U.S. E-Commerce Leaders Temu and Shein Face User Declines Amid Tariffs

U.S. E-Commerce Giants Temu and Shein Experience Declining User Engagement In recent months, two prominent players in the e-commerce sector, Temu, part of PDD Holdings (NASDAQ:PDD), and Shein, have faced significant declines in their U.S. market presence. According to Sensor Tower, Temu saw a dramatic 51% drop in monthly active users, falling to 40.2 million between March and June, while Shein reported a 12% decrease to 41.4 million users. This downturn can largely be attributed to recent tariff changes impacting their business models. Impact of Tariff Changes The cause of this decline can be traced back to political decisions, particularly the elimination of the de minimis tax exemption by President Donald Trump in May. This significant policy change imposed tariffs on packages valued under $800, initially as high as 90%, later negotiated down to 30%. This move directly affected Temu and Shein's cost-effective import strategies. Shifting Strategies for Survival In response to these challenges, Temu is adapting by changing its fulfillment process, now utilizing U.S.-based sellers instead of relying on Chinese warehouses for distribution. Meanwhile, Shein, which had aimed for an IPO in the U.S. and U.K., has seen those plans stall, prompting a potential shift towards a listing in Hong Kong instead. Both companies are similarly reducing their advertising expenditures in the U.S.; Temu has cut its ad spend by 87%, while Shein reduced its by 69%. This stark reduction in advertising visibility has subsequently affected user engagement, with both brands no longer appearing in the top 60 digital advertisers in the country, a significant drop from their former positions within the top 15. New Markets: Europe on the Horizon As a result of declining performance in the U.S., both companies are now focusing their efforts on the European market. Temu has reported a 60% increase in user engagement year-over-year in France, Spain, and Germany. Shein is also witnessing growth, particularly with double-digit user gains in the U.K., Germany, and France. However, there are concerns that these positive trends may be short-lived, as the European Union is considering implementing a new import fee on small parcels. The U.K. is also reviewing its exemption policies, which could replicate the same pressures faced in the U.S. market. This situation raises the question of whether the strategies that previously yielded success for Temu and Shein may now be becoming obsolete in an evolving global trade landscape. This article originally appeared on GuruFocus.