Shein, the fast-fashion e-commerce giant, is facing significant challenges as new tariffs and the removal of the de minimis exemption in the U.S. impact its low-price business model. The company disclosed in its Hong Kong IPO filings that these regulatory changes have led to price hikes and a decline in U.S. sales, which fell more than 3% between 2024 and 2025 and plunged 14% in the first quarter year-over-year. Similar tariff policies recently adopted in Europe, Shein’s largest market, are expected to further dampen sales growth and pressure profitability.

The changes ended duty-free imports for low-value packages, which had been a key competitive advantage for Shein, allowing it to offer exceptionally low prices. Before these regulatory shifts, Shein benefited from tariffs ranging from 0% to 62.5%, but post-change fees have jumped to between 10% and 87.5%. This cost increase has taken a significant toll on profitability, with Shein’s company-wide profits dropping 39% from 2024 to 2025 and the company reporting a $99 million loss in the first quarter of 2026, a sharp reversal from a $395 million profit in the same period the previous year.

Industry experts warn that Shein’s reliance on low prices is now an existential risk, as price competitiveness alone does not engender customer loyalty and may not sustain the company without additional value propositions. Shein’s brand reputation has been closely tied to affordability but also perceived low quality, complicating efforts to pivot in a market environment where it is no longer able to leverage tariff advantages. The European Union’s recent adoption of a flat-rate duty on imports valued under 150 euros could mirror or exceed the negative impact seen in the U.S., further pressuring Shein’s European sales which grew just 9% in 2025, down sharply from prior years.

In response, Shein is seeking to diversify its business through growing its third-party marketplace and enhancing brand enablement services, which leverage the company’s supply chain capabilities to support designers and other brands. This segment, though currently just 1% of Shein’s revenue, is its fastest-growing and more profitable part of the business, with services revenue up almost 40% in 2025. Analysts see potential in this shift, suggesting that expanding these offerings could allow Shein to reduce dependence on its discount model and build a more resilient and sustainable growth strategy for the future.