Discount retailer Shein reported a significant slowdown in its core business following the elimination of trade duty exemptions in major markets. The company attributed declining U.S. revenues to tariff-related price increases implemented beginning in May 2025, with U.S. revenue falling more than 3% between 2024 and 2025 and dropping 14% in the first quarter compared to the prior year. The company expects similar challenges in Europe, its largest market, following the European Union’s removal of its de minimis exemption for low-value packages and the implementation of new flat-rate duties.
Shein’s profitability contracted sharply amid these regulatory changes. Company-wide profit fell 39% between 2024 and 2025, with the company recording a $99 million loss in the first quarter versus $395 million in profit during the same period the previous year. Tax rates on imported goods increased substantially, rising from a range of 0% to 62.5% to between 10% and 87.5%. Europe, representing 35% of the company’s 2025 revenue, may face even greater headwinds given the July implementation of European duties.
Analysts note that the tariff changes strike at the core of Shein’s competitive positioning. Business school professor Angela Lee characterized the regulatory shift as a fundamental threat to a business model built primarily on low pricing, which traditionally does not create durable customer loyalty or brand strength. With pricing advantages eroding and the brand associated with low cost rather than quality or trust, Shein faces uncertainty in maintaining market share.
In response, the company is pursuing business diversification to offset core retail pressures. Services revenue, including third-party marketplace operations and brand enablement programs that leverage Shein’s supply chain infrastructure, grew nearly 40% in 2025 and represents the fastest-growing segment. These higher-margin services currently account for approximately 1% of total revenue but are positioned as among the company’s most promising opportunities ahead of its upcoming Hong Kong initial public offering.
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