The popular Chinese-linked e-tailers, Shein and Temu, may soon see their bottom of the barrel prices rise as the Biden administration considers curtailing their use of the de minimis provision. This exemption allows packages under $800 to enter the U.S. without paying import duties, giving these companies a competitive edge. If the provision is changed, prices could increase by at least 20%, making their products less aggressively priced compared to competitors like H&M and Zara. The companies have not confirmed whether they will raise prices in response to the proposed changes.
Shein has become a go-to shopping destination for American consumers, with estimated annual revenue exceeding $30 billion, while Temu’s parent company saw $34.9 billion in revenue in fiscal 2023. These companies have rapidly gained market share from competitors by offering ultra-low prices and fast fashion styles that appeal to consumers. However, if prices were to rise, they may struggle to maintain their competitive edge, especially in comparison to major retailers like H&M, Zara, Target, Walmart, and Amazon.
The House Select Committee on the Chinese Communist Party has been investigating Shein and Temu for over a year, focusing on their use of the de minimis exemption and allegations of slave labor in their supply chains. While Shein denied claims of not paying import duties and acknowledged issues with banned cotton in their supply chain, Temu did not respond to inquiries about slave labor. The committee believes that curbing these shipments and forcing the companies to improve compliance practices is essential.
Lawmakers have targeted the de minimis loophole as a way to potentially curb the growth of Chinese-linked retailers like Shein. While an outright ban is unlikely, efforts have been made to push for regulatory changes that would level the playing field for American companies. Shein’s hopes of a U.S. public offering have dwindled, leading the company to explore a listing in London. It remains to be seen how the proposed de minimis changes will impact Shein’s IPO plans and overall business strategy.
Shein and Temu are facing increased scrutiny from lawmakers and regulatory bodies, with ongoing investigations into their compliance practices and sourcing methods. The potential changes to the de minimis provision could impact their pricing strategies and overall competitiveness in the American market. Despite their popularity and rapid growth in recent years, these Chinese-linked e-tailers may need to adapt to new regulations and consumer expectations, which could affect their long-term sustainability and expansion plans.
