Shein and Temu Face Major Crackdown with New Shipping Rules | Pivot

1. KSKara Swisher0:00

   The Biden Administration is proposing new shipping rules targeting, uh, Shein and, uh, Temu and Alibaba. A longstanding trade law that allows low-value shipments to enter the US without duties and fees has been abused by companies, the administration says. The new rule would prevent, uh, those exemptions. A report from the House Select Committee on the Chinese Communist Party says, uh, Shein and, uh, Temu are likely responsible for more than fif- 30% of all packages within the exemptions. According to the committee, uh, a Gap paid, uh, $700 million in import duties in 2022, while Shein and Temu, uh, paid none. I think that, that probably needs to be fixed. Um, what do you think about this? It does make things more expensive for the American consumer, for the average.

2. SGScott Galloway0:42

   Yeah. Look, look, uh, just disclosure, I'm an investor in Shein. Um, I think this is, I think this is hard to argue for maintaining. I, I don't... I mean, two things. Uh, uh, they are, they're taking advantage, as companies do, of a loophole, and what I would like to see is these, these taxes done away for everybody. Um, I'm a, I'm, uh, I'm totally anti-tariffs, anti-taxes unless it's used as a strategic weapon for outsourcing pollution or someone, or the Chinese decide to try and dump steel, whatever it is. But I'm, uh, I'd like to see the taxes... I mean, Gap and H&M, you know, say they paid 700 and 200 million respectively on this tax, because this is a loophole that says if you, it's less than $800 and it's going direct to the household, you don't have to pay these, uh, I think it's import taxes. So, I, I think this is hard to argue that this shouldn't be closed or they should, they shouldn't get rid of the, the taxes or the import duties on the other brands. What they don't realize is this is only a small cost or delta in what gives these companies such an incredible advantage. And Shein, and the reason I invested in it, is that if you look at companies over the last 20 years that have added tens of billions of dollars in market capitalization, they tend, tend to have one thing in common, and that is they're asset-light. And the really amazing thing, and the reason why I invested in Shein, and the reason why even with if they have to pay these tariffs, they're still gonna have an unbelievable advantage over these other players and... I mean, these two companies will be responsible for one in $5 spent over the holidays, and their advantage is the following. It's all software. They don't own any assets. They don't own a single factory, a single truck, a single plane, a single warehouse or a single store. And what they do is they use AI to examine activity on their site, and with this machine learning and AI, they can go, "Okay, we're gonna need exactly 7,700 pairs of bell-bottom tie-dye jeans," and then within a microsecond, the software goes, "These are the three best factories to produce it," and then other pieces of the software start going, "Okay, this is the fastest way to get it to the consumer." And because it goes, because of all of this incredible demand estimation, it's because it's such a low price, there are fewer and fewer returns, it's more efficient, and they're able to charge a fraction of the p- price of Zara. I mean, it's, it, it's what Zara did to everybody else, these guys are doing to Zara, and it's all with software. There's no assets here. So as a, as a result, Shein is gonna be the second-largest apparel company in the world, surpassing Amazon this year, and next year, they're probably gonna surpass Walmart with no assets. So this will hurt them a little bit. I think it's unfair.

3. KSKara Swisher3:21

   Right.

4. SGScott Galloway3:22

   I think these-

5. KSKara Swisher3:22

   And they should pay the price. If Gap is paying that much...

6. SGScott Galloway3:23

   Yeah, they should pay the tax. But be clear, it's not-

7. KSKara Swisher3:26

   ... Gap's paying, or Walmart.

8. SGScott Galloway3:27

   ... it's barely gonna slow their growth. That's not the issue here.

9. KSKara Swisher3:29

   Mm-hmm.

10. SGScott Galloway3:29

    The issue is these other companies have an outdated business model, and Shein-

11. KSKara Swisher3:33

    Right.

12. SGScott Galloway3:34

    ... has a, just a much better business model.

13. KSKara Swisher3:36

    Yeah. Well, Walmart was ahead in, technologically, that's why they did so well. 'Cause technology always matters in these cases. Um, but we'll see. They, they deserve to pay the tax. Sorry. Sorry, companies. You have to pay the tax.

Episode duration: 3:50