Business23.10.2024

Temu and Shein hammering South African online stores

The impact that Shein and Temu are having on South African e-commerce has become abundantly clear in the shutdown or sale of at least three major local online stores in just the past two months.

The Chinese e-commerce retailers have surged in popularity since 2023 due to their highly competitive prices and aggressive marketing.

They have driven many consumers away from locally-based stores selling clothing and the small electronics and other tidbits that the Chinese stores also offer at much more affordable prices.

Several retailers have complained about their unfair competition thanks to dubious import tax practices.

However, there was little tangible information showing how Temu and Shein detrimentally impacted local players until last month.

The first major development was Takealot selling its clothing store Superbalist on 1 September 2024, after rumours that Superbalist was for sale emerged earlier in the year.

It was understood that the transaction was borne out of Takealot management’s concerns about the feasibility of competing with low-cost Chinese retailers like Temu, Shein, and Wish.

While the Takealot group recorded another trading loss in its last financial year, group CEO Frederik Zietsman revealed that Superbalist was the big problem.

He said Takealot.com and Mr D were profitable, suggesting that Superbalist dragged down the group’s net income from a profit to a loss.

E-commerce experts regarded the Superbalist decision as a good one, considering Takealot now also has to contend with Amazon.co.za, which launched in May 2024.

Shortly after the sale was completed, MyBroadband learned that Superbalist’s new owners — a consortium of retail and private equity investors — planned to reduce the company’s workforce by at least 28%.

The retrenchments could potentially impact over half of Superbalist’s occupied roles, including all designers working on its private label.

The new owners appear dead-set on reducing Superbalist’s costs to make it profitable, which will have to include improving its competitiveness with Shein and Temu to have a reasonable chance of success.

Superbalist offices

Chinese tech importer and Zando bite the dust

A few days after the news about Superbalist’s sale, low-cost off-brand Chinese tech importer Snatcher confirmed it had ceased all operations and went into voluntary liquidation after more than eight years in business.

Owner Dirk Van Greuning told MyBroadband that aggressive market players, including Shein and Temu, had used substantial marketing budgets and taken advantage of tax loopholes to flood South Africa with highly competitive pricing.

“Their ability to offer lower prices due to these loopholes has significantly undermined our competitive position,” Van Greuning said.

“The disparity in pricing and market strategy has made it untenable for us to compete effectively, leading to unsustainable financial losses.”

CIPC records showed the company had maintained an annual turnover of more than R25 million since 2021.

Shein and Temu’s most recent victim was clothing retailer Zando, a 12-year-old South African online clothing store.

Parent company Jumia Technologies confirmed plans to shut down the retailer at the end of 2024 last week to focus on other markets in Africa.

The company previously acknowledged that Temu and Shein were a major challenge to its business in South Africa.

To try and compete with the Chinese player, it launched a new division called Zando Global, which specialised in importing international products.

It used the same logistics partners as Shein and Temu — Buffalo Logistics. However, it appears this new division has not delivered the sales increase the company had been hoping for.

Taxman comes knocking

The biggest issue that local retailers have had with Shein and Temu is their low-cost clothing imports.

An e-commerce insider explained to MyBroadband that the companies were exploiting a 17-year-old import concession that allowed for a flat 20% duty with no VAT on small package imports with values below R500.

That is much less than the 45% duty with VAT that local companies have to pay on clothing imports.

In response to calls from retailers and the textile industry, the South African Revenue Service (Sars) adjusted taxes to combat Shein and Temu’s import loophole.

It initially planned to impose a full 45% duty and 15% VAT on clothing parcels, including those under R500, from July 2024.

However, this was delayed, and Sars instead started levying VAT on all sub-R500 imports as an interim measure on 1 September 2024.

From November 2024, the 20% duty rate on small items will be restructured to align with the world Customs Organisation (WCO) framework.

One Temu customer recently found that Sars has potentially already implemented a 45% duty with VAT on Temu clothing parcels valued under R500.

The customer placed two orders from Temu only a few days apart and had to pay significantly different taxes despite the value of the items in both orders being very similar.

The first non-clothing order was worth R212 and contained two phone cases and a small electric light.

The taxes the customer had to pay for the package to clear customs was R71.84, working out to an effective tax rate of about 34%.

However, for a subsequent order with a value of R229, which contained several clothing and beauty products, the tax bill was a much larger R137.65.

That works out to an effective tax rate of 60%.

Based on the value of the clothing items in the package, it would appear Sars is already imposing the 45% clothing duty with 15% VAT on top on Temu orders.

These taxes could make it far less attractive for South African shoppers to choose the Chinese retailers over local stores.

Takealot group’s head of external affairs and public policy, Tshepo Marumule, recently welcomed the tax adjustments but has called on Sars to do even more to ensure that the companies contributed to the local economy.

Business Day reported that Marumule recently made a submission to Sars on behalf of Takealot regarding its proposed tax amendments.

Marumule argued that Sars should force Shein and Temu to open up local offices and distribution centres, and employ South African staff to help level the playing field between local and international players.

The table below provides a comparison of the taxes levied on two recent Temu orders placed in October 2024.

Temu order without clothingTemu order with clothing
Total order valueR212.00R229.00
Total tax dueR71.84R137.65
Effective tax rate 34%60%
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