Fast-fashion giant Shein reported a 3% year-over-year decline in U.S. revenue for the first quarter of 2025, attributing the drop to higher tariff costs following the end of a trade exemption. The company stated it began passing on most of the additional tariff expenses to U.S. consumers through price increases in May 2025, which contributed to the decline in net revenues for the remainder of the year.
Shein’s operating income fell by more than 25%, while fulfillment and marketing costs rose. The company reported a net loss of $99 million in the quarter, a sharp reversal from a $395 million profit in the same period the prior year. The slowdown follows the U.S. government’s decision to permanently repeal the de minimis exemption—a trade rule allowing duty-free shipping for low-value packages under $800. The repeal, enacted through the One Big Beautiful Bill Act, is scheduled to take full effect by July 2027.
Europe’s new trade measures have further compounded Shein’s challenges. The European Union abolished duty-free shipping for low-value packages in July 2025, replacing it with flat-rate fees. Shein warned in its IPO filings that the EU’s changes could increase costs and reduce sales volume, potentially mirroring the impact seen in the U.S. The company noted that U.S. sales growth had already slowed to 2% in the first quarter of 2025, down from 33% growth between 2023 and 2024. In Europe, where the company had previously seen 9% growth in 2025, the outlook remains uncertain as it prepares to adjust pricing strategies.
Shein’s financial struggles come as it seeks to go public on the Hong Kong stock market, with its IPO documents highlighting the tariff-related pressures as a key risk factor. The company has not ruled out further price adjustments in response to the new trade policies.
Background: The de minimis exemption and its repeal
The de minimis exemption allowed e-commerce companies to ship goods worth less than $800 to the U.S. without incurring import duties. Critics argued the rule gave Chinese e-commerce firms like Shein and Temu an unfair competitive advantage, enabling them to undercut domestic retailers. The exemption’s removal was part of a broader 2024 executive order signed by former President Donald Trump, which later became permanent under the One Big Beautiful Bill Act.
The shift has forced Shein to reassess its business model, which relied heavily on ultra-low prices to drive sales. Industry analysts suggest the company may now pivot toward higher-margin services, such as subscriptions or premium product lines, to offset the tariff burden. However, Shein has not detailed specific long-term strategies beyond price adjustments in its public filings.
Impact on global markets
The tariff changes have also raised concerns about supply chain disruptions and consumer price inflation in both the U.S. and Europe. Retail analysts note that while Shein’s struggles are notable, the broader fast-fashion sector may face similar pressures as trade policies tighten. Competitors like Temu and Amazon’s international marketplace could also feel the effects, though their exposure varies based on reliance on duty-free imports.
Shein’s situation underscores the growing tensions between global trade policies and e-commerce growth, particularly for companies that have built business models around low-cost, cross-border shipping. The company’s ability to adapt to the new trade environment will be closely watched as its IPO approaches.