Shein and Temu’s European Gamble: Advertising Surge Amid US Tariffs Sparks Investor Caution

The U.S. tariffs on Chinese imports have turned into a double-edged sword for e-commerce giants Shein and Temu. While the 145% tariff on goods and the elimination of the $800 de minimis exemption have crippled their U.S. business models, the duo has launched an aggressive advertising blitz in Europe. But will this pivot pay off—or is it a race to outspend a saturated market?

The U.S. Tariff Tsunami

The U.S. crackdown has left Shein and Temu scrambling. Products like summer dresses, which once cost $18.47, now fetch $44.68—a 142% price surge—due to tariffs. Lower-income Americans, who relied on these ultra-cheap imports, have been hit hardest. Chinese exports to the U.S. fell by 65% in volume by early 2024, forcing the companies to pivot.

But the advertising war in Europe is their lifeline. Data from Sensor Tower shows:
- Shein’s UK ad spending rose 100% year-over-year in April 2025, while Temu’s French ad budget jumped 115%.
- Temu’s UK ad spend grew 20% YoY, while its French outlays soared 40% month-over-month.

The results? App downloads surged—Temu’s UK downloads doubled in April, and Shein’s rose 25%. Yet daily active users (DAUs) grew only 5-10%, signaling a critical flaw: users aren’t sticking around.

The Risks of Overextension

1. EU Regulations on the Horizon: France’s finance minister has warned about the flood of low-cost Chinese goods. The EU is debating ending its €150 customs exemption for small packages—a move that could replicate the U.S. de minimis collapse.
2. Fierce Local Competition: Europe’s fashion landscape is dominated by Zara, H&M, and ASOS, which have deeper brand loyalty and physical retail footprints. Temu’s price hikes in the U.S. (e.g., a child’s swimsuit tripling to $31.12) may not fly in price-sensitive but brand-conscious European markets.
3. Margin Erosion: While ad budgets are rising, profitability is under pressure. Temu’s U.S. prices jumped over 40% in toys and health items—not easily replicated in higher-cost EU markets.

The Brazil Wildcard

Both firms are also betting big on Brazil. Shein’s ad spend there jumped 140% YoY in 2025, while Temu’s surged 800-fold ahead of its June 2024 launch. But Brazil’s fragmented market and logistical challenges could make this a costly experiment.

Conclusion: A High-Stakes Balancing Act

Shein and Temu are playing a risky game of "spend now, profit later" in Europe. Their ad blitz has captured eyeballs, but user retention remains an Achilles’ heel. Investors should watch two critical metrics:
1. DAU/Download Ratios: If Temu’s 10% DAU growth (vs. 100% downloads) doesn’t improve, it signals a leaky funnel.
2. EU Regulatory Moves: If the €150 exemption is axed, European tariffs could mirror the U.S. crisis, wiping out their price advantage.

For now, the companies’ aggressive ad spending (Temu’s French ads up 40% MoM in April 2025) suggests they’ll keep pushing. But with 65% of their U.S. export volume lost and European markets already saturated with fast fashion, investors must ask: Is this a sustainable strategy—or a last stand against rising global trade barriers?

The answer hinges on whether Shein and Temu can convert fleeting downloads into loyal customers—and outrun the next wave of tariffs. For now, the jury’s out.