Discount retailer Shein disclosed in documents connected to its planned Hong Kong initial public offering that tariff increases have significantly impacted its business model. The company began raising prices in May 2025 to pass tariff costs to consumers, resulting in declining revenues. U.S. market sales fell more than 3% between 2024 and 2025, with first-quarter sales plunging 14% year-over-year.
Europe, which represents the company’s largest market at 35% of 2025 revenue, faces similar headwinds. The European Union recently eliminated its de minimis exemption for duty-free shipping on packages valued under 150 euros and implemented a 3-euro flat-rate duty per product category. Shein warned that price increases in Europe could reduce sales volume, with growth already slowing to 9% in 2025 from 33% between 2023 and 2024, and just 2% in the first quarter.
The regulatory changes have eroded Shein’s profitability. Companywide profit fell 39% between 2024 and 2025, and the company recorded a $99 million loss in the first quarter compared to $395 million in profit year-over-year. Tariff rates increased from 0%-62.5% to 10%-87.5%. Industry analysts note that Shein’s business model was historically centered on low prices, a competitive advantage that is now diminishing.
In response, Shein is diversifying its business model by expanding third-party marketplace operations and commercializing its supply chain. The company’s services revenue increased nearly 40% in 2025, with brand enablement services—which leverage Shein’s supply chain infrastructure for other brands—representing its fastest-growing segment. While currently accounting for only 1% of total revenue, this division operates at margins approximately twice as high as the company’s overall operating margin and represents a potential growth avenue independent of retail pricing pressures.
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