A man walks past a sign outside the offices of fast fashion e-commerce company Shein in Guangzhou, southern China’s Guangdong province.
Gao Yu | AFP | Getty Images
The bottom line in per-barrel prices that have made China-linked electronics retailers Shein and Temu so popular with U.S. consumers could soon rise if the Biden administration limits its ability to exploit trade law loopholes.
A spokesperson for the Republican majority on the House Select Committee on Chinese Communist Party said prices at the companies known for their $5 T-shirts and $10 sweaters could rise by at least 20% if the so-called minimum terms were changed, she told CNBC. The commission made the estimate after launching an investigation into Shein and Temu more than a year ago.
Neil Saunders, a retail analyst and managing director of GlobalData, agreed the policy change could lead to price increases but could not say how much.
“If the de minimis exemption is removed, then the cost of products in markets like Shein and Temu will go up,” Sanders told CNBC. “They will still be cheap markets, but they won’t be quite as competitive on price as they are now.” in an email. “That might cause them to lose some market share or slow down their growth, but they might respond by launching some higher-priced products to balance their proposition.”
On Friday morning, the Biden administration announced plans to bar minimum exemptions for products shipped overseas affected by U.S.-China tariffs.
The exemption, a loophole in tariff laws that has existed since the 1930s, allows packages worth less than $800 to enter the United States without the shipper paying import duties and subjecting them to less scrutiny than larger containers. .
The news comes after more than a year of scrutiny of the companies by lawmakers from both parties, notably the House Select Committee on China.
Both Shein and Temu declined to tell CNBC whether they would raise prices as a result of the proposed changes. The companies also argue that their low prices are driven by de minimis exemptions and say their business models allow them to offer ultra-affordable prices.
A spokesperson for Shein noted that the company supports de minimis reform, was recently accepted into a voluntary pilot program by U.S. Customs and Border Protection, and has agreed to provide more data on packages and shipments.
Their competitive advantage is at risk
Over the past few years, the two companies have taken American consumers by storm with their ultra-low prices and their ability to introduce popular styles faster than their competitors. It is estimated that Shein earns more than With annual revenue of $30 billion, it’s unclear how much Temu’s sales are. its parent company, Pinduoduo HoldingsRevenue for fiscal year 2023 was US$34.9 billion, an increase of 90% over the same period last year.
As these companies become go-to shopping destinations, they take market share from rivals such as H&M, Zara, Target, Walmart and Amazon that cater to similar consumer groups.
If Shein’s prices increase by 20%, its product assortment will move closer to its competitors, which could make it harder to compete.
For example, the average price of a dress on Shein was $28.51 as of June 1, according to London-based research firm Edited, which analyzed the company’s pricing strategy and worked with Reuters.
The price at the time was well below the average cost of a dress from H&M and Zara, which were $40.97 and $79.69, respectively, according to Edited. However, if costs increase by 20%, Shein’s average clothing price will reach $34.21, much closer to H&M’s average price.
There is no guarantee that prices will rise by 20% if the Biden administration’s proposals take effect. Still, given the company’s longer shipping times, smaller discounts relative to Shein’s competitors may lead some consumers to choose a retailer closer to home.
“Ultimately, while reforming the floor rules can create a fairer, more level playing field, like any tariff, it will ultimately cost consumers more,” Sanders said.
A look at digital darlings
Last year, the committee began investigating Shein and Temu for the presence of slave labor in their supply chains, focusing on their use of de minimis exemptions, claiming in a report June 2023 Report Neither company paid any import duties in 2022. found cotton from the restricted area and said it was working to correct the problem. Temu did not respond to inquiries about slave labor in its supply chain.
“As the Special Committee’s investigation of Shein and Temu revealed, the majority of Shein and Temu’s products fall under the de minimis exception. This allows them to evade U.S. Customs and evade the scrutiny that other retailers face. The United States must urgently curb these developments. products, forcing these companies to correct their lack of compliance,” a spokesperson for the commission told CNBC.
“Congress must urgently enact minimum reform legislation,” the spokesman added.
As scrutiny of Shein intensifies, hopes of it completing a long-awaited U.S. public offering are fading.
Lawmakers, eager to reduce the impact of China-linked retailers on the U.S. economy and take steps they say will level the playing field for U.S. companies, are unlikely to propose an outright ban on Shein and Temu as they did on Shein and Temu. Social media company TikTok.
Instead, many lawmakers called on the SEC to block Shein’s IPO, citing de minimis exemptions as the best way to limit the company’s growth.
Now, after more than a year of hard work and Shein’s own charm offensive, its plans for a New York IPO have all but been scrapped, and it’s turning to London in the hope of a friendlier reception.
In June, CNBC reported that Shein had secretly filed for a public listing in London as it faced strong opposition in the United States
It’s unclear what impact the proposed minimal changes will have on Shein’s IPO plans.
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