Shein faces existential threat as tariffs hit low-price model, putting new focus on services

Discount retailer Shein had long argued trade law loopholes weren't the reason for its success. But now that those exemptions are gone, its once meteoric growth has stalled in the U.S. and Europe, posing a threat ahead of its Hong Kong initial public offering.

In documents released in connection with its upcoming IPO, Shein blamed a slowdown in U.S. sales on its decision to raise prices to offset the cost of new tariffs as it warned a similar dynamic could come in Europe, its largest market.

"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. "Since May 2025, we observed a negative impact on our net revenues from the U.S. market in the remainder of 2025."

Between 2024 and 2025, revenue in the U.S. declined more than 3%. During the first quarter, sales plunged 14% compared with the year-ago period.

In Europe, which recently ended duty-free shipping for low value packages and implemented new, flat-rate fees, the impact could be even worse, Shein said in its filing.

"Similar to the U.S. market, we expect to pursue a wide range of options in response, including increasing our prices in Europe to offset a portion of the increased costs, and there might be a short-term adverse impact on our sales volume in Europe as a result," Shein stated in response to the changes. "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."

Even without higher costs in Europe, Shein has seen growth slow down significantly in the region. In 2025, sales grew about 9% from the prior year, down from the 33% growth it saw between 2023 and 2024. In the first quarter, sales grew by just 2%.

Angela Lee, a professor of venture capital at Columbia Business School and the founder of investment firm 37 Angels, said the regulatory changes pose a serious risk to Shein's business model, which she said was built on little more than low prices.

"This is a much more fundamental shift. This is not just a new cost. They are losing access to a regulatory advantage that was built into their business model at the very center, and so it's a very significant shift because it changes the way the entire company operates," Lee said. "It's a scary future, as I look forward for Shein."

During Shein's rapid rise, which earned it a reported valuation of $100 billion at its peak several years ago, the company was criticized for being an outsized beneficiary of the U.S. de minimis exemption, which allowed packages valued under $800 to enter the country duty-free.

At the time, Shein was adamant that wasn't the reason for its success and its ability to offer low prices. Instead, it said its business model was possible because of its tech-driven supply chain and its small-batch approach to inventory that allowed it to keep costs low elsewhere in the business.

However, after President Donald Trump took office and closed the de minimis exemption through executive order and raised tariffs on goods imported from China, Shein saw its costs increase dramatically, its filing shows.