In a rapidly changing global marketplace, Temu and Shein, both budget e-commerce powerhouses originating in China, are grappling with significant challenges as they pivot their focus from a struggling U.S. market to the European landscape. Their shift comes in the wake of various adverse trade regulations that have destabilized their operations in the United States. Although this move may appear to be a strategic escape to more fertile grounds, it is fraught with its own set of complications.
Recent developments in the European Union (EU) indicate that these companies are unlikely to encounter a friendly reception. A wave of mounting complaints regarding their business practices has surfaced in the continent, compelling the EU to rethink its regulatory stance towards ultra-cheap cross-border e-commerce. On top of that, the EU is gearing up to introduce a two-euro flat fee for small packages that previously benefited from customs exemptions. This could serve as a critical barrier to the very operational model that Temu and Shein rely on.
Reduced Presence in the U.S. Market
A closer examination reveals the extent of their declining influence in the U.S. market. Reports indicate that Temu has experienced a staggering 36% reduction in consumer spending year-over-year as of May 2023, while Shein has also dwindled, albeit at a lesser rate of 13%. These figures are indicative of a greater consumer shift towards traditional retailers, depicting a sentiment that has increasingly turned against the so-called “fast-fashion” models exemplified by these platforms.
Data compiled by Consumer Edge Research highlights yet another troubling trend: the decline in app usage for both companies in the U.S. marks a broader abandonment of their services by American consumers. This consumer behavior starkly contrasts with the upward trajectory observed in Europe, where spending growth is robust, boasting rates of 63% in the EU and 38% in the United Kingdom. For these brands, Europe seems to offer a glimmer of hope.
Strategic Expansion Amidst Regulatory Shadows
As they lay down the groundwork to establish a commanding presence in Europe, Temu and Shein have intensified their advertising expenditures and ramped up operations by increasing warehouse capacities in key markets such as the UK and France. However, this aggressive strategy is quite the double-edged sword, as European regulatory frameworks are notoriously stringent compared to practices in the U.S. This reality hangs over their operations like a looming thundercloud.
Anand Kumar, associate director of research at Coresight Research, succinctly captured the essence of the moment when he noted that the forthcoming €2 customs fee is not just a minor hurdle; it represents an important regulatory maneuver aimed at restraining the unchecked expansion of exceptionally inexpensive cross-border e-commerce. This prospective fee could materially alter operational modalities for Temu and Shein over the next two to three years, necessitating significant recalibration of their business models.
Environmental and Ethical Scrutiny
Further complicating the landscape is the emerging focus on environmental and ethical considerations, particularly in France, where lawmakers have recently renewed “anti-fast fashion” legislation aimed at curbing the detrimental effects of ultra-cheap fashion on the environment. The growing awareness around sustainability is creating friction for companies that thrive on rapid production and low-cost goods. Temu and Shein could find themselves ensnared in a web of regulatory pressures that could constrain their operational agility.
Moreover, both companies are facing allegations related to “dark patterns”—manipulative online practices that entice consumers to overconsume. With these allegations adding to the existing scrutiny over labor practices and human rights, it is clear that the operational blueprint that has served them well in less regulated environments is becoming increasingly untenable.
The EU’s evolving regulatory landscape is likely to enforce more stringent requirements, as encapsulated by the Corporate Sustainability Due Diligence Directive, which requires companies to actively identify and mitigate human rights abuses within their supply chains. The directive has implications that could further entangle Temu and Shein in a complex web of compliance challenges.
The Road Ahead: An Uncertain Future
As Temu and Shein embark on their bold European adventure, they do so with the understanding that favorable conditions may not be guaranteed. The existing trade anxieties, coupled with a shift in consumer preferences towards sustainability and ethical consumption, cast a long shadow over their potential for success in Europe. While the prospect of capturing new markets is enticing, the burgeoning regulatory realities suggest a challenging road ahead that will require both agility and a willingness to adapt to new consumer sentiments and compliance mandates. The question remains: can Temu and Shein effectively navigate this maze of regulations and consumer expectations to flourish in a new frontier? Only time will tell.