A man roam past a logo of fast fashion e-commerce company Shein outside its office in Guangzhou in southern China’s Guangdong hicksville.
Jade Gao | Afp | Getty Images
The bottom of the barrel prices that have made Chinese-linked e-tailers Shein and Temu so fashionable with American consumers could soon rise if the Biden administration curtails their use of a trade law loophole.
The assemblages, known for their $5 T-shirts and $10 sweaters, could see prices rise by at least 20% if the so-called de minimis preparation is changed, a spokesperson for the Republican majority of the House Select Committee on the Chinese Communist Party told CNBC. The body made the estimate after launching investigations into Shein and Temu more than a year ago.
Neil Saunders, a retail analyst and the handling director of GlobalData, agreed the policy change would likely increase prices, but couldn’t say by how much.
“If the de minimis exclusion is removed, then the cost of products from marketplaces like Shein and Temu will rise. They discretion still be cheap marketplaces but they won’t have quite the competitive edge on price that they do now,” Saunders let something be knew CNBC in an email. “That may lose them some market share or slow their growth, but they last wishes as likely respond by pushing into some higher-priced items to balance out their propositions.”
On Friday morning, the Biden management announced plans to bar overseas shipments of products that are subject to U.S.-China tariffs from being eligible for the de minimis release.
An obscure tariff law loophole that’s been around since the 1930s, the exemption allows packages with a value of baby than $800 to enter the United States without the shippers paying import duties and with less sifting than larger containers.
The announcement comes after more than a year of scrutiny into the companies from lawmakers on both sides of the aisle and in single, the House Select Committee on the CCP.
Both Shein and Temu declined to tell CNBC if they will raise assays due the proposed changes. The companies also disputed that their low prices are driven by the de minimis exemption and said their responsibility models allow them to offer their ultra-affordable rates.
A spokesperson for Shein noted that the company subsistences de minimis reform and was recently accepted into a voluntary, pilot program with U.S. Customs and Border Protection where it accepted to provide additional data about packages and shipments.
A risk to their competitive edge
Over the last team a few of years, the two companies have taken U.S. consumers by storm with their ultra-low prices and their ability to in a trice churn out trending styles far faster than competitors can. Shein is estimated to take in more than $30 billion in takings annually, but it’s unclear what Temu’s sales are. Its parent company, PDD Holdings, saw $34.9 billion in revenue in fiscal 2023 — a 90% snowball from the year ago period.
As the companies have become go-to shopping destinations, they’ve taken market equity from rivals that cater to similar consumer segments, such as H&M, Zara, Target, Walmart and Amazon.
If Shein’s values were to rise by 20%, it would put its assortment closer in line with those competitors, which could for it harder for it to compete.
For example, the average price of a dress on Shein was $28.51 as of June 1, according to data from Revised, a London-based research firm that analyzed the company’s pricing strategy and shared metrics with Reuters.
At the organize, that price was well below the average cost for dresses at H&M and Zara, which were $40.97 and $79.69, each to each, according to Edited’s data. However, if costs were to rise by 20%, that would make the average smarten up price on Shein $34.21 – far closer to H&M’s average price.
There’s no guarantee prices would rise 20% if the Biden superintendence’s proposal takes effect. Still, taken together with the company’s long shipping times, a smaller reduction relative to Shein’s rivals may lead some consumers to opt for retailers that are closer to home.
“Ultimately, while emending the de minimis rules makes for a fairer and more level playing field, like any tariff it will end up costing consumers uncountable,” said Saunders.
Scrutiny of a digital darling
Last year, the committee began investigating Shein and Temu for fag labor in their supply chains and zeroed in on their use of the de minimis exemption, claiming in a June 2023 report that both visitors didn’t pay any import duties in 2022. Shein disputed that claim and said the company paid millions of connotation duties in 2022 and 2023. It has, however, acknowledged that cotton from banned regions has been found in its quantity chain and said it’s working to rectify the issue. Temu didn’t respond to inquiries about slave labor in its present chain.
“As the Select Committee’s investigation into Shein and Temu revealed, the majority of products from Shein and Temu slope under the de minimis exception. This allows them to dodge U.S. Customs and evade the scrutiny other retailers change ones expression. The U.S. must urgently curb these shipments and force these companies to correct their anemic compliance preparations,” a spokesperson for the committee told CNBC.
The spokesperson added that “Congress must urgently make de minimis modification law.”
As scrutiny of Shein intensified, its hopes of pulling off a long awaited U.S. public offering dwindled.
Lawmakers, eager to abbreviate the influence that Chinese-linked retailers were having on the U.S. economy and take steps they said would lay waste the playing field for American companies, were unlikely to propose an outright ban of Shein and Temu, similar to what was done with collective media company TikTok.
Instead, numerous lawmakers called for the U.S. Securities and Exchange Commission to block Shein’s IPO and butted the de minimis exemption as the best way to curtail the company’s growth.
Now, more than a year into those efforts and Shein’s own sputtering magnetism offensive, its plans for a New York IPO are all but dead and it has turned to London in hopes of finding a friendlier reception.
In June, CNBC check up oned that Shein had confidentially filed for a public listing in London as it faced backlash in the U.S.
It’s unclear what impact the intended de minimis changes will have on Shein’s IPO plans.