Faced with American regulatory pressures and the breathlessness of organic growth, the Chinese giants of fast food, Shein and Temu, start a turning point. Their model based on low-cost production, algorithmic hyper-personalization and mass advertising acquisition between tension. The transition to new markets, in particular in Europe and Latin America, reveals a more than expansionist defensive strategy.
A low -cost customs model
The heart of Shein and Temu’s success was based on the “minimis” regime, a customs exception to send packages to the United States of less than $ 800 without customs duties. This lever allowed the platforms to sell items at broken prices, while preserving acceptable margins. The banishment of this exemption by the Trump administration on May 2, 2024 changes the game. For Shein as for Temu, deliveries from China become mechanically more expensive. The two players immediately reduced their advertising investments in the United States (–19 % for Shein, –31 % for TEMU on the main platforms between the end of March and mid-April), while increasing their prices. Prix competitiveness, pillar of their model, is weakened.
A constrained European redeployment, but not very profitable
In response, Shein and Temu intensify their presence in Europe, particularly targeting the United Kingdom and France. Selon Sensor Tower’s data in April, Shein increased its advertising expenses by 35 % in these two countries. TEMU did the same, with +40 % in France and +20 % in the United Kingdom. The results are ambivalent: Apps downloads progress (X2 for TEMU in the United Kingdom, +25 % for Shein), but daily active users do not follow. The increase is limited to +5 % for Shein, +10 % for TEMU. The acquisition cost climbs, without guaranteeing the conversion in real use. In other words: growth mechanics run out of steam, despite ever higher advertising budgets.
Brazil, a new trade war front
While Europe is struggling to compensate for the American decline, Latin America becomes a new priority axis. TEMU, which provides for its launch in Brazil in June 2024, has multiplied its advertising investments there by 800 in one year. Shein replied with an increase of 140 % of his own expenses. The challenge: to win before the other takes the advantage. Shein benefits from a strategic logistics asset, having already internalized part of its production on Brazilian soil to serve the Latin American markets. This offensive recalls the previous American: in 2022, Shein had adopted a similar posture when Temu entered the United States. The rehearsal of the scheme reveals a race for territory more than a differentiating strategy.
Exhaustion signals of the advertising model
The acquisition strategy with targeted advertisements and sponsored content on Tiktok, Youtube or Instagram shows its limits. Marginal efficiency decreases. The post-Download conversion rate stagnates. And above all, the prices of advertising auction fly away during consumption peaks, as at the end of the year, eroding the margins. The volume growth model, doped for advertisements and data, reaches a saturation point. This phenomenon is not specific to Shein and Temu, but it affects them all the more strongly since their differentiation is almost exclusively on the price and algorithmic visibility.
Loyalty, Low-Cost Achilles heel
Unlike Zara, H&M or Uniqlo, which benefit from established brands, a physical network and a more structured customer relationship, Shein and Temu struggle to retain. Their growth will no longer be able to be based on raw acquisition. However, customer retention involves investments in product quality, post-purchase experience and brand collection-areas still little invested by these two platforms.
Towards the end of the algorithmic Eldorado?
The ultra-competitive price model, optimized cross-border logistics, growth fueled by advertising algorithms, which is prospered Shein and Temu thanks to the customs of the customs system and a global arbitration of costs, is entering a turbulence area. Regulatory pressure, advertising saturation and profitability erosion will lead them to change direction
Without strategic inflection-towards more location, brand, and quality-low-cost growth could prove structurally unpathable.
