of Representatives in 2021, Christopher H. Smith, the New Jersey Republican who chairs the Congressional-Executive Commission on China, and Gregory Meeks, a Democratic New Yorker who is a ranking member of the House Foreign Affairs Committee.
Shein said that the company has no suppliers in the Xinjiang region. Rather, they hail from Brazil, Turkey and southern China. It also has “zero tolerance” for forced labor.
“We take visibility across our entire supply chain seriously, and we are committed to respecting human rights and adhering to local laws in each market we operate in,” a spokesperson said. “Our suppliers must adhere to a strict code of conduct that is aligned to the International Labour Organization’s core conventions.”
But Laura Murphy, professor of human rights and contemporary slavery at the Helena Kennedy Centre for International Justice at Sheffield Hallam University, said that any efforts to shine a light on supply chains are positive ones.
“Ultra-fast fashion companies like Shein are a black box for supply chain visibility because they source from so many suppliers and so many small factories,” said Murphy, who recently testified before the Congressional-Executive Commission on China. “Anything the government can do to require more transparency is a good thing.”
Allison Gill, forced labor director at Global Labor Justice-International Labor Rights, a Washington, D.C.-based advocacy group that is a member of the Coalition to End Forced Labour in the Uyghur Region, agreed.
“The call for scrutiny of Shein is welcome, given credible concerns of forced labor in Shein’s supply chain,” she told Sourcing Journal. “Shein, like all companies with exposure to risks of Uyghur forced labor, should map and disclose its supply chain and redirect any sourcing of goods or inputs from the Uyghur region and work with its suppliers to exclude Uyghur forced labor or inputs made with forced labor. I would urge Congress and the SEC to extend this scrutiny to any company with credible forced labor risks in their operations or supply chains, in line with the administration’s ‘whole of government approach’ to combating forced labor.”
None of these criticisms are new to Shein, which has become, through its explosive growth and initial reticence for public statements, a lightning rod for the controversies that surround fast fashion, a business model that critics say promotes overconsumption and literal mountains of waste. It has batted away its naysayers with initiatives designed to recast its narrative. When the Temu rival was accused of ripping off indie designers, it launched Shein X to incubate small-time creatives. When environmentalists said its throwaway garments were polluting the planet, it sprung a $50 million extended producer responsibility scheme with a Ghana-based nonprofit. If air-freighting merchandise from China—specifically the city of Guangzhou—proved too carbon-intensive, well then it would build warehouses in the United States and Canada and “localize” production in Brazil.
In December, the Romwe owner parried reports of garment and warehouse worker exploitation with news that it would be spending $15 million over the next three to four years on factory upgrades. Shein upped the ante last month, announcing that it would now shell out an additional $55 million over the next five years to “empower its ecosystem of third-party manufacturing suppliers” with technological improvements, upskilling programs and facility enhancements. Some $10 million of that is earmarked for “services for the communities, including “accommodation and lifestyle facilities” for 40,000 workers. More than $5 million will go to building and staffing 60 childcare centers over the next five years. These will eventually provide services for Shein workers at no charge.
Much of this work has already commenced. So far, 31 factories covering 97,000 square meters have undergone “facility enhancements, upgrades and expansion,” Shein said. It plans to do the same for another 100 factories this year and up to 300 factories—just under half of the 700 it audited in 2021 and 10 percent of the total that the Wall Street Journal says it works with—within four years. In 2022, it conducted more than 380 training sessions for workers on topics such as enterprise management, organizational structure and business processes. This year, it’s poised to roll out more than 480, including courses focused on lean production.
But not all of the math meshes, said Samatha Taylor, the third-generation garment producer behind The Good Factory in England. She knows from experience just how expensive new machinery can be. And housing improvements, divided by the number of workers, come up to $250 a head. “The minute you break down the numbers it sends alarm bells ringing,” she told Sourcing Journal.
Since Shein doesn’t own its own factories, Taylor finds it hard to believe it would just give its suppliers the money with no strings attached. “If I was a gambling person, I’d put money that they’re going to use that as [the] basis to justify the low costs per item they pay suppliers, saying that it’s a repayment of a loan for factory upgrades,” she said.
There’s more: Shein has built a so-called Centre of Innovation for Garment Manufacturing, or CIGM, with echoes of Boohoo’s model factory in the United Kingdom. Spread over 58,450 square meters in China—a representative wasn’t able to get more specific by press time—the CIGM marks the e-tailer’s “commitment in action” to “elevate” the garment industry through “research and development, establishing best practices in lean and agile production and imparting key learnings to Shein’s manufacturing suppliers to drive organizational and process transformation, for the transformation of Shein’s garment manufacturing hubs around the world,” it said.
With an infusion of $40 million over five years, the center will tackle “innovative lean production solutions” for garment manufacturing, such as the use of Automated Guided Vehicles “to promote automation and efficiency throughout the production process.”
Elizabeth L. Cline, author and professor of fashion policy at Columbia University, is another skeptic. She said Shein appeared to be “aggressively researching how to tighten the screws on its global workforce.”
“The company’s new facility aimed at lean, on-demand manufacturing innovation is, of course, great news for Shein, as it’ll massively boost productivity and compel other companies in the industry to operate in the same hyper-efficient way in order to compete,” Cline told Sourcing Journal. “As has been established, Shein’s on-demand sourcing model is a nightmare for labor rights, as it means unpredictable order volumes, last-minute changes, and unreasonable timelines to get a never-ending stream of new products to customers.”
Ditto for its investments in childcare and housing, which she said are “further indicators of the company’s expectation that workers commit their entire lives and existence to producing clothes.” Shein, Cline said, should be pouring this money into improving wages that one recent investigation found could be as little as 3 cents an hour, which the company later denied was true. “The world doesn’t need an innovation center aimed at creating even faster, cheaper fashion,” she added.
Ayesha Barenblat, founder and CEO of fashion watchdog organization, Remake, pointed out that Shein scored just 8 out of 150 points in its 2022 Fashion Accountability Report. She said that its supply chain is “shrouded in secrecy” with no public information about the conditions its workers toil under, including wages and number of hours worked.
“Moreover, while the brand purports in this latest greenwashing scheme to be aligned with the International Labor Organization, with 100 percent of products made in China, workers do not have the right to organize and the only way to get such low prices is at the human cost of its workforce,” she said. “While a $70 million investment over five years, on paper, sounds wonderful, Shein’s focus on agility [and] lean and on-demand [manufacturing[ creates the opposite of an ‘empowering‘ environment for its supply chain workers.”
Shein sees things differently—and it’s obvious it’d like everyone else to as well. The last thing it wants to be known as is the “biggest national threat you’ve never heard of,” as a new coalition calling itself Shut Down Shein put it. But the regulatory gauntlet, now a tighter squeeze with rising anti-Beijing sentiment and growing national security concerns over viral Chinese-founded apps like TikTok, could be its toughest challenge yet. If history is any indication, however, nevertheless, it will persist.
“Over the last 10 years, Shein has been at the forefront of transforming the fashion industry by promoting our innovative on-demand production model that reduces redundant production and creates more value for our consumers, the industry, and society as a whole,” Tony Ren, Shein’s general manager of supply chain, said in a statement. “Shein will continue to strive for the empowerment of the fashion industry using cutting-edge innovation exploration, research and training.”
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