U.S. consumer spending on budget e-commerce platforms Temu and Shein has seen a significant decline, prompting both companies to shift their focus toward European markets in search of growth. Recent data from Consumer Edge indicates that consumer spending on Temu plummeted approximately 36% in May compared to the previous year, while Shein experienced a more modest decline of 13%. This marked downturn follows unfavorable trade policies that have impacted both businesses in the United States, adding urgency to their strategic pivot toward Europe.
As these companies navigate a challenging landscape in the U.S., they face increasing scrutiny in the European Union and the United Kingdom as they seek to expand their operations. In recent weeks, several complaints have emerged against Temu and Shein, alleging questionable business practices. The EU is poised to introduce a flat rate customs fee of €2 on small packages that were previously exempt from customs duties. Experts warn that this move is more than just an inconvenience; it reflects a broader strategic effort to regulate the rapid rise of low-cost cross-border e-commerce.
Anand Kumar, an associate director at Coresight Research, highlighted the significant pressures both platforms are experiencing as regulatory landscapes evolve. “As the U.S. imposes stricter regulations and trade tariffs, Temu and Shein are increasingly looking to Europe and the U.K. as vital markets for future growth,” he stated. “However, they are already facing headwinds in these regions similar to those they encountered in the United States.”
The EU’s proposed customs fee is indicative of a systematic effort to control the expansion of ultra-cheap e-commerce options, which could fundamentally alter how Temu and Shein operate over the next few years. In their quest for growth, both companies have ramped up advertising efforts in key European markets such as the U.K. and France, signaling a shift away from their previous reliance on U.S. consumers.
Consumer spending data reveals contrasting trends between the two markets. While U.S. purchases have dwindled, Temu and Shein are witnessing notable growth in Europe. In May, Temu’s consumer spending increased by 63% in the EU and 38% in the U.K., while Shein saw growth of 19% and 42%, respectively. This discrepancy is prompting Temu and Shein to explore further expansion across Europe, enhancing their warehouse capabilities and adapting their business models to meet local demands.
The growth momentum in Europe is particularly pronounced in France, which is one of Europe’s key economies. To capitalize on this burgeoning market, both companies have not only invested in their infrastructure but also significantly increased their digital marketing expenditures. Kumar noted that this expansion is reflective of a strategic shift in how these companies envision their growth trajectory.
Despite these promising signs, the European market poses a unique set of challenges that could encumber Temu and Shein’s ambitions. The regulatory framework in Europe is characterized by stringent requirements regarding product safety, consumer protection, and fair competition. Kumar emphasized that this landscape necessitates increased investments in compliance and operational transparency, demands that may further strain their business models.
Expert opinions indicate that the evolving regulatory environment may serve as a precursor to intensified scrutiny for both platforms. A current legislative proposal in France known as the “anti-fast fashion” bill specifically targets ultra-cheap outlets like Shein and Temu, aiming to mitigate the environmental impact associated with fast fashion. This bill reflects local governments’ growing concerns about the detrimental effects of rapid consumerism on the environment.
At the same time, the European consumer organization BEUC has submitted complaints against Shein and Temu to the European Commission, alleging they employ deceptive techniques that promote overconsumption among consumers. This action follows an investigation initiated by the European Commission into Shein’s compliance with EU consumer laws earlier this year. Both companies are under increasing scrutiny as these legal and regulatory challenges unfold.
Xiaomeng Lu, director of geotechnology at Eurasia Group, underscored that the scrutiny facing Temu and Shein in Europe mirrors the regulatory pressures they have encountered in the United States. While both companies do offer cost-effective products bolstered by efficient supply networks, their labor practices and human rights standards have raised concerns when juxtaposed against the regulatory expectations in high-value markets like Europe and the U.S.
Lu stated, “The growing protectionism around the globe has become a key driver of these regulatory responses,” adding that past grievances in the U.S. regarding Temu’s purported non-compliance with the Uyghur Forced Labor Prevention Act have further complicated their operations. The act prohibits the import of goods believed to be made with forced labor from the Xinjiang region of China, reflecting broader human rights issues linked to global supply chains.
As the European Union moves forward with the Corporate Sustainability Due Diligence Directive, companies operating in the region are expected to adhere to strict measures, including the identification and mitigation of human rights abuses within their supply chains. Organizations must also disclose their environmental impacts and sustainability practices or face legal repercussions for non-compliance. These regulations present formidable challenges for Temu and Shein, who may struggle to meet the heightened compliance demands.
Despite the regulatory hurdles, Europe’s market still offers meaningful opportunities for these e-commerce platforms. With growing consumption and ongoing investments in marketing and logistics, Temu and Shein could stabilize and redefine their presence in the European market if they adapt adequately to the regulatory climate. While the road ahead is fraught with both challenges and opportunities, the ability of these companies to navigate this complex environment will be critical for their long-term success.