A man walks past the fast fashion e-commerce company SHEIN’s logo outside the company’s offices in Guangzhou, southern China’s Guangdong province.
Jade Gao | AFP | Getty Images
Rock-bottom prices, which have made Chinese online retailers Shein and Temu so popular with U.S. consumers, could soon rise if the Biden administration limits the use of loopholes in trade law.
The companies, known for their $5 T-shirts and $10 sweaters, could see prices rise by at least 20% if the so-called “de minimis clause” were changed, a spokesperson for the Republican majority of the House Select Committee on China told CNBC. The committee made the estimate after launching an investigation into Shein and Temu more than a year ago.
Neil Saunders, retail analyst and managing director at GlobalData, agreed that the policy change would likely result in higher prices, but declined to say by how much.
“If the de minimis exemption were removed, prices would rise for marketplace products like Shein and Temu. While they would still be low-cost marketplaces, they would no longer be as price-competitive as they are today,” Sanders told CNBC in an email. “That could result in them losing some market share or slowing their growth, but perhaps they would respond by focusing on higher-priced products to balance the proposal.”
The Biden administration announced plans Friday morning to remove minimal exemptions from international shipments of products subject to U.S. and Chinese tariffs.
The exemption, a little-known loophole in tariff law that has existed since the 1930s, allows packages worth less than $800 to enter the U.S. without senders paying import taxes and with less stringent scrutiny than larger containers.
The announcement came after more than a year of investigations into the company by lawmakers from both parties, particularly the House Select Committee on the Communist Party of China.
Shane and Tem declined to say whether they would raise prices as a result of the proposed changes. The companies also disputed the claim that their low prices are the result of de minimis exemptions, arguing that their business model allows them to offer ultra-low prices.
A Shain spokesman said the company supports demi-ministry reform and was recently accepted into a voluntary pilot program with U.S. Customs and Border Protection, agreeing to provide additional data about packages and shipments.
Risk to competitiveness
Over the past few years, both companies have captivated American consumers with their ultra-low prices and ability to churn out trendy styles at a much faster pace than their competitors. SHEIN is estimated to achieve sales of more than 10 million by 2015. The company has $30 billion in annual revenue, but its system sales figures are unknown. PDD HoldingsThe company expects fiscal 2023 revenue of $34.9 billion, up 90% from the same period last year.
As these companies have become popular shopping destinations, they have taken market share from rivals targeting similar consumer demographics, including H&M, Zara, Target, Walmart and Amazon.
If Shein were to increase its prices by 20%, its product selection would be on par with its competitors, which could make it harder to compete.
For example, the average price of a Shein dress was $28.51 as of June 1, according to data from London-based research firm Edited, which has been analyzing the company’s pricing strategy and sharing its metrics. Reuters.
At the time, that price was well below the average prices for a dress at H&M and Zara, which were $40.97 and $79.69, respectively, according to Edited’s data. But if costs increase by 20%, the average price for a dress at Shein would be $34.21, much closer to the average price at H&M.
There’s no guarantee that the Biden administration’s proposal would result in a 20% price increase, but combined with Shein’s longer delivery times, its lower discounts compared to rivals may encourage some customers to choose retailers closer to home.
“Ultimately, demi-ministry reform creates a fairer, more level playing field, but like any tariff, it will come at an increased cost to consumers,” Sanders said.
Scrutiny of the digital darling
Last year, the committee launched an investigation into slavery in Shane and Tem’s supply chain, focusing on their alleged use of de minimis exemptions. June 2023 Report The companies claimed they had not paid import duties in 2022. Shane disputed the allegations, saying the company paid millions of pounds in import duties in 2022 and 2023. But it acknowledged cotton from banned areas had been found in its supply chain and said it was working to rectify the issue. Temu did not respond to inquiries about slave labor in its supply chain.
“As the Special Committee’s investigation into Shein and Temu has revealed, the majority of Shein and Temu’s products fall under de minimis exceptions, which allow the companies to evade U.S. customs and avoid the scrutiny that other retailers face. The United States must urgently restrain these shipments and require these companies to correct their poor compliance practices,” a committee spokesperson told CNBC.
“Congress must urgently enact minimal reform legislation,” the spokesman added.
As scrutiny of Schein increased, the company’s hopes of successfully completing a long-awaited U.S. initial public offering faded.
Lawmakers are keen to take steps to curb the influence Chinese retailers have on the US economy and create a level playing field for American companies, and are unlikely to propose outright bans on SHEIN and Temu, similar to what has been done with social media company TikTok.
Instead, many lawmakers called on the Securities and Exchange Commission to block Schein’s IPO, targeting the demi-ministry exemption as the best way to stifle the company’s growth.
After those efforts, and Shayn’s own charm offensive, failed, his New York IPO plans were all but scrapped and he turned to London, where he hoped it would find a friendlier welcome.
In June, CNBC reported that Shain had filed for a private listing in London after facing backlash in the US.
It is unclear how the slight proposed changes will affect Shein’s IPO plans.
