Retailer Temu's daily US users halve following end of 'de minimis' loophole

Temu's daily U.S. users declined 58% in May following the end of the "de minimis" loophole, which previously allowed tariff-free shipments of low-value packages from China, according to Sensor Tower. The change has forced Temu to raise prices and shift its fulfillment strategy, impacting its competitive position relative to rivals like Shein, which has managed to increase spending per customer despite tariffs. Analysts at Morgan Stanley and HSBC suggest Temu's competitive threat will weaken if the tariff status quo persists, though Temu is seeing growth in less affluent, non-U.S. markets.

Analysis

PDD Holdings' e-commerce platform Temu experienced a significant 58% decline in daily U.S. users in May, as reported by Sensor Tower, primarily attributed to the U.S. government's elimination of the "de minimis" trade loophole on May 2. This policy change, which previously allowed tariff-free shipments of low-value packages from China, has compelled Temu to reduce U.S. advertising expenditure, revise its order fulfillment strategy, and increase prices. Consequently, Temu's competitive position in the U.S. has weakened, particularly relative to competitor Shein, which, despite also facing tariff pressures and a slowdown in growth since earlier U.S. tariff implementations, has managed to increase per-customer spending—a metric where Temu has struggled, according to Bain & Company. PDD Holdings' first-quarter earnings fell short of growth estimates, with executives acknowledging significant pressure on merchants due to tariffs. Morgan Stanley analysts project that Temu's competitive threat in the U.S. will continue to diminish if the current tariff environment persists, noting a significant drop in engagement. In response, Temu is shifting to a model where merchants ship to Temu-partnered U.S. warehouses and manage tariffs and customs, while Temu handles final fulfillment and pricing. Despite these U.S. challenges, HSBC notes that Temu's growth in non-U.S. markets has accelerated, with non-U.S. users accounting for 90% of its 405 million global monthly active users in the second quarter, and the swiftest new user uptake observed in less affluent markets.

Key Decisions for Investors

• Investors should closely monitor PDD Holdings' upcoming earnings and user metrics for Temu's U.S. operations, given the significant 58% decline in daily U.S. users in May and the adverse impact of new tariffs on its cost structure and competitive positioning.
• Given Temu's reported difficulties in sustaining U.S. customer spending growth compared to rivals like Shein and PDD's recent Q1 earnings miss, a cautious stance on PDD may be warranted until there is clearer evidence of successful adaptation to the new U.S. regulatory and competitive landscape.
• While Temu's expansion into non-U.S. markets, now comprising 90% of its 405 million global monthly active users, offers diversification, investors should critically evaluate the profitability and strategic importance of these newer, often less affluent, markets relative to the challenges faced in the significant U.S. e-commerce sector.