China giant’s tax ruse poses a threat to Boohoo

  • Shein uses tax perks in order to undercut Britain’s online retail stores 
  • Global sales at Shein are forecast to approach $20billion (£14.6billion) next year 
  • Market sources estimate Shein’s sales are now worth at least £250 million a year 

According to a major report by The Mail on Sunday, Shein, a Chinese fast-fashion giant, is using a number of tax perks in order to undercut some British online retailers. 

The mysterious Chinese firm uses its tax advantages to sell products at significantly less than its British competitors and it has become a thorn in the side of Boohoo and Asos – despite operating in Europe for just seven years. 

Global sales at Shein are forecast to approach $20billion (£14.6billion) next year, which could eclipse some of the world’s largest retailers including Zara-owner Inditex and H&M. In the UK, market sources estimate Shein’s sales are now worth at least £250 million a year and are rising rapidly. 

On the up: Made in Chelsea star Georgia Toffolo modelling Shein fashions

Up: Made In Chelsea star Georgia Toffolo models Shein clothes

Morgan Stanley’s investment bank released a 99-page report stating that Shein’s costs are as low as 20% due to tax exemptions. It says that allows it to undercut Manchester’s low-priced fast fashion retailer Boohoo by 15 per cent and London-based Asos by 35 per cent. Shein’s prices are now about half those of discount clothing retailer H&M, it added. 

Boohoo’s group sales in the UK will top £1billion this year – doubling market share on two years ago. But Morgan Stanley has cut profit guidance on Boohoo by 10 per cent for next year and reduced its recommendation for the stock to ‘underweight’ – meaning investors should cut their holdings. Although the bank reduced its profit forecasts for Asos in subsequent year, it is not encouraging investors to sell. 

Shein uses its efficient supply chain and customer behaviour data – collecting troves of information from social media and apps while adding thousands of new products to its website daily – to stoke demand. The company’s web traffic in Britain increased by more than 50% this year. 

But its growing global dominance and secrecy have caught the eye of governments across the world including the UK – where its ‘sinister’ approach has been criticised by Tom Tugendhat MP, chairman of the Foreign Affairs Committee – and India where it was among dozens of Chinese apps banned over security concerns last year. In 2018, China waived export taxes for companies shipping direct to shoppers as a result of a trade war with former President Donald Trump. This seems to have fueled Shein’s rapid growth. 

Shein is exempt from Chinese VAT and consumer taxes, and is subject to lower corporation tax. These incentives are given to Shein for manufacturing in China and then selling its goods only outside China. Arriving in the UK by post, the parcels are of such low value that they are not subject to import duties as they would be if the goods were delivered to British distribution centres in shipping containers – the method used by other big retailers. 

Analysts from the bank stated that Shein’s 12-15% ‘order processing fee’, which Shein charges for bigger deliveries to the UK almost mirrors the excise duties. It said that ‘shipping to the end user exclusively from China’ reaps a ‘tax advantage’ that has helped to reinforce the momentum driven by its well-honed product development strategy. Shein uses a test and reorder’ method to expedite popular outfits. This model has huge ranges and low supply. It stated that suggesting that its success is solely due to tax advantages would be a misinterpretation of its model. 

Morgan Stanley stated that Shein’s price advantage is ‘not sustainable if tax policies change in China, Europe, or the US. 

French bank Credit Suisse said in a recent report that a reaction by Western governments ‘to level up the playing field’ with restrictions on direct imports of cheap Chinese goods could impede the company’s progress. 

It stated: “There are practical problems in monitoring or stopping thousands of small value packages, but we would never exclude governments eventually following the lead of India.” 

Morgan Stanley stated that Shein’s ability to gain a foothold on the global fast-fashion market was the most remarkable aspect of the company’s rise. 

The bank added: ‘Other similar or even more disruptive players could well emerge over the next ten years – further increasing pressure in this market.’