A man walks past the logo of fast fashion e-commerce company Shein outside its office in Guangzhou, in southern China’s Guangdong province.
Jade Gao | Afp | Getty Images
The bottom of barrel prices that have made China-linked e-tailers Shein and Temu so popular with American consumers could soon rise if the Biden administration restricts the use of trade law loopholes.
Companies known for their $5 T-shirts and $10 sweaters could see prices rise by at least 20% if the so-called de minimis provision is changed, said a spokesman for the Republican majority of the Chinese Communist Party’s House Select Committee. told CNBC. The committee made this estimate after starting 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 increase prices, but could not say by how much.
“If the de minimis exemption is removed, then the price of products in markets like Shein and Temu will increase. They will still be low-cost markets, but they will not be as competitive on price as they are now,” Saunders told CNBC. in the email. “It may cost them some market share or slow their growth, but they will respond by pushing some higher-priced items to balance their offering.”
On Friday morning, the Biden administration announced plans to ban exports of products subject to US-China tariffs from qualifying for the de minimis exemption.
The exemption, an obscure tariff law loophole that has existed since the 1930s, allows packages valued at less than $800 to enter the U.S. without shippers paying import duties and with fewer inspections 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 CCP.
Both Shein and Temu declined to tell CNBC whether they would raise prices because of the proposed changes. The companies also argued that their low prices stemmed from the de minimis exemption, saying their business model allowed them to offer ultra-affordable prices.
A Shein spokeswoman noted that the company supports de minimis reform and was recently accepted into a voluntary, pilot program with U.S. Customs and Border Protection in which it agreed to provide additional information on packages and shipments.
A risk to their competitive advantage
Over the past few years, these two companies have taken US consumers by storm with their extremely low prices and ability to knock out trending styles much faster than their competitors. Shane is estimated to generate more than $30 billion in annual revenue, but it’s unclear what Temu’s sales are. Its parent company, PDD HoldingsIn fiscal year 2023, it generated revenue of $34.9 billion, which is a 90% increase compared to the previous period.
As companies have evolved into shopping destinations, they have taken market share from competitors that cater to similar consumer segments, such as H&M, Zara, Target, Walmart and Amazon.
If Shane’s prices were to increase by 20%, he would be aligning his range with those competitors, which could make it harder for him to compete.
For example, the average price of a dress at Shein was $28.51 as of June 1, according to Edited, a London-based research firm that analyzes the company’s pricing strategy and shared the metrics with Reuters.
At the time, that price was well below the average prices for dresses at H&M and Zara, which were $40.97 and $79.69, respectively, according to Edited. However, if costs were to increase by 20%, that would make the average dress price at Shein $34.21 – very close 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. Still, Shane’s smaller discount compared to competitors combined with the company’s long delivery times may lead some consumers to choose retailers closer to home.
“While ultimately reforming the de minimis rules will create a fairer and more level playing field, like any tariff, it will cost consumers more,” Saunders said.
Review of the digital lover
Last year, the committee launched an investigation into Shein and Temu’s supply chains for slave labor, and in a June 2023 report, it zeroed in on the use of the de minimis exemption by claiming that both companies paid no import duties in 2022. Shane argued. that lawsuit and said the company paid millions in import duties in 2022 and 2023. However, it acknowledged that cotton from banned regions was found in its supply chain and said it was working to correct the problem. Temu did not respond to inquiries about slave labor in its supply chain.
“As the Select Committee’s investigation into Shein and Temu found, the majority of products from Shein and Temu fall under the de minimis exemption. This allows them to evade U.S. Customs and the inspections that other retailers face. The U.S. should urgently prevent these shipments and compel these companies to correct their anemia compliance practices,” a committee spokesperson told CNBC.
“Congress should urgently pass de minimis reform legislation,” the spokesman added.
As Shane’s research intensified, his hopes for a long-awaited U.S. public offering dwindled.
Lawmakers eager to reduce the influence of China-linked retailers on the U.S. economy and take steps to level the playing field for American companies are unlikely to propose a ban similar to what was done with Shein and Temu. social media company TikTok.
Instead, numerous lawmakers urged the U.S. Securities and Exchange Commission to block Shane’s IPO, targeting the de minimis exemption as the best way to curtail the company’s growth.
Now, more than a year into those efforts and Shane’s own insane charm offensive, his New York IPO plans are all but dead, and he’s turned to London in hopes of finding a friendlier reception.
In June, CNBC reported that Shane had secretly applied for a public listing in London because of a backlash in the US.
It’s unclear how the proposed de minimis changes will affect Shane’s IPO plans.
