Shein's mounting ethical concerns may be pushing some Gen Z shoppers to look elsewhere

A potent mix of ultra-low prices and a seemingly never-ending variety has helped fast-fashion retailer Shein climb to the top of the retail industry. But as ethical violations mount against the fashion behemoth, some of its Gen Z target consumers are questioning the company's environmental and business impact.

Shein (pronounced "she-in") may not be well known to older shoppers, but the online retailer's sales have rivaled that of H&M and Zara — and without the presence of physical stores. By marketing clothing that can cost as little as $3 an item and tapping social media influencers to promote its brand, the company has rapidly built a following with Gen Z, a generation of consumers mostly in their teens and early 20s.

"Shein has been very good at creating wants and must-have items," GlobalData retail analyst Neil Saunders told CBS MoneyWatch.

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Behind Shein's marketing success lurk legal allegations of copyright infringement and intense U.S. scrutiny over alleged forced labor practices and inhumane conditions for the workers who produce the exceedingly inexpensive clothing. 

The U.S.-China Economic Security and Review Commission earlier this year flagged numerous "controversial" business practices by Shein and its rival Temu, a Chinese shopping app. In an April report, the commission described their growth as "a case study of Chinese e-commerce platforms outmaneuvering regulators to grow a dominant U.S. market presence."

What is Shein?

Extremely low prices and its expertise in ever-changing clothing trends have boosted Shein to become the world's largest online-only retailer, according to GlobalData's Saunders. Through aggressive marketing of its clothing to young shoppers on social media sites like Instagram and TikTok, the brand has skyrocketed to the top of the U.S. consumer landscape.

According to its website, Shein as we know it was started in China in 2012 by four co-founders, but little is known about the man who is believed to run the company, Chris Xu, described in one lawsuit as "a mysterious tech genius." The closely held e-commerce company moved its headquarters to Singapore in 2022.

In order to sell the wide selection of items it offers, the company has developed a production model that allows it to quickly process thousands of new designs each day. By providing a seemingly never-ending variety of new fashions at such a low cost, it attracts young shoppers who are eager to buy cheap and trendy new clothing. 

Despite some newly appearing cracks in its popularity, Shein remains a top brand among young shoppers. 

One such shopper, a content creator who once promoted Shein clothing but says she has since cut back on their products, said the retailer's low-prices make it a no-brainer for many young consumers.

"The thought process is, cargo pants aren't going to be in forever, so why not get the $21 pair from Shein to make it through fall and half of winter?" said Mia Meltzer, 22, a content creator based in New York City. 

IPO challenges

As a privately held company, Shein doesn't have to disclose details like sales, employment or other information that publicly traded companies in the U.S. are required to openly share, and much about its ownership and governance remains murky.  

Transparency and other challenges notwithstanding, rumors that the company intends to go public continue to circulate, along with talk of company plans to expand its manufacturing from China to Mexico and Brazil. However, the company may be losing its sheen. A recent funding round pegged Shein's value at $66 billion, or about one-third lower than a year ago, according to the Wall Street Journal. 

As questions emerge about Shein's operations, its popularity appears to be eroding with young consumers, with the share of Gen Z adults considering making a purchase on the clothing site falling by 7 percentage points over the last year, a recent Morning Consult survey found. 

In May a bipartisan group of two dozen lawmakers asked the Securities and Exchange Commission to put the brakes on an initial public offering by Shein until it verified that it does not use forced labor from the country's predominantly Muslim Uyghur population.

Shein did not respond to requests for comment by CBS MoneyWatch.

Why is Shein clothing so cheap?

"Shein has taken the lead in low prices, which is achieved due to their low-cost model and improper labor practices, and the end result is a low price for a consumer and that is key," Saunders said. 

He describes Shein's model as "real-time fashion." Equipped with its own in-house design team that closely analyzes trend data, Shein is able to design, prototype and ship products on its own, delivering ephemeral clothing styles substantially quicker and for much less money than its fast-fashion competitors. Shein releases as many as 2,000 new pieces every day, according to Saunders. 

"Shein drops an enormous amount of new product, and it's an addictive model for consumers," Saunders said. "There is a division between people's needs and wants, but we consume well above our level of need."

The ethics of fast fashion

As Shein has gained fans, it's also drawn critics who have raised concerns about its environmental impact and questionable business ethics. 

"Most environmental waste and damage comes from overconsumption, so to be truly green and sustainable, you don't want people to buy as often," Saunders said. "Shein are the ones that are taking fast-fashion to superspeed, leading to an enormous amount of unnecessary and disposable consumption, and that's not great for the environment."

The fast-fashion model can be detrimental to the environment due to massive amounts of textile waste and the natural resources required to produce their items, according to energy and sustainability expert Jasmine Schmidt at consulting firm ICF.

Clothing waste has doubled since 2000, and the United States and Europe produce 30 million tons of clothing waste annually, according to Schmidt. Less than 1% of that clothing is recycled, she added.

"One of the biggest issues with Shein is their lack of disclosure," Schmidt said. "They are one of the biggest private companies and they don't actually disclose their volume of production, where they're sourcing materials from and their emissions."

Clothing in landfills

When clothing is disposed of within North America, it often ends up in landfills in the Global South and Southeast Asia, such as the Atacama Desert in Chile, a waste dump visible from outer space, Schmidt said. 

Oftentimes, these communities are forced to burn the disposed clothes, leading to local air and water pollution, according to Schmidt. Recycling is not always an effective alternative, as the separation of different materials used for one garment is complicated. Reprocessing systems are not capable of breaking down certain synthetic clothing fibers or removing dyes. 

"It's such a pressure on the system, and the impacts are going to be tenfold in 20-30 years to come if we don't fully handle it now," Schmidt said. "We need to be able to understand the sheer volume of waste we are producing."

It is a critical time for legislators to step in with stronger regulations on the fashion industry, Schmidt said. For instance, states could introduce extended producer responsibility (EPR) laws, which have already required producers in California, New Jersey and Washington to take responsibility for the environmental waste created from their products.

Purchasing for good

While companies are primarily accountable for creating fast-fashion waste, they're also responding to demand from consumers, which puts some responsibility on shoppers to think before they buy, Schmidt said. 

"We have to be very careful with our purchasing power," Schmidt said. Buying less, the first "R" in "reduce, reuse, recycle," can be the most direct way to consume ethically, she added. 

"It can help to buy from companies that have transparent policies and sustainable practices," Schmidt said. Additionally, buying secondhand from stores like Plato's Closet, Rent the Runway, and Depop could be viable options for finding trendy clothes without adding to environmental waste — something Schmidt and Meltzer suggest consumers do.  

"You have to take away the adjective fast when you're thinking about fashion," Schmidt said. "Consumers should consider if they want their legacy to be known as 'fast, wasteful, unknown.'"