Key Takeaways:
Shein's low-price engine is stalling as tariffs and the end of duty-free small-parcel shipping force price hikes across its two biggest markets.
Shein's U.S. revenue fell more than 3% in 2025 and first-quarter sales plunged 14% after tariffs and the end of duty-free small-parcel shipping forced price hikes, its Hong Kong IPO filing shows.
"This is a much more fundamental shift. They are losing access to a regulatory advantage that was built into their business model at the very center," said Angela Lee, a professor of venture capital at Columbia Business School and founder of investment firm 37 Angels.
Companywide profitability fell 39% between 2024 and 2025, and Shein swung to a first-quarter loss of $99 million, a 125% decline from the $395 million profit a year earlier. Import tax rates on its goods jumped to a range of 10% to 87.5% from 0% to 62.5% after President Donald Trump closed the de minimis exemption and raised tariffs on Chinese imports.
Europe, which generated 35% of revenue in 2025, now poses a bigger risk. The European Union in July ended duty-free entry for packages under 150 euros ($173), replacing it with a flat-rate duty of 3 euros per product category, and Shein warned the impact there could match or exceed the U.S. slowdown.
A model built on a loophole
For years Shein argued the U.S. de minimis exemption, which let packages under $800 enter duty-free, was not the source of its success. It pointed instead to a tech-driven supply chain and small-batch inventory that kept costs low. The filing now shows how central that regulatory edge was: since May 2025, when Shein began passing most tariff costs to U.S. shoppers, revenue in the market has declined each quarter.
Europe's slowdown predates the new fees. Sales there grew 9% in 2025, down from 33% growth a year earlier, and first-quarter growth slowed to 2%. Shein said it may raise European prices to offset the new duties, a move that risks further eroding volume in its largest market.
The pressure is reshaping Shein's supply base. The company leased 15 hectares of warehouse space near Ho Chi Minh City in late 2024 to test Vietnam as an export hub, but has since cut that to 6 hectares and laid off workers, according to people familiar with its operations. Chinese suppliers that moved to Vietnam found workers unwilling to match the long hours and thin margins — as little as 1 yuan ($0.15) per piece — that underpin Shein's model, and many returned to Guangzhou's "Shein villages."
Services become the growth engine
With retail growth stalling, Shein is leaning on higher-margin side businesses. Services revenue rose almost 40% in 2025, and its "brand enablement" program — lending its supply chain and product infrastructure to outside brands — carries an operating margin roughly twice the group average, though it still accounts for about 1% of revenue. One brand in the program grew sales about 15 times in its second year, with operating margin improving 30 percentage points and inventory turnover days falling by about two-thirds, Shein said.
Deborah Weinswig, chief executive of research firm Coresight Research, said the supply-chain business could be Shein's path forward. "These supply chains need a major overhaul, and so I just think everyone's looking for a better way to do it," she said.
The stakes are high ahead of the Hong Kong listing, which follows failed attempts to go public in New York and London. Lee said pricing was never a durable moat. "If all they're looking for is the cheapest price, the second you're not the cheapest price they're gonna flee your company," she said. "Their brand is not associated with trust. It's associated with cheap prices."
This article is for informational purposes only and does not constitute investment advice.
