The Biden administration’s plans to curtail the use of a trade law loophole could potentially lead to higher prices for fast fashion e-commerce companies Shein and Temu. The so-called de minimis provision currently allows packages with a value of less than $800 to enter the United States without paying import duties. However, if this exemption is removed, prices on platforms like Shein and Temu could increase by at least 20%. Neil Saunders, a retail analyst, suggests that although the companies may lose some market share or experience slower growth, they are likely to respond by offering higher-priced items to balance out their propositions.
The recent announcement by the Biden administration aims to bar overseas shipments of products subject to US-China tariffs from being eligible for the de minimis exemption. This move comes after more than a year of scrutiny into Shein and Temu by lawmakers on the House Select Committee on the Chinese Communist Party. Both companies have declined to comment on whether they will raise prices due to the proposed changes, asserting that their current low prices are not solely driven by the de minimis exemption. They claim that their business models allow them to offer affordable rates.
These Chinese-linked e-tailers have gained popularity in the US over the past few years due to their ultra-low prices and ability to quickly produce trending styles. Shein is estimated to generate over $30 billion in revenue annually, while PDD Holdings, the parent company of Temu, saw a 90% increase in revenue from the previous year. As they have become go-to shopping destinations, they have taken market share from competitors such as H&M, Zara, Target, Walmart, and Amazon.
If Shein’s prices were to rise by 20%, it would bring their assortment closer in line with competitors, potentially making it harder for them to compete. Currently, the average price of a dress on Shein is $28.51, significantly lower than H&M and Zara, whose average dress prices are $40.97 and $79.69, respectively. However, a 20% increase would bring the average dress price on Shein to $34.21, narrowing the gap. Alongside longer shipping times, a smaller discount relative to competitors could lead some consumers to choose retailers closer to home.
The scrutiny of Shein and Temu extends beyond their pricing strategies. The House Select Committee on the Chinese Communist Party has been investigating them for alleged slave labor in their supply chains. The committee also highlighted their use of the de minimis exemption, claiming that both companies did not pay import duties in 2022. Shein disputed this claim, stating that they paid millions of import duties in 2022 and 2023. Shein has acknowledged the presence of cotton from banned regions in its supply chain and is working to address the issue. Temu has not responded to inquiries regarding slave labor in its supply chain.
As a result of the investigations and the desire to level the playing field for American companies, Shein’s plans for a US initial public offering (IPO) have been hindered. Lawmakers have called for the US Securities and Exchange Commission to block Shein’s IPO and have targeted the de minimis exemption as a means to curtail the company’s growth. Consequently, Shein has turned to London, filing for a public listing there in hopes of a more favorable reception. The impact of the proposed de minimis changes on Shein’s IPO plans remains uncertain.
