Temu and SHEIN have revolutionized global e-commerce with their ultra-low prices, but face significant challenges as upcoming tariff policies eliminate the $800 duty-free exemption for international packages from China. This change threatens the foundation of their business models and future growth prospects.
https://360miq.com/tool?code=AMZN,PDD&tf=d&from=2024-12-29&to=
Table of Contents
Remarkable Growth Trajectories
Temu, launched in September 2022 by PDD Holdings, has experienced explosive growth in a remarkably short time. PDD Holdings has benefited tremendously from Temu’s success. The company reported $52.29 billion in revenue for the twelve months ending September 2024, representing an 89.35% year-over-year increase. For the quarter ending September 2024 alone, PDD generated $14.16 billion, up 50.05% from the same period the previous year. Interestingly, PDD surged 5.2% today. This uptick comes just days before the company is set to report its earnings for the fiscal quarter ending December 2024 on March 20, 2025, before the U.S. markets open. The market seems to be optimistic about its earnings.
SHEIN has maintained its dominance in ultrafast fashion e-commerce with revenue reaching an estimated $39.61 billion in 2024, a 23% increase from the previous year. The company experienced extraordinary growth during the pandemic, with revenue jumping from $3 billion in 2019 to $16 billion by 2021. The United States remains SHEIN’s largest market, accounting for approximately 28% of total sales or roughly $9 billion in 2023.
Tariff Challenges and Business Model Disruptions
Both companies have thrived by leveraging the de minimis exemption, which allowed goods valued under $800 to enter the United States duty-free. This rule enabled direct shipping from Chinese manufacturers to American consumers without import duties, supporting their ultra-low pricing strategies.
The Trump administration’s recent executive order suspended this exemption and imposed two new tariffs of 10% each on all Chinese goods. These changes fundamentally challenge the direct-to-consumer shipping model central to both companies’ success.
Beyond direct costs, the requirement for packages to undergo customs inspection will likely cause significant delivery delays. Additionally, the tariff landscape is becoming more complex globally, with Mexico recently announcing new duties affecting these companies starting January 2025.
Strategic Adaptations and Future Outlook
Temu is overhauling its supply chain approach. The company is transitioning to a “half custody” policy, asking factories to ship goods in bulk to US warehouses while Temu focuses solely on managing its online marketplace. This strategic may mitigate some shipping delays but requires substantial investment in infrastructure. As a result, it will likely increase operational costs for merchants, potentially leading to higher prices for consumers.
SHEIN is responding by diversifying its supply chain, notably expanding production in Vietnam to reduce reliance on China and potentially lower tariff impacts. They might also face higher shipping costs, potentially leading to price increases for consumers, but aim to keep affordability central by absorbing costs or adjusting pricing minimally.
The tariff changes may inadvertently benefit domestic e-commerce platforms like Amazon (AMZN), which launched Amazon Haul to compete in this space. Domestic platforms with established warehouse networks within the United States may gain advantages as the cost gap narrows between US-based and Chinese retailers.
Conclusion
As Temu and SHEIN navigate the changing regulatory landscape, they face difficult choices between absorbing higher costs or passing them on to consumers. Their future success depends on their ability to adapt supply chains, maintain price competitiveness despite tariff burdens, and continue delivering the value proposition that fueled their rapid growth. The coming months will reveal whether these e-commerce giants can sustain their momentum or whether domestic competitors will gain ground in this new tariff environment.
Comments are closed.