Chinese manufacturers and retail suppliers have been releasing a series of videos online exposing various high-end brands, including Canadian-owned Lululemon, for allegedly overcharging customers for clothes and accessories produced by them at low costs.
Dozens of videos have gone viral on TikTok with manufacturers explaining that products for luxury brands are allegedly produced by them at a very low cost, and then shipped overseas, where they receive an inflated price tag.
The accusations come a week after the U.S. President Donald Trump’s “Liberation Day” announcement when he imposed tariffs on imported goods worldwide, including China that was slapped with a 34 per cent surcharge.
Since then, both countries have been going off at each other with retaliatory tariffs, and China now faces 145 per cent tariffs with Trump threatening to raise them to 245 per cent, while the U.S. was hit with 125 per cent Chinese tariffs last Friday.
lululemon is one of the top cited brands in many of the videos, with many manufacturers on social media claiming to be able to sell their yoga sets and leggings that usually go from hundreds of dollars for less than USD$10.
@xiiansportwear Fabricas lululemon en China! Ahora puedes comprar directamente con nosotros productos lululemon directo de los almacenes de fabricación. #lululemon ♬ sonido original – xiiansportwear
Meanwhile, many users online seem to have embraced the idea of shopping for less by going directly to manufacturers in China, sharing reviews of the products and even lists of sources where customers can find them.
@notbadyou FREE SHIPPING #notbadyou #fypage #tariffs #lululemon #chinese #clothes ♬ 原聲 – 一曲入心
In a statement to Now Toronto, lululemon denied connection to the manufacturers in the viral videos, and shared an updated list that contains details of their current suppliers.
“lululemon does not work with the manufacturers identified in the online videos and we urge consumers to be aware of potentially counterfeit products and misinformation,” a lululemon company spokesperson said on Wednesday.
“Authentic lululemon products are only available for purchase at our lululemon store locations, registered lululemon e-commerce sites, and select authorized and specialty stores,” they added.
HOW THE SUPPLY CHAIN IMPACTS PRICES
Associate York University Professor of Operations Management and Information Systems Isik Bicer explained that the prices of high-end products like lululemon clothes come from an extensive supply chain system that includes not only the cost of raw materials and manufacturing, but also includes the cost of designing, advertising and conducting consumer research.
“The amount paid is not just the direct labour and material cost for the production-related activities, but the supply chain is much longer than that,” he said to Now Toronto.
Bicer said that these videos signal a serious problem called chain disintermediation, which is the removal of steps in the production process.
He explained that the manufacturers that have a contract with the brand have access to their designs and research on their customer’s preferences, which would make it possible for them to produce the products without having to go through the other steps of production themselves.
“[There are] manufacturers coming out of nowhere and saying, ‘Hey, U.S. customers, I know your design preferences, I know what you value.’ And indeed, the direct labour and material cost is around $7. [So, they say,] ‘Let’s bypass all these people in the supply chain, and then let me sell you the products.’”
After looking over lululemon’s profit margins, the professor also revealed that for a high-end popular brand, the company makes nothing more than standard profit.
“lululemon [profit] over the last couple years has been around 20 to 30 per cent before interest, tax, depreciation and amortization. After accounting for these things, the net profit margin after the tax and interest payments would be around 10 to 20 per cent,” he said.
According to him, although customers who choose to buy directly from the manufacturer might get a similar product, they might not be following strict quality control, which would make the product cheaper but result in some flawed products that can’t be returned.
“In the end, some customers may get the products with some defects and that may be a problem for them,” he said.
Bicer also explained that brands like lululemon have a diversified list of manufacturers and suppliers, since different regions of the globe are specialized in materials and products.
“The quality of fabric may differ, and that may force them to work with different suppliers, different contract manufacturers from different places. So, this is quite normal to have a very diverse supplier and contract manufacturing base,” he said.
EXPERT ALERT CUSTOMERS OF POSSIBLE SCAMS
University of Toronto Assistant Professor at Joseph L. Rotman School of Management Richard Powers, also reinforced that the costs of a product reflect other stages in the supply chain and that producing them in places like China makes the final product cheaper for the consumer.
“If they [were] manufactured in Canada or other places, the labour costs would be significantly higher costs [and] they would have to pass on to the consumer,” he said.
Powers also urged consumers to be aware of misinformation and scams, suggesting that some influencers linked to certain manufacturers, could be compensated to share this information.
“Question the sources as well… There’s a clear conflict of interest. When you’re taking the word of an influencer, their duty and their salaries come from the manufacturers that they’re representing,” he added.
