Uniqlo’s Allegations Against Shein

Japanese retail giant Uniqlo, owned by Fast Retailing, has filed a lawsuit against Chinese fast-fashion retailer Shein, alleging the sale of copycats of its highly popular Round Mini Shoulder Bag. The bag gained immense popularity on social media platforms, especially TikTok, in 2022 and 2023, selling out multiple times. Uniqlo claims that Shein’s “imitation products” closely resemble their viral shoulder bag, significantly impacting customer confidence in the Uniqlo brand.

Legal Action Details

The lawsuit, filed in Tokyo on December 28, specifically names Shein Japan and its operators — Roadget Business Pte, Fashion Choice Pte, and Shein Japan. Uniqlo demands the immediate cessation of sales of the alleged imitation products and compensation for damages incurred by the company due to these sales. Fast Retailing takes a resolute stance against any infringement of its intellectual property, stating that the sale of counterfeits has significantly undermined customer trust in Uniqlo’s brand and products.

Shein’s Response

In response to the allegations, Shein issued a statement, mentioning that the company is investigating the matter. The spokesperson emphasized Shein’s commitment to respecting the intellectual property rights of others and taking all claims of infringement seriously.

Background of the Viral Shoulder Bag

The Round Mini Shoulder Bag became a sensation on TikTok in 2022 and continued to gain popularity throughout 2023. Its crescent shape, worn across the torso, and affordable price of $20 contributed to its success. The bag’s popularity inspired numerous knockoff products, prompting Uniqlo to issue warnings about potential legal actions against copycats on its website.

Social Media Impact

TikTok played a crucial role in the bag’s success, with users creating viral content, including styling tips, “what’s in my bag” videos, unboxings, and haul reviews. The hashtag #uniqlobag on TikTok amassed more than 133.2 million views, contributing to the bag’s considerable interest on social media.

Shein’s Legal History

This is not the first time Shein has faced legal action. In the past year, the company was sued by graphic designers in the United States over alleged copyright infringement and racketeering. Shein has consistently asserted its commitment to vigorously defending itself against such lawsuits.

In December, Shein also faced a lawsuit from its rival Temu, another Chinese-owned e-commerce site, accusing Shein of using aggressive and unlawful tactics to thwart competition. This legal battle adds to Shein’s ongoing controversies and legal challenges.

China Initiates Security Review of Shein Amid IPO Preparations

Overview of China’s Security Review

China’s Cyberspace Administration is conducting a security review of Shein as the fast-fashion giant prepares for its highly anticipated initial public offering (IPO) in the United States. The review focuses on Shein’s supply chain presence in China, examining how the company handles information about its employees, partners, and suppliers to prevent data leakage overseas.

Implications for Shein’s IPO

The security review poses challenges for Shein as it moves towards an IPO after confidentially filing for one in the U.S. in November. The review explicitly positions Shein as a Chinese company, raising concerns amid strained relations between the U.S. and China. The review assesses whether Shein can ensure that sensitive data does not end up in the hands of the Chinese government.

U.S. Regulatory Concerns

U.S. regulators have grown increasingly concerned about Chinese companies doing business in the U.S., particularly regarding data security. The review process highlights the need for Shein to secure both U.S. and Chinese regulatory approval before proceeding with its IPO.

Historical Precedent with Didi Global

In 2021, China initiated a similar security review of ride-hailing giant Didi Global after its U.S. IPO, resulting in the company’s delisting within a year. The fallout from Didi’s case led to a broader application of security reviews for all Chinese companies seeking overseas IPOs.

Shein’s Strategic Moves

Unlike Didi, Shein is proactively seeking China’s approval before commencing trading in the U.S. This strategic approach aims to prevent a similar share collapse and instill confidence in investors. Shein’s previous relocation of its headquarters to Singapore and its decision not to sell products in China could address Beijing’s concerns about potential data exposure.

Expert Insights

Drew Bernstein, co-chairman of Marcum Asia and an expert in U.S. and Asian capital markets, suggests that Shein’s proactive measures and limited exposure to Chinese consumers make it less likely to be viewed as a security-sensitive company. Bernstein emphasizes that Shein’s anticipation and preparation for regulatory challenges contribute to its strategic readiness for IPO.

Summary

Uniqlo’s legal action against Shein for alleged copycats of its viral shoulder bag adds another chapter to Shein’s legal challenges. Meanwhile, China’s security review complicates Shein’s path to its U.S. IPO, emphasizing the delicate balance between gaining U.S. regulatory approval and securing China’s blessing. As Shein navigates these challenges, its proactive measures and strategic decisions will play a pivotal role in determining the success of its IPO and addressing concerns about data security and regulatory compliance.