Core Insights - Temu and SHEIN are facing pressure to adjust their business models due to the cancellation of the small import tax exemption policy in the U.S., which will increase operational costs and lead to a shift towards local sourcing of products [1][2][5]. Group 1: Business Model Changes - As of May 1, 2024, Temu's goods sourced from the U.S. have increased, while direct shipments from China have decreased significantly, with most direct shipment items disappearing from the website [1][5]. - The cancellation of the small import tax exemption means that Temu has started adding "import fees" to prices of goods shipped directly from China, significantly raising costs for consumers [2][3]. - Temu's strategy is shifting towards local procurement in various countries, including the U.S., where local sourcing is expected to account for 80% of sales in Europe by 2024 [5]. Group 2: Market Impact - The U.S. accounted for 50% of Temu's total merchandise value (GMV) in 2024, but this is projected to decline to 25% by 2027, indicating a potential shift in focus towards Asian and European markets [5]. - The number of packages cleared under the low-value exemption rule in the U.S. reached 1.36 billion in 2024, doubling from 2022, highlighting the significance of this policy for Temu and SHEIN's growth [3]. - The strategic shift away from low-cost direct shipments from China may reduce competitiveness for Temu and SHEIN, as U.S. consumers are attracted to the low prices offered by these platforms [5][6].

Core Viewpoint - The cancellation of the small import tax exemption policy in the U.S. is forcing Temu and SHEIN to adjust their business models, leading to increased local sourcing and higher operational costs in their primary market, the U.S. [1][2][3] Group 1: Impact of Policy Changes - The U.S. has canceled the small import tax exemption policy effective May 2, which previously allowed goods valued under $800 to enter without tariffs, significantly impacting Temu and SHEIN's pricing strategies [2][3] - As a result of the policy change, Temu has begun to increase the proportion of locally sourced products in the U.S., with many direct shipment items from China disappearing from their website by May 1 [1][2] Group 2: Business Model Adjustments - Temu's business model, which relied on ultra-low-priced goods from Chinese factories, is shifting towards local procurement in response to rising operational costs and changing market conditions [3][4] - The company has expanded its local sourcing strategy beyond the U.S., targeting markets in Europe, South America, Japan, and South Korea, with plans for local sales to account for 80% of its European revenue by 2025 [4] Group 3: Competitive Landscape - The reduction of low-priced goods shipped directly from China may diminish the competitive edge of Temu and SHEIN, as U.S. consumers are primarily attracted to the low prices offered by these platforms [4] - According to a Goldman Sachs report, the share of U.S. GMV in Temu's total transactions is expected to drop from 50% in 2024 to 25% by 2027, indicating a potential shift in focus towards Asian and European markets [4]