The Old Model Hits a Wall
For years, Shein built a massive business on a simple formula: sell clothes cheaper than anyone else, ship them directly from China, and rely on a U.S. rule that let packages under $800 come in without any tariffs. That rule, known as the de minimis exemption, was a quiet superpower for the fast-fashion giant.
Then President Donald Trump eliminated that exemption through executive action and imposed new duties on Chinese imports. Suddenly, Shein's import costs jumped from a range of 0% to 62.5% up to 10% to 87.5%.
Shein told investors in its IPO documents that it started raising U.S. prices in May 2025 to cover most of the added tariff costs. That covered the tariffs but pushed customers away. U.S. revenue fell more than 3% from 2024 to 2025, and in the first quarter alone it dropped 14% compared with the same period a year earlier.
New tariffs have eroded Shein's overall profitability, and the company swung to a $99 million loss in the first quarter. A year earlier it had posted $395 million in profit.
Europe Could Be Worse
Europe is actually Shein's biggest market. It generated 35% of company revenue in 2025. And the same kind of regulatory hit is already happening there.
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In July, the European Union ended duty-free entry for packages worth under 150 euros - about $173 - and introduced a flat fee of 3 euros per product category per shipment. That may not sound like much, but for a company that ships millions of low-cost items, those euros pile up.
Shein warned that the European effect could match or even exceed what happened in the U.S. The early numbers back that up. European sales grew only about 9% in 2025, compared to 33% growth from 2023 to 2024. First-quarter European sales were up just 2%.
Angela Lee, a professor at Columbia Business School who also runs the investor network 37 Angels, sees this as an existential challenge to the company's identity. She said, "the regulatory change hits the center of Shein's low-price model, and that pricing does not build customer loyalty." If all a shopper cares about is the cheapest price, the second someone else charges even less, those shoppers walk.
The Pivot Nobody Expected
While the clothes business struggles, Shein has something else going on - a service side that barely existed a few years ago.
Shein is expanding its third-party marketplace and also monetizing its supply chain. It is giving other designers and brands access to the back-end infrastructure - the factories, the inventory management, the logistics - that made Shein fast and cheap in the first place. The company calls this brand enablement.
It is a small piece of the business today, making up about 1% of total revenue. But it has operating margins roughly double the rest of the company. And services revenue rose almost 40% in 2025.
Deborah Weinswig of Coresight Research is bullish on this piece. She said, "Shein is uniquely positioned to solve difficult problems in supply chains, and that is where the opportunity lies." The company can apparently take a brand and supercharge sales by about 15 times during its second year, improve its operating margin by 30 percentage points, and slash inventory turnaround from months to days.
What It Means
For investors watching Shein ahead of its Hong Kong IPO, the big question is which version of the company matters moving forward.
The version that used regulatory loopholes to offer prices nowhere else could match is under real pressure. The cheap shipping model that got it to a peak valuation of $100 billion is gone, and nobody knows what the replacement looks like at scale.
The other version is a services company that helps every other fashion brand get faster and more efficient. That side is young and still tiny, but it is growing fast and printing better profit margins than the rest of the business.
Which version wins decides everything. At least one thing gives a CEO something to bet on: the service side is not exposed to the same tariff risk that just broke the core model.
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