Good news for Foschini, Mr Price, and Truworths in South Africa

South African clothing retailers could get some breathing room as Shein’s ultra-cheap fast-fashion model faces growing pressure from regulators, competition, and weak economic conditions.

When Shein entered South Africa, there were concerns that its low prices and rapid product cycles would put pressure on local clothing retailers.

However, that disruption has not happened to the extent many expected. This is partly because Shein is facing its own challenges, with the company reporting that its profit margin has fallen to 2.1%.

Speaking on The Money Show, retail and trend analyst Bronwyn Williams said Shein is facing pressure from several directions, including weaker economic conditions and increased regulation

“It’s got some internal competition, too,” Williams said, pointing to Temu, which offers a broader range of products and has gained market share.

Governments in major markets are also making it more difficult for large international online retailers to sell very cheap products directly to consumers.

One of the biggest changes, both in South Africa and abroad, has been the tightening of the de minimis customs rules.

These rules previously allowed low-value parcels to enter certain countries without customs duties because the cost of collecting the duty was deemed not worthwhile.

That changed as governments have become more concerned about the large number of small parcels entering their markets.

Williams said regions such as the United States and the European Union are also introducing additional measures affecting companies like Shein and Temu. These include tariffs, taxes, and packaging requirements.

Some European measures also give domestic fashion retailers more room to compete against foreign online platforms.

Governments are increasingly focused on sovereignty across sectors, including retail, manufacturing, technology, and taxation. The objective is to retain more control over domestic industries and revenues.

For Shein and similar platforms, these changes make it harder to rely on extremely low prices as their main competitive advantage. “There is a lot of pressure on these giants,” Williams said.

The ultra-cheap model is under pressure

Shein’s shrinking margin also raises questions about the sustainability of the ultra-cheap fast-fashion model.

The company has indicated that it may need to move towards higher-priced clothing as its costs increase. That could create more room for established retailers that already operate at higher price points.

Williams pointed out that consumers do not always choose the cheapest available product. In poorer markets, shoppers often focus more on quality and value because their budgets are limited.

That means that they are willing to pay more to ensure the clothes they buy will last longer, and makes them less likely to turn to brands like Shein or Temu.

However, this is not necessarily the case for the mass market, which has shown a preference for affordable fast fashion brands to keep up with changing trends.

According to Williams, people increasingly wear clothing for shorter periods before donating, discarding or passing it on.

“That means quality is less important in a hyper-consumerist landscape,” she said.

If Shein is forced to raise its prices, local clothing stores may become more attractive to this consumer group as well.

However, while Shein’s pressures may provide some relief for local retailers, Williams warned that the local clothing industry still faces structural challenges.

South Africa does not have a competitive manufacturing base to rely on local production as an easy alternative to imported goods.

The fact that local businesses can only compete with foreign imports because of government regulations “should not give us peace of mind”, she said.

Williams noted that the situation should encourage South Africa to consider how its own clothing and manufacturing industries can become more competitive.

“I certainly wouldn’t say that South African retailers should be resting merrily on their laurels,” she said.