Temu’s meteoric rise shows signs of slowing as U.S. cracks down on de minimis loophole
A little more than two years after its splashy U.S. debut, Chinese e-commerce site Temu may be losing momentum.
New data from the analytics firm Earnest Analytics suggests that the app’s aggressive expansion — once seen as a major disruptor to U.S. discount retailers — could be plateauing amid looming regulatory shifts and changing consumer habits. And while Temu initially surged in popularity by offering ultra-cheap goods and leveraging a customs exemption known as the de minimis provision, the landscape is quickly changing.
While Temu still boasts high penetration among discount and dollar store shoppers — 25.5% at Five Below and 24.8% at Ollie’s Bargain Outlet — customer overlap with these retailers has declined steadily since peaking in mid-2024. At Five Below, for example, Temu overlap dropped by more than 200 basis points over the past nine months.
“It suggests that Temu is falling out of favor with some of these retailers’ customers,” said Michael Maloof, head of marketing at Earnest Analytics.
While Temu customers tend to be high spenders across general merchandise retailers, their influence appears to be waning, according to the report. Overlap with Walmart, Amazon and Dollar Tree has slipped since last year, suggesting that Temu’s broader retail impact may have been more limited, and fleeting, than initial buzz suggested.
“What we see is that companies like Dollar General and Walmart actually see spending per customer rise after they start shopping at Temu,” Maloof said. “It seems like the person who starts shopping at Temu is already looking around.”
This couldn’t come at a worse time for Temu as President Donald Trump officially signed an executive order on Wednesday to eliminate the de minimis trade loophole, effective May 2. The announcement also coincided with an array of sweeping new tariffs. The move marks a dramatic shift in U.S. trade policy that could have outsized implications for China-founded e-commerce sites like Temu.
The de minimis rule previously allowed imports under $800 to enter the U.S. without tariffs or extensive documentation. It enabled Temu and fellow fast-fashion platform Shein to scale at breakneck speed by shipping low-cost products directly from China without paying duties.
But beginning in May, such shipments routed through the international postal network will be hit with a tax of either 30% of their value or a flat $25 per item, rising to $50 per item by June 1. This is in lieu of any other duties. Meanwhile, imported goods that would quality for the de minimis exemption but are routed through means other than the postal system will be subject to applicable duties.
The new rule is likely to disrupt some business models more than others, according to Izzy Rosenzweig, founder of Portless, a cross-border logistics startup that replicates Shein and Temu’s fulfillment model. Temu is “one of those brands that are a little bit different, who historically have been eating at the dollar store business,” Rosenzweig told Modern Retail. “For them, every 30 cents matters.”
Trouble beyond cheap prices
Temu’s assortment predominantly of low-cost, often disposable goods may be capping its long-term growth potential, Maloof said. Unlike Amazon, for instance, which started out as an online bookseller and has since expanded its product offerings to capture a greater share of customer spending, Temu has yet to move beyond categories like one-time-use home goods, clothing and accessories. Modern Retail previously reported that Temu has been trying to shed its reputation as an ultra-cheap retailer and add more product assortment.
Rosenzweig said that Temu’s core value proposition is more fragile than that of Shein, another China-founded e-commerce business that has used de minimis to win over U.S. shoppers. That’s because Temu competes more with dollar stores than Shein, and so small cost increases have a more significant impact on Temu’s competitive advantage. Shein, meanwhile, competes more with apparel brands, including Cider, Zara and H&M, per Earnest Analytics.
“The reason why [Shein is] extremely successful is not because they’re saving $2 per cost of goods,” Rosenzweig said. “It’s because they could experiment on new types of styles really quickly, and produce those products really fast and ship it to the end customer.” That agility will persist even if Shein has to pay more in duties, Modern Retail previously reported.
Pivoting beyond duty-free
Both Temu and Shein have onboarded more sellers with a physical presence in the U.S. to mitigate the impact of de minimis restrictions. Locally shipped products now account for nearly half of Temu’s U.S. sales, according to The Information. After Trump ended the de minimis trade exemption for shipments from China in February, Temu began prominently featuring items for sale housed in local U.S. warehouses, Modern Retail previously reported.
Both Temu and Shein have previously said that their businesses are not dependent on the de minimis provision.
Last month, Temu’s parent company, PDD Holdings, reported a slowdown in revenue growth for the fourth quarter of 2024. PDD attributed the dip, in part, to a “fast-changing external environment,” the company’s co-CEO Chen Lei said on an earnings call with analysts. The company saw revenue climb 24% year over year to $15.3 billion — down from the 44% growth it posted in the previous quarter.
With the May 2 deadline now firm, it remains to be seen whether companies like Temu can pivot without the crutch of duty-free shipping.
“Temu penetrated the U.S. market at an unprecedented rate,” Maloof said. “But I don’t think we’re seeing Temu grow its share of wallet in the same way as companies like Amazon.”