Shein faces more regulations inside the EU

May 1, 2024 by
Frank Calviño

The European Commission recently announced that Shein, the ultra-fast fashion e-commerce giant, will be subject to additional regulations targeting huge online platforms (VLOPs) under the European Union's Digital Services Act (DSA). Shein has announced that it has consistently surpassed 45 million monthly users in the region, meeting the European Union's threshold to designate huge online service providers (VLOPs) under the DSA.

Although fashion was Shein's initial product focus, the e-commerce giant has rapidly expanded its inventory into a broader market, encompassing a growing range of lifestyle categories and home goods (such as cosmetics, school supplies, and pet products).

Its tactic of offering a wide range of fashion-focused products, typically at bargain prices, makes the market especially popular with younger users. However, it is a dynamic that could increase regulatory risk for Shein, as the Commission has said its priorities in enforcing the DSA include focusing on risks related to the protection of minors and safety in the marketplace. Inexpensive products may also have lower safety standards.

This designation is an essential aspect to consider as it means that the Singapore-based marketplace will soon have to comply with the strictest level of regulations for online platforms, requiring it to take steps to identify and mitigate potential risks, such as those related to the sale of counterfeit or illegal products or other types of content that could cause harm to consumer welfare.

Shein is not the only one

In doing so, Shein joins two dozen other platforms already designated as VLOPs or VLOSE (huge online search engines) by the EU. Other VLOP marketplaces include AliExpress, which is already under investigation by the Commission for alleged DSA infringements; Amazon, which has challenged its designation (but remains subject to the rules in the meantime);; and Zalando.

The DSA's general obligations already applied to Shein, one of the thousands of online services subject to the general rules. But being named VLOP increases the fast fashion giant's regulatory risk. The EU expects Shein's first risk assessment report to be submitted in four months.

Penalties for not complying with the DSA can reach up to 6% of global annual turnover. Although the maximum fine does not increase for VLOPs, with more obligations on them, the level of regulatory risk they are subject to certainly increases.

"The Commission services will carefully monitor the platform's implementation of the DSA rules and obligations, especially with regard to measures to ensure consumer protection and address the spread of illegal products," the EU wrote in a press release accompanying Shein's appointment. It added that it is 'ready to work closely with Shein to ensure that these issues are properly addressed.'

In response, Shein's global head of public affairs, Leonard Lin wrote: 'We share the Commission's ambition to ensure that consumers in the EU can shop online with peace of mind, and we are committed to doing our part. We also share a commitment to the principles of transparency and accountability that are at the core of the DSA, as reflected in our supply chain governance standards and our interactions with our users. We will continue to work constructively with the European Commission to ensure we provide a safe and compliant environment for our online community."

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