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Highlights
- Several tax perks are being exploited by Chinese fast-fashion giant Shein in a bid to overshadow some of the Britain’s top online retailers.
- UK-based online fashion retailers Boohoo and Asos are threatened by this move.
- Shein's sales in the UK are around £250 million a year, and by next year, global sales at Shein are predicted to be around £14.6 billion (US $20 billion).
Chinese fast-fashion major Shein has reportedly exploited a range of tax incentives available in China in a bid to undersell some of the Britain’s top online retailers. The Chinese firm is trying to undercut its British competitors by selling its products at a substantially lower price using tax benefits. UK-based online fashion retailers Boohoo and Asos are threatened by this move, even though they have been operating in Europe for only seven years as of now.
By next year, global sales at Shein are predicted to be around £14.6 billion ($20 billion), and it is expected to surpass some of the largest retailers across the globe, including Zara-owner Inditex and H&M. While in the UK, the sales of Shein are currently around £250 million per year, market observers are saying that its sales are increasing at a very fast pace.
According to a report released by investment bank Morgan Stanley, the costs of Shein are already around 20% lower than its rivals due to tax exemptions. These tax exemptions help it in undercutting London-based Asos by 35% and Manchester-based Boohoo by 15%. It added that Shein’s clothes are half the price of H&M’s products.
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By the end of this year, the market share of Boohoo in the UK would be doubled as compared 2019. However, the profit estimates of Boohoo have been cut down by Morgan Stanley by around 10% for the next year. The investment bank has additionally signalled the investors to cut back on their holdings of Boohoo stocks by reducing the recommendation for its stock to ‘underweight’. It has also tapered the predicted profits of Asos in the upcoming years, however, it is not persuading the investors to sell off their shares yet.
The web traffic of Shien is growing at a very fast pace and has doubled in the UK this year alone mainly due to its efficient supply chains and study of consumer behaviour data via social media. However, its growing global dominance coupled with secrecy has alerted countries worldwide. Last year, various Chinese apps, including Shein, were banned in India due to security concerns.
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Lower corporation taxes are applicable on Shein, and it is not subject to Chinese VAT and consumer taxes. These incentives are offered to the company for manufacturing its products in China and selling them outside the country and not within China. The parcels are sent to the UK by post, and they aren’t subject to import duties due to their significantly low value, unlike the goods delivered in shipping containers to British distribution centres by other huge retailers.
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According to Morgan Stanley analysts, the 12-15% order handling fee of the company which is applicable to Shein’s bigger deliveries to the UK, is similar to the excise duty. It said that the company had a well-established product development strategy under which it gets a tax advantage by shipping to the end user exclusively from China. The company offers a wide range of products and inexpensive supply sources to get its popular outfits fast-tracked under its test and reorder model.
Although tax advantages are a major reason of Shein’s success, it said that there were other factors too. However, the price advantages Shein holds might not be sustainable if the tax policies are altered in in China, Europe, or the US.
Bottom line
According to a recent report released by the French bank Credit Suisse, Western countries must try to reach a level-playing field by imposing restrictions and regulating the direct imports of cheap Chinese goods into their countries. As per Morgan Stanley, other disruptive players can also crop up just as Shein did in the next decade, which will further impact the global markets.
