Shein's decision to raise prices in the US market to offset the cost of new tariffs has resulted in a decline in revenue, with sales plunging 14% in the first quarter compared to the year-ago period.
The company's revenue in the US declined more than 3% between 2024 and 2025. Shein warned that a similar dynamic could occur in Europe, its largest market, where it recently ended duty-free shipping for low-value packages and implemented new flat-rate fees.
The company stated that it expects to pursue a range of options in response, including increasing prices in Europe to offset the increased costs, which could result in a short-term adverse impact on sales volume.
Angela Lee, a professor of venture capital at Columbia Business School, said the regulatory changes pose a serious risk to Shein's business model, which was built on low prices. "This is a much more fundamental shift, it's not just a new cost, they are losing access to a regulatory advantage that was built into their business model at the very center," Lee said.
Shein's business model was previously criticized for being an outsized beneficiary of the US de minimis exemption, which allowed packages valued under $800 to enter the country duty-free. However, the company maintained that its success was due to its tech-driven supply chain and small-batch approach to inventory.
Shein's profitability has fallen 39% companywide between2024 and 2025, with the company swinging to a loss of $99 million in the first quarter, a 125% decline from the $395 million in profit it booked in the year-ago period.
The European Union's decision to end its own version of the de minimis exemption and implement a flat-rate duty of 3 euros for each distinct category of product in the shipment could further weigh on Shein's profitability. Lee said Shein faces an uncertain future because its main competitive advantage, pricing, is starting to disappear.
"Pricing is usually not a great competitive advantage, if that is your only competitive advantage, it's incredibly hard to maintain," Lee said.
Shein is working to evolve its business model by growing its third-party marketplace and commercializing its supply chain. The company's services revenue is up almost 40% in2025, with its "brand enablement services" segment being a promising area of growth.
This segment involves the company lending its supply chain and product infrastructure to designers and brands, offering them a solution to one of the most difficult parts of running an e-commerce business. Brands that are part of the program are able to reach annual sales milestones faster than other direct-to-consumer brands with a healthier financial profile, Shein said in its filing.
As Shein prepares for its Hong Kong IPO, the company's ability to adapt to the changing regulatory landscape and evolve its business model will be crucial to its success. With its low-price model under threat, Shein must find new ways to compete and build customer loyalty.
The company's focus on services and its supply chain could be key to its future growth and profitability, but it remains to be seen whether this will be enough to offset the impact of the tariffs and regulatory changes.
