Retail giants Shein and Temu are experiencing significant shifts in their U.S. customer bases as recent tariffs and adjusted tax policies take their toll. These developments come amid an evolving eCommerce landscape where both brands previously thrived on low prices and expansive social media promotion. The new fiscal challenges open up questions about how such companies can sustain their competitive advantage in the American market.
In recent years, Shein and Temu have rapidly expanded by tapping into growing Western interest in cost-effective, fast fashion. However, the recent imposition of tariffs on Chinese imports under former President Donald Trump has dampened user engagement. This marks a notable departure from previously published reports that highlighted their almost unrestrained growth due to low overhead costs and minimized regulatory scrutiny.
Why Are User Numbers Plummeting?
The precipitous decline in Temu’s user engagement, which saw a drop of 51% to 40.2 million monthly active users between March and June, underscores the impact of these tariffs. Meanwhile, Shein also saw a 12% decrease in its user base, now standing at 41.4 million. Both companies have significantly reduced spending on advertising, with Temu slashing its U.S. ad expenditures by 87% year-over-year, while Shein cut its spending by 69%.
Will Regulatory Challenges Affect Shein’s IPO Plans?
Shein had intended to use its initial growth to launch an IPO, setting sights initially on the U.S. and U.K. markets. However, regulatory barriers in these regions have rerouted their focus to Hong Kong for potential public listing. Despite aspirations for expansion through public offerings, these regulatory challenges pose obstacles to realizing their financial ambitions on a global platform.
Ongoing consumer caution about spending continues to compound these difficulties. Despite a minor recovery in consumer sentiment, data from the University of Michigan indicated that opinions are still considerably depressed compared to post-election sentiment levels in December. Additionally, recent reports from the Bureau of Economic Analysis revealed a 0.4% dip in personal income, marking the first decline since late 2021.
Digital engagement remains strong as mobile technology continues to play an integral role in e-commerce. With 60% of consumers frequently browsing merchant sites on mobile devices, the significance of smartphones in the shopping journey is evident. However, this trend has not halted the decline in user engagement faced by Shein and Temu.
The present circumstances raise questions about the future strategies these entities will employ to regain user engagement and market stability. The current economic landscape suggests that strategies purely based on low pricing may no longer be viable without addressing additional structural and operational challenges.
The situation with Shein and Temu points to broader implications for businesses relying on cross-border trade in an unpredictable regulatory environment. Monitoring anticipated IPOs and evolving economic conditions could provide insights into how these companies plan to navigate these turbulent waters.
