Shein and Temu pull away from the US as trade war bites

The news: Shein’s and Temu’s influence in the US is fading quickly as both companies cut ad spending and look to Europe for growth.

• Temu’s US daily active users (DAUs) plunged 52% in May compared with March, per Sensor Tower data supplied to CNBC.
• Shein’s US DAUs fell 25% in the same period.

The big picture: The dive in active users shows how dependent the two companies were on advertising to drive US traffic and sales—and how little loyalty both retailers accrued, despite initial enthusiasm for their ultra-cheap products.

• Temu’s May drop in users coincided with a 95% YoY decline in ad spending, according to Sensor Tower, while Shein slashed its marketing budget by 70%.
• Sales fell at both retailers after they raised prices following the closure of the de minimis loophole and the imposition of hefty fees on low-value imports—although the two have since walked back some of those changes following the temporary tariff reprieve.

Seeking greener pastures: Shein, Temu, and fellow Chinese ecommerce operator TikTok are now looking to Europe to make up for their US losses. But their marketplace sellers are reluctant to follow suit, partly because the US is too valuable a market to give up but also because of the bureaucratic frustrations that come with selling in European countries.

• Chinese merchants looking to sell in Europe must navigate different rules, languages, and even plug types across countries—not to mention extensive bureaucratic red tape.
• All that work may not be worth the effort: As Roy Chen, founder of smoke detector maker Sensereo told Bloomberg, “In [Europe’s] highly fragmented market, there’s nowhere to generate such fat profits as … in a huge single market like the US.”
• And pending regulatory changes in countries like France will strip Chinese ecommerce companies of their de minimis advantages and force them to face stricter scrutiny over their advertising, environmental impact, and other business practices.

Our take: Shein and Temu are finding that the billions of dollars they plowed into US advertising have not been enough to secure US customers’ loyalty in the face of higher prices. But rather than find ways to extend the longevity of their US businesses, both companies are fleeing to Europe to take advantage of the (currently) more favorable trade environment.

However, the increasingly antagonistic stance of European regulators coupled with sellers’ reluctance to navigate the region’s bureaucratic complexities could quickly check the two retailers’ growth ambitions.

Go further: Check out our FAQ: How the US-China Trade War Is Affecting TikTok Shop, Temu, and Shein and Impact of Tariffs on US Businesses.