A man walks past a logo of fast fashion e-commerce company Shein outside its office in Guangzhou in south China’s Guangdong province.
Jade Gao | Afp | Getty Images
The barrel price floor that has made China-linked online retailers Shein and Temu so popular with American consumers could soon rise if the Biden administration curbs its use of a trade loophole.
The companies, known for their $5 T-shirts and $10 sweaters, could see prices rise by at least 20 percent if the so-called de minimis provision is changed, a Republican representative of the House Select Committee on Chinese Communist Party told CNBC. The commission made the assessment after launching investigations into Shein and Temu more than a year ago.
Neil Saunders, retail analyst and managing director of GlobalData, agreed that the policy change would likely raise prices, but could not say by how much.
“If the de minimis exemption is removed, then the cost of products from markets like Shein and Temu will increase. They will still be cheap markets, but they won’t have enough of a competitive advantage at the price they are now,” Saunders told CNBC . in an email. “This may lose them some market share or slow their growth, but they will likely respond by pushing some higher-priced items to balance their proposition.”
On Friday morning, the Biden administration announced plans to bar overseas shipments of products subject to US-China tariffs from being eligible for the de minimis exemption.
An obscure loophole in tariff law that has existed since the 1930s, the exemption allows packages worth less than $800 to enter the United States without shippers paying import duties and with less scrutiny than larger containers.
The announcement comes after more than a year of scrutiny of the companies by lawmakers on both sides of the aisle and, in particular, by the House Select Committee on the CCP.
Both Shein and Temu declined to tell CNBC whether they would raise prices because of the proposed changes. The companies also disputed that their low prices were due to the de minimis exemption and said their business models allowed them to offer their extremely affordable prices.
A Shein spokesperson noted that the company supports de minimis reform and was recently accepted into a voluntary, pilot program with U.S. Customs and Border Protection where it agreed to provide additional data about packages and shipments.
Risk to their competitive advantage
Over the past two years, the two companies have wowed American consumers with their ultra-low prices and their ability to quickly turn out trendy styles much faster than competitors can. Shein is estimated to receive more than $30 billion in revenue annually, but it’s unclear what Temu’s sales are. Its parent company, PDD Holdingssaw revenue of $34.9 billion in fiscal 2023 — a 90% increase over last year’s period.
As companies have become shopping destinations, they have taken market share from competitors serving similar consumer segments, such as H&M, Zara, Target, Walmart and Amazon.
If Shein’s prices were to increase by 20%, it would bring its range closer to those competitors, which could make it harder to compete.
For example, the average price of a dress at Shein was $28.51 as of June 1, according to data from Edited, a London-based research firm that analyzed the company’s pricing strategy and shared metrics with Reuters.
At the time, that price was well below the average cost for dresses at H&M and Zara, which were $40.97 and $79.69, respectively, according to Edited’s data. However, if costs increased by 20%, that would make the average dress price at Shein $34.21 – much closer to H&M’s average price.
There is no guarantee that prices will increase by 20% if the Biden administration’s proposal goes into effect. However, combined with the company’s long shipping times, a smaller discount than Shein’s competitors may lead some consumers to choose retailers closer to home.
“Ultimately, while reforming the de minimis rules creates a fairer and more level playing field, every tariff will end up costing consumers more,” Saunders said.
Controlling a digital favorite
Last year, the commission began investigating Shein and Temu for slave labor in their supply chains and ended the use of the de minimis exemption, alleging in Report June 2023 that both companies paid no import duties in 2022. Shein disputed that claim and said the company paid millions in import duties in 2022 and 2023. However, it has acknowledged that cotton from banned areas was found in its supply chain and said that working to fix the problem. Temu did not respond to questions about slave labor in its supply chain.
“As the Select Committee’s investigation into Shein and Temu revealed, the majority of products from Shein and Temu fall within the de minimis exemption. This allows them to avoid US customs and the scrutiny that other retailers face. The US must urgently curtail these shipments and force these companies to correct their anemic compliance practices,” a commission spokesperson told CNBC.
The spokesman added that “Congress must urgently enact de minimis reform legislation.”
As scrutiny of Shein intensified, its hopes of making a long-awaited U.S. public offering dwindled.
Lawmakers, eager to curb the influence China-linked retailers have had on the U.S. economy and take steps they say will level the playing field for U.S. companies, were unlikely to propose an outright ban on Shein and Temu, similar with what happened with social networking company TikTok.
Instead, many lawmakers asked the US Securities and Exchange Commission to block Shein’s IPO and targeted the de minimis exemption as the best way to limit the company’s growth.
Now, more than a year after those efforts and Shein’s own aggressive charm, her plans for a New York IPO have died, and she’s turned to London in hopes of finding a friendlier reception.
In June, CNBC reported that Shein had confidentially filed for a public listing in London as she faced backlash in the US
It’s unclear what impact the proposed de minimis changes will have on Shein’s IPO plans.
