Shein, the ultra-fast fashion e-commerce giant, will be subject to an additional layer of governance rules targeted at very large online platforms (VLOPs) under the European Union’s Digital Services Act (DSA). The Commission announced this move on Friday, which means Shein will have to comply with the strictest level of online governance.
Shein Passes 45 Million Monthly Users Threshold
Shein had reported passing an average of 45 million monthly users in the region, which is the threshold for the EU to designate VLOPs under the DSA. This designation is significant because it means Shein will have to take steps to identify and mitigate systemic risks, such as the sale of counterfeit or illegal goods, or other types of content that could pose harms to consumers’ well-being.
DSA Obligations for VLOPs
Other DSA obligations for VLOPs include a requirement to publish an ads library, as well as providing access to platform data to external researchers studying systemic risk. Shein joins roughly two dozen platforms already designated as VLOPs or VLOSE (very large online search engines) by the EU.
Other Platforms Designated as VLOPs
Some of the other VLOP marketplaces include:
- AliExpress, which is already under investigation by the Commission for suspected breaches of the DSA
- Amazon, which has challenged its designation but remains subject to the rules in the meanwhile
- Booking.com
- Zalando
Regulatory Risk Amplifies for Shein
The EU will expect Shein’s first risk assessment report to be submitted in four months’ time. Penalties for failing to comply with the DSA can reach up to 6% of global annual turnover.
Shein Expands into Broader Marketplace Categories
Fashion was Shein’s initial product focus, but it has been rapidly expanding its inventory into a far broader marketplace, covering a growing range of lifestyle and homeware categories (such as cosmetics, supplies for schoolkids, and products for pets).
Regulatory Risk Amplifies Further
Shein’s tactic of offering a vast range of fashion-focused goods at bargain basement prices makes the marketplace especially popular with young users. However, this dynamic could amp up the regulatory risk for Shein as the Commission has said its priorities include:
- Combating online counterfeiting and piracy
- Ensuring the protection of vulnerable consumers
Commission’s Priorities
The Commission’s priorities in regulating VLOPs under the DSA include:
- Combatting online counterfeiting and piracy: This includes measures to ensure that platforms take steps to prevent the sale of counterfeit or pirated goods.
- Protecting vulnerable consumers: This includes measures to ensure that platforms take steps to protect consumers from online scams, phishing attacks, and other forms of exploitation.
What Does this Mean for Shein?
Shein will have to comply with the strictest level of online governance under the DSA, which includes a range of obligations such as publishing an ads library and providing access to platform data. This could have significant implications for Shein’s business model and operations.
Background on the Digital Services Act (DSA)
The DSA is a comprehensive piece of legislation aimed at regulating digital services in the EU. The main objectives of the DSA are to:
- Protect consumers: By ensuring that digital platforms take steps to protect consumers from online scams, phishing attacks, and other forms of exploitation.
- Combat online counterfeiting and piracy: By ensuring that digital platforms take steps to prevent the sale of counterfeit or pirated goods.
Regulatory Environment for Digital Services
The regulatory environment for digital services in the EU is complex and rapidly evolving. The DSA represents a significant development in this area, with implications for digital platforms such as Shein.
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