Tariffs Are Putting Shein’s Model In Peril As Ultra-Cheap Prices Stand Under Pressure

Shein's ultra-low-price business model is coming under increasing pressure from higher tariffs. The fast-fashion retailer is reporting a sharp drop in U.S. sales and warning that recently introduced European trade rules could have a similar impact in its largest market.

The company raised prices in the U.S. last year to offset additional tariff costs following changes to the de minimis exemption, which previously allowed low-value packages to enter the country without duties.

U.S. revenue fell more than 3% between 2024 and 2025 before dropping 14% year over year in the first quarter of 2026, according to documents filed in connection with Shein's planned Hong Kong initial public offering and reported by CNBC.

"Since May 2025, we have begun passing on the majority of the additional tariff costs by increasing our prices in the U.S. market," Shein said in the filing.

The company said those increases subsequently had a negative impact on U.S. revenue.

The tariff pressure has also hit Shein's bottom line. Companywide profitability fell 39% between 2024 and 2025, while the company posted a $99 million loss in the first quarter of 2026, compared with a $395 million profit during the same period a year earlier.

Shein reported $41.85 billion in revenue for 2025, an increase of 8% from the previous year, while net profit fell nearly 39% to $2.06 billion, according to Reuters.

The company is now facing a similar challenge in Europe, which accounted for about 35% of its revenue in 2025 and has become its largest market.

Growth in the region was already slowing before the latest regulatory changes. European sales increased about 9% in 2025, sharply below the 33% growth recorded between 2023 and 2024. First-quarter 2026 sales increased just 2% from a year earlier.

The European Union in July ended the duty-free treatment previously available for packages valued below €150 and introduced a flat-rate €3 duty for each distinct category of product contained in qualifying shipments.

The changes are aimed at creating fairer competition between European businesses and overseas e-commerce platforms amid a surge in low-value packages entering the bloc, according to the European Commission.

Shein said it could raise prices in Europe to offset some of the additional costs and warned that doing so could hurt sales volumes in the short term.

"Although it remains too early to fully assess, it is possible that trends in the EU could be generally in line with or exceed the impact observed in the U.S. after the removal of the de minimis exemption there," the company said.

The warning is significant because low prices have been central to Shein's rapid expansion in the U.S. and Europe.

Shein has previously rejected claims that the de minimis exemption was responsible for its ability to undercut traditional fashion retailers. It has instead credited its technology-driven supply chain and small-batch production system, which allows it to test products in limited quantities and quickly increase production when an item becomes popular.

However, the company's IPO filing shows how significantly the new U.S. trade environment has increased its costs.

Shein said the applicable tax and tariff rates on its products previously ranged from 0% to 62.5%. Those costs now range from about 10% to 87.5%.

Shein said one brand using the program increased sales by roughly 15 times during its second year working with the company while improving its operating margin by 30 percentage points and cutting inventory turnover days by about two-thirds.

The push into higher-margin services comes as Shein prepares for a Hong Kong IPO after earlier attempts to list in New York and London ran into regulatory obstacles.

The company is seeking a valuation of about $30 billion to $40 billion in the Hong Kong listing, Reuters reported, far below the roughly $100 billion valuation it reached several years ago.

Shein is also dealing with regulatory scrutiny in the U.S. The Federal Trade Commission is investigating its American operations over possible violations of consumer protection laws, and the company has warned that the probe could lead to significant penalties, according to Reuters.