Temu, Shein, and other low-cost internet shops that offer products directly from Chinese factories at unimaginable discounts were made possible by the development of the loophole allowing tariff-free exports of goods over ten years ago.
Additionally, it launched a wave of digital advertising worth billions of dollars, which benefited Alphabet, Meta, and other internet firms. In an attempt to attract American consumers, Temu and Shein saturated the internet with advertisements. Only Amazon has outspent Shein or Temu on online advertising in the US during the past two years.
With the closure of the shipping loophole that fueled the advertising frenzy, it may now be coming to an end.
The provision that exempted goods created in Hong Kong and mainland China worth less than $800 from import tariffs was removed by President Trump on Friday. This implies that Temu and Shein must now pay up to 145% in tariffs in order to import Chinese goods. Temu began imposing "import charges" on some products last week, more than doubling the total cost of purchasing and shipping the goods.
A Temu representative announced on Friday that the company had ceased sending goods straight from China to American consumers and that, while it "transitions to a local fulfillment model," its U.S. orders will instead be shipped from nearby American warehouses. An email asking for comment was not immediately answered by Shein.
Businesses that rely on offering products at deeply discounted costs and luring clients with strong internet marketing are anticipated to suffer severely from the new tariffs.
Picture
Temu purchased Super Bowl commercial time with the tagline "Shop Like a Billionaire."
To expand quickly in a cutthroat market, Temu's parent firm, PDD Holdings, employed a similar tactic for its Chinese e-commerce app, Pinduoduo, in China, lavishing heavily on advertising.
The Temu and Shein advertisements were formerly "inescapable" on search, social media, and apps, according to Sky Canaves, a lead analyst for retail and e-commerce at the research firm eMarketer. However, that is beginning to change.
"They have already significantly reduced their advertising," she stated.
According to estimates from market intelligence firm Sensor Tower, Temu spent 31 percent less on U.S. daily advertising on Facebook, Instagram, TikTok, Snap, X, and YouTube for two weeks beginning March 31 than its average daily spending on those platforms in the preceding 30 days. Over the same two weeks, Shein's daily advertising expenditures on its US social networks decreased by 19%.
In April, Temu and Shein began to vanish from Google after flooding the search engine with advertisements for their products in the US. According to an analysis by marketing agency Tinuiti, Temu accounted for 19 percent of all U.S. ads published on Google Shopping on April 5; however, a week later, that percentage fell to zero. By April 16, Shein had dropped from about 20 percent in early April to zero.
Tinuiti determined that the primary cause of the decline in advertising was the tariffs. It claimed that both businesses raised the pricing of some products at the same time that spending was cut.
Temu's and Shein's apps have dropped out of the top ten most downloaded mobile apps in the US without continuous advertising. In a 2023 lawsuit against Shein, Temu revealed that it supplied over 30 million customers every day in the US.
Susan Li, the chief financial officer of Meta, the company that owns Facebook, Instagram, and WhatsApp, stated during a conference call with investors on Wednesday that several Asian shops had already cut back on their U.S. advertising expenditures in preparation for the expiration of the so-called de minimis exemption. According to her, April spending was lower than it was a year ago, albeit some of the money has been moved to Meta platforms in other areas. None of the businesses were mentioned by Ms. Li.
Because Chinese advertisers, driven by Temu and Shein, had been one of the company's fastest-growing areas, investors were paying close attention to what Meta had to say. Chinese advertisers brought in $18.4 billion for Meta last year, making it roughly 11% of its overall income and more than doubling its size since 2022.
According to social media company Snap, "a subset of advertisers" have reduced their expenditure as a result of the shipping loophole restrictions. Citing the uncertainties brought on by the tariffs, the company declined to issue a projection for the current quarter. The announcement caused a 12% decline in Snap's stock price.
Google's chief business officer, Philipp Schindler, stated last week that adjustments to the tariff loophole "will obviously cause a slight headwind to our ads business in 2025," mostly from Asian e-commerce platforms. Additionally, he did not name any particular businesses.
0 Comments