Shein and Temu suffer massive sales declines amid regulatory changes

In the United States, Shein and Temu faced significant sales declines in May 2025, with Temu's sales dropping 48% and Shein's by 23%. This decline is attributed to increasing regulatory scrutiny and the impending end of the de minimis exemption, which has allowed low-cost imports to enter the country duty-free. As a response to these challenges, both companies have begun to pivot their focus toward Europe and emerging markets. Shein has ramped up digital advertising by over 70% in Europe in early May to counteract loss in the American market, while Temu focused on localizing its supply chains in the U.S. to mitigate the impact of tariffs. The de minimis tariff exemption served as a crucial element of their business models, allowing these retail giants to provide incredibly low prices and quick shipping without the overhead of U.S. warehouses. However, new legislation set to take effect on July 1, 2027, will eliminate this exemption across all countries. Furthermore, the European Commission is proposing new regulations, such as a flat tax on low-value parcels and restrictions on advertising, further complicating the landscape for fast-fashion retailers. In France, protective measures against their ultra-fast fashion practices are already on the table, creating even more hurdles for companies like Shein that thrive on affordability. Facing these mounting pressures, Shein is exploring sustainability initiatives and enhancing supply chain transparency. They've started shifting their supplier base to India as part of these efforts. Meanwhile, Temu is investing heavily in localization in the U.S. market, hoping that this strategy will reduce the financial impact of tariffs and enable them to maintain competitive pricing. Both companies are also targeting high-growth potential in countries like Brazil, with Shein increasing advertising by 130% and Temu by a staggering 800%. The situation reflects broader challenges faced by Chinese fast-fashion retailers, as their low-cost and high-volume models come under threat from rising tariffs and tightening regulations. However, the companies’ history of ingenuity and adaptation suggests they may find innovative ways to navigate these changes despite the uncertain retail landscape ahead.