Chinese-owned online retailer Temu sued rival Shein in the U.S. Temu alleges in the lawsuit that Shein it violated antitrust laws by using threats and intimidation to block clothing manufacturers from working with the fast-rising upstart.

Shein and Temu, owned by PDD Holdings Inc., are two of the rising powers in online retail. They are growing threats to the likes of H&M and Zara. The lawsuit offers a rare glimpse into the business models of the two secretive companies — and their fierce competitive practices.

Shein Group Ltd. ranks No. 2 in the Asia Database. That’s Digital Commerce 360’s rankings of the largest online retailers in Asia by web sales.

Pinduoduo offers an app-only marketplace to Chinese consumers but does not operate an ecommerce website, so it is not included in Digital Commerce 360’s Asia Database rankings. Temu, which launched in September 2022, did not have a significant impact on Pinduoduo that year. Moreover, it didn’t have a high enough gross merchandise value (GMV) to make the global online marketplace rankings this year.

Temu and Shein are growing rapidly in US market

Shein has grabbed more than 75% of the U.S. “ultra fast-fashion” market since entering the market in 2017, according to the suit. After Temu entered the U.S. in 2022, Shein responded by forcing clothing manufacturers into supply arrangements that excluded Temu, the suit alleged.

“Shein has engaged in a campaign of threats, intimidation, false assertions of infringement, and attempts to impose baseless punitive fines and has forced exclusive dealing arrangements on clothing manufacturers,” according to Temu’s complaint filed July 14 with the U.S. District Court for the District of Massachusetts.

The allegations come after Shein sued Temu in the U.S. Shein alleged trademark and copyright infringement as well as “false and deceptive business practices.”

Shein led the way in pioneering ultra fast-fashion. It offered consumers the latest fashion products at bargain prices, with shirts and swimsuits as low as $2. That helped the company become one of the most successful startups in the world, with a valuation of $66 billion, according to the market research firm CB Insights.

“We believe this lawsuit is without merit and we will vigorously defend ourselves,” a Shein spokesperson said in an email statement.

Allegations in Temu Shein lawsuit

Temu alleged that Shein engages in at least four strategies to stifle competition. Those include levying fines and penalties on suppliers that work with Temu and forcing suppliers to sign “loyalty oaths.” Shein also issues “public penalty notices and imposes extrajudicial fines on disobedient manufacturers for supplying product to Temu.”

Temu alleged in the suit that, as of May, “Shein has required all of the approximately 8,338 manufacturers supplying or selling on the Shein Platform to execute Exclusive-Dealing Agreements, which prevent those manufacturers from offering products on the Temu Platform or supplying products to sellers on the Temu Platform.”

The 8,000-plus manufacturers that supply Shein represent 70% to 80% of the total number of merchants capable of supplying ultra-fast fashion, Temu said.

Temu said merchants have pulled more than 10,000 listings as a result of Shein’s actions. In the lawsuit, the PDD unit cited examples of clothing manufacturers that had cut their presence or stopped business on the platform, “to appease” Shein.

“Shein knows that manufacturers need Shein’s volume and its access to the U.S. market and it is, therefore, able to coerce manufacturers into arrangements that force manufacturers not to do business with Temu,” the company alleged.

The case is Whaleco Inc. v. Shein US Services LLC, D. Mass., No. 23-cv-11596, 7/14/23

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