The closure of the “de minimis” loophole leads Temu to face an enormous decline in its US user base, leaving the company’s future in question.

At a Glance

• Temu’s daily U.S. users decreased by 58% in May.
• The decline stems from the end of the “de minimis” tariff exemption.
• Temu faces more challenges than Shein in managing tariffs.
• Transitioning to local fulfillment is key to Temu’s new strategy.

Temu’s Plummeting U.S. Presence

With the end of the “de minimis” exemption, Temu’s daily U.S. users fell by a staggering 58% in May. This loophole allowed Temu to ship low-value packages from China to the U.S. tariff-free, a strategy crucial for keeping prices low. Now, the company is seeing significant pressure as the exemption’s closure coincides with the ongoing U.S.-China trade war.

Sensor Tower notes the user drop as a critical challenge for Temu’s growth. As the tariff exemption ends, Temu must navigate this transition in a charged geopolitical climate. Unlike Shein, Temu hasn’t succeeded in increasing customer spending despite tariffs, amplifying its user engagement struggles.

The Shift to Local Fulfillment

Reacting to new challenges, Temu plans to establish U.S.-based supply chain operations. By creating local fulfillment networks, Temu merchants must now manage tariffs and customs, a significant shift from its previous model. This change promises to involve complex logistics but is essential for balancing growth against increased import costs.

“While the tariff environment is uncertain, if the status quo remains for an extended period, we believe Temu’s competitive threat will continue to weaken” – Simeon Gutman.

The local fulfillment shift also comes as Temu decreases advertising spending in the U.S. This strategy might offset some costs but highlights a cautious approach to retaining its U.S. market share while exploring expansion in more price-sensitive, less affluent areas.

Navigating International Market Pressures

As Temu taps into non-U.S. markets, its growth strategy increasingly hinges on international territories. In the second quarter, approximately 90% of its global active users came from outside the U.S. Markets with tighter budgets may provide fertile ground for Temu’s growth while alleviating the dependency on U.S. consumers strapped by tariff complications.

“Daily U.S. users of PDD Holdings’ global discount e-commerce platform Temu fell by 58% in May, according to market intelligence firm Sensor Tower, one of many headwinds the e-retailer is facing amid a U.S.-China trade war.” – Sensor Tower.

Challenges from the U.S.-China trade implications necessitate a reevaluation of how these market dynamics are tackled. For Temu, the focus on strategic maneuvers might help maintain momentum, but it’s clear the path is fraught with regulatory and competitive hurdles.