On Tuesday, July 28th, the fast-fashion retailer Shein disclosed that its US operations are under investigation by the Federal Trade Commission (FTC) and could potentially face substantial fines, as the company prepares for its initial public offering (IPO) in Hong Kong.
In a filing released by the Hong Kong Stock Exchange on Sunday, July 26th, Shein stated that the FTC’s investigation pertains to its US business operations.
Although the Chinese-founded company did not elaborate on the specifics of the FTC investigation, this could mark the first public disclosure of the ongoing probe.
Shein stated in the filing, “We are actively cooperating with the FTC… While we may reach a settlement with the FTC regarding this investigation, we cannot predict the outcome or timeline of the investigation, and the possibility of an outcome in the short term cannot be ruled out.”
The company further added, “The outcome of the investigation – whether a settlement or otherwise – may require us to pay significant fines, which could have a significant adverse effect on our financial condition and business performance.”
According to Reuters, an FTC spokesperson confirmed on Tuesday that the agency is conducting an investigation into Shein regarding consumer protection issues.
An informed source revealed to Reuters that Shein is turning to an IPO in Hong Kong after facing supply chain risk disclosure problems when seeking listings in New York and London previously. At that time, Chinese regulatory authorities could not accept an IPO application document that listed “forced labor of Uyghurs” as a risk factor.
FTC is a prominent consumer protection agency in the United States aimed at stopping “deceptive or unfair business practices.” The agency has previously investigated multiple companies on issues including manipulating reviews, hidden fees or misleading pricing, shipping and refund practices, privacy and data-related concerns, among others.
One of the key areas of focus for FTC is “dark patterns.” The agency describes it as “design techniques and psychological strategies” (such as pre-checked checkboxes, hard-to-find or read disclosures, confusing cancellation policies, etc.) designed to induce consumers to part with their money or data.
It is well known that Shein employs tactics like countdown timers, gamified discounts, and limited-time offers on its app to create a sense of urgency and encourage consumer spending.
(Partial references from CNBC)