Has Trump’s 2025 chaos obscured the garment industry’s best kept secret?

In March Shein’s CEO, Donald Tang, said “We have a superior business model. We are about customers. We’re not about customs policy.” He’s absolutely right: most commentators seriously misunderstand the economics of online retailing.

1.      Shein till recently

Till recently, America’s de minimis rule allowed Americans to pay no tariffs on imports of less than $800. This helped companies like Shein charge low prices, and most commentators thought their prices would soar if the concession were removed.  President Trump still uses the allegation that smugglers use the de minimis concession as a front for drug smuggling in his public threats.

But in Britain – where that rule never mattered – Shein spent £2.8 million in 2023 (about 0.02% of its £1.5 billion sales) employing 33 staff to take customers’ orders out of crates and hand them to deliverers. Most other jobs were done by people in low-income countries – mainly China.

Warehousing, domestic transport, running shops and handling returns at Shein’s UK competitors typically cost about half their sales value.  

The average cost of a cotton blouse (HS Code 620630) landed in Britain from China seems to be £12.88, including the current 12% import tariff. With Shein’s UK operating ratios, the total cotton field to wearer cost for a blouse would be about £12.90 – and both Shein UK and its Singaporean holding company are highly profitable.

For a conventional UK brand or retailer, the same blouse would cost £27. 76 from cotton field to wearer – almost twice what Shein would pay.  

The Shein model undercuts any physical or online retailer using Western staff – even if import duty were 200%. That’s:

-          Good for Western customers and developing economies

-          Bad if it really does encourage drug smuggling. But no-one outside the US has ever made such claims, and Trump’s never demonstrated any serious evidence for his.

-          Bad for conventional retailers. Just like Walmart’s complaints about Amazon, and every corner grocer’s complaints about Tesco.

Abolishing the de minimis rule probably hasn’t cut drug smuggling. Trump’s delusions about “liberal elites disrespecting ordinary Americans” are like activists’ claims about Shein’s “worker abuses”, US retailers’ lobbying over “unfair competition”, anti-Communist claims about “Chinese plots”, or FT “below the line” commentators complaining about “junk merchandise”.  They may have a point, but they’re missing the most point that matters.

Shein’s DCD (Direct to Consumer at Developing country costs) operation is far more sustainably profitable than any other retail business model

2.      What’s Shein’s likely future?

DCD retailing may not be universally viable

a.      Is it too niche? Shein’s 2% share of the UK clothes market is about the same as Tesco’s

b.     Does it only work for Chinese clothes? Shein works just as well selling garments from Bangladesh or Vietnam. 

c.      Does it work for all kinds of merchandise and customers? Most customers seem to find Shein clothes too cheap to send back, but all the shoes and socks I’ve bought over the past two years come from businesses operating the DCD model. The clinical problems I get if they don’t fit properly make me far choosier about footwear than the most fashion-mad youngster could ever be about blouses

d.     Is it too risky?  With growing cyberspace security threats many businesses will be uncomfortable outsourcing the whole process.

e.      Is it a front for the Chinese Communist Party or for smuggling drugs? Unlikely

f.       Does it make potential competitors uncomfortable? That’s capitalism

g.      Does it encourage wasteful consumption? Haven’t people claiming this heard of an Energy Recovery Facility? In Oxfordshire – like other British local authorities – non-recyclable waste goes to a facility where it powers 60,000 homes. Built by a Conservative administration: endorsed by all the other parties.

h.     Does it encourage oppressive labour relations?  China has – and enforces – tough laws on minimum wages (five times India’s), and there’s hardly any garment manufacturing in Xinjiang.

i.        Does it require special skills? Like all retailing, there’s a great deal more to DCD than operators will find in a consultant’s manual .

It helps that Shein’s website fills the same social need as a group shop in Primark – but most complaints about Shein come from lobbyists touting their own book. There’s huge potential for other DCD operations. It’s not just for youth-oriented clothing.

3.      Does this sound vague?

That’s the best any forecaster can do. You can no more say a trend will happen (modern journalists’ and commentators’ silliest fad) and see your “prediction” come true than you can say Dobbin will win the 3.30 at Newmarket and be taken seriously.  

I believe there’ll be three central models for Western retailing:

-          Thriving town centres, where most clothes are sold, close to nice eateries, bars and leisure facilities

-          Suburban supermarkets, where most groceries are sold, though there’ll also be warehousing and distribution centres for web-ordered products

-          DCD operations in some markets combining almost cotton field-to-wearer low-cost labour with tight, accountable management and websites customers enjoy using. 

Shein itself may last no longer than VHS or fax machines, and the commercially sustainable businesses overtaking it may be different from what anyone imagines today. But those three models will probably still dominate in twenty years’ time.

Commentator ignorance about Shein’s success comes from its constant concealment in plain sight