How Shein and Temu changed the SA shopping landscape

Shein and Temu changed the shopping landscape in South Africa, grabbing market share and increasing pricing pressure on local retailers. Both companies exploit economies of scale to ship goods by air freight to delivery partners around the world while keeping unit costs low.

With many South Africans battling with the cost of living, it is no surprise that they would support any company that offers lower prices. However, Shein and Temu then landed in the South African Revenue Service’s crosshairs, and since 1 July 2024, shoppers have been required to pay the standard import tax on all orders.

According to Nedbank, a recent industry study estimated South Africa’s online retail sector at R71 billion in 2023, a year-on-year increase of 29%. “That level of growth encourages a lot of competition. South African brands, such as Shoprite Checkers, Pick n Pay and Woolworths, have all grown their online services significantly.”

Over the past few years, several international online brands also entered the local market. Chinese online retailers Shein and Temu are among the more recent entrants to the South African online market.

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Shein and Temu took over local online shopping market

Shein became a dominant brand after its 2020 launch in South Africa, where it was the most downloaded shopping app in 2023. PDD Holdings, which owns the Chinese e-commerce platform Pinduoduo, launched Temu in 2022, and it entered the South African market in January 2024, becoming the most downloaded app in local app stores within three months on the back of massive advertising on Google and Facebook.

Nedbank says since Shein and Temu have no overheads to pay for local brick-and-mortar stores or logistics infrastructure, they use their resources to flood the market with advertising, especially on social media, where their paid promotions are unavoidable.

Local competitors simply do not have the advertising budgets to compete for consumers’ attention.

However, other low-cost Chinese online suppliers, such as Wish, lost their popularity despite initially making a big impact. Wish attracted a lot of customers at first by offering loss-leader bargains at below cost, a strategy Shein and Temu also use, but as prices normalised and its poor product quality became apparent over time, Wish lost market share and is now just one of many competitors in South African e-commerce.

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Shein and Temu should take a leaf out of Amazon’s book

Nedbank says if Shein and Temu want to avoid a similar fate, they might have to reconsider their supply chains and include more South African online vendors. For example, when US giant Amazon launched its South African e-commerce site, Amazon.co.za, in May 2024, the company announced that it aims to source more than 60% of the items sold on the local site from independent local suppliers.

If you are a small business owner supplying Amazon for local delivery, the scale of its operations offers several benefits, Nedbank points out. It sells local and international brands across 20 different product categories, for same-day as well as next-day delivery, with more than 3 000 pick-up points and an easy-return system.

It currently offers free delivery on your first order and free delivery for subsequent orders above R500, with status updates sent through your preferred digital channels.

Temu and Shein, on the other hand, do not include a supplier base drawn from local small and medium businesses in their planned operations. Nedbank says they might need to reconsider if they want to counter the claims that they represent a danger to local textile producers and clothing retailers.

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Questions about labour practices and Shein and Temu

The labour practices at Shein and Temu also landed in the spotlight, with many organisations questioning their transparency and accountability. Nedbank says the sheer scale of the supply chains that giants like Shein and Temu rely on makes it more difficult to properly vet every single supplier and ensure that all the goods are produced according to ethical labour practices.

Shein and Temu have consistently denied accusations that they deal with suppliers who use forced or child labour. However, a US government investigation of Temu found that there was an ‘extremely high risk of forced labour contamination within Temu’s supply chains’.

They were also found to have been exploiting a South African tax loophole to avoid paying VAT and pay lower import duties. Nedbank says the so-called ‘de minimis’ rule allowed parcels containing clothing with a value of less than R500 through customs with a payment of only 20% import duty and no VAT.

Local retailers, on the other hand, always had to pay 45% customs duty as well as 15% VAT on all imported clothes. This was clearly not a level playing field for the local industry, although it allowed international e-commerce stores to offer radically reduced prices.

South African retailers that pay full taxes and duties on the products they import, export, or sell locally cannot compete under these conditions, Nedbank says. “Unions and retailers alike are concerned about job creation and even the impact on the environment of air-freighting cheap, mass-produced clothing around the world.”

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Sars stepped up after local retailers complained

The local industry demanded an investigation into the low-cost retailers, and last year the National Clothing Retail Federation of South Africa and the Southern African Clothing and Textile Workers’ Union filed formal complaints with government.

In March last year, the Department of Trade, Industry and Competition announced that it was investigating Shein for potentially avoiding import taxes.

In addition, Sars decided that Shein and Temu cannot rely on the de minimis rule and since 1 July last year, shoppers have been required to pay the standard import tax on all orders from Shein and Temu, even if they cost less than R500. An item that used to cost you R120 on Shein or Temu will now cost you R166, for example.

However, Nedbank says whether enforcing stricter tax compliance will be enough to help local clothing retailers compete with international giants remains to be seen. “At least it will offer South African online shoppers access to more fairly priced options.”