Shein and Temu see U.S. demand plunge on 'de minimis' trade loophole closure

Temu and Shein are experiencing a slowdown in U.S. user engagement, with Temu's daily active users (DAUs) dropping 52% and Shein's down 25% from March to May, attributed to Trump-era tariffs and the closure of the de minimis loophole. This decline coincides with significant reductions in U.S. advertising spending by both companies, with Temu's ad spend down 95% year-on-year in May. While facing challenges in the U.S. market, Temu is seeing growth in less affluent markets outside the U.S., with non-U.S. users now accounting for 90% of its global monthly active users.

Analysis

The U.S. operations of low-cost e-commerce platforms Temu and Shein are experiencing a significant contraction, primarily due to new tariffs on Chinese imports and the elimination of the 'de minimis' loophole. Temu's U.S. daily active users (DAUs) saw a 52% decline in May compared to March, while Shein's DAUs fell by 25%; monthly active users (MAUs) also decreased by 30% for Temu and 12% for Shein during the same period. This user drop-off coincides with a drastic reduction in U.S. advertising spend, with Temu's outlay plummeting 95% year-on-year in May and Shein's by 70%. Both companies are also altering their logistics, with Temu notably building U.S. warehouses to move away from direct drop shipping from China. According to Tech Buzz China, these increased costs and regulatory complexities, including a 54% tariff on former de minimis imports—exceeding a 50% threshold identified as critical for Temu's price advantage—are negatively impacting their U.S. growth prospects. This pressure was reflected in the Q1 earnings of Temu's parent, PDD Holdings, which missed estimates. Conversely, Temu is showing strong international expansion, with non-U.S. users now representing 90% of its 405 million global MAUs in Q2, fueled by growth in Europe, Latin America, and South America, particularly in less affluent markets.

Key Decisions for Investors

• Investors in PDD Holdings should closely monitor the extent to which international expansion can offset the significant challenges and declining user engagement in the U.S. market, especially considering the Q1 earnings miss attributed to tariff pressures.
• The substantial pullback in U.S. advertising by Temu and Shein indicates a defensive posture; assess whether this is a temporary adjustment or a more permanent scaling back of U.S. ambitions, and consider the potential for market share gains by competitors less affected by these specific tariffs.
• Given the 54% tariff on former de minimis imports directly undermines the ultra-low-cost model, investors should re-evaluate the long-term profitability and market penetration capability of Temu and Shein in the U.S., factoring in the increased operational costs from new logistics models.