Shein reports sharp drop in Europe sales after price hikes

Sept 28 : Fast-fashion platform Shein reported a sharp drop in sales in Europe in the second quarter after it hiked prices and cut online advertising in anticipation of the European Union imposing fees on low-value e-commerce parcels from July 1.

Since its September 1 debut in Hong Kong, Shein's shares have dropped 27.3 per cent from the offer price of HK$48.56 apiece as investors expect the fees to dent its business in a market accounting for around a third of revenue.

Shein reported $11.08 billion in sales for the second quarter, with Europe revenue down 13.9 per cent to $3.77 billion and US revenue falling 6 per cent to $2.5 billion. Overall sales were up 0.9 per cent from a year ago as growth in Latin America offset declines in Shein's biggest markets. 

Shein CEO and Chair Sky Xu said the retailer is planning to push into higher-priced clothes that will boost its profitability, and hinted at the company's strategy of expanding its family of brands, including through acquisitions.  

"As the product mix shifts towards brands at higher price points, the platform’s overall average selling price will rise accordingly," he said in a statement. "Our vision is to become a richly diversified brand collection that meets consumers’ varied needs across multiple price points and occasions."

Shein's net profit margin shrank to 2.1 per cent in the second quarter from 6.2 per cent a year ago, mostly due to the Middle East conflict pushing up oil prices and freight costs, driving Shein's fulfilment expenses up by 18.1 per cent.

CUSTOMS FEES IMPACT STILL TO COME

Known for selling $5 dresses and $10 jeans and running permanent discounts, Shein was already forced to raise prices in the US last year when the Trump administration ended de minimis - duty-free access for low-value ecommerce parcels - and this year faces the same challenge in Europe.

Since July 1 the EU has imposed fees on low-value parcels ordered online - 3 euros per customs code, adding up to 15 euros if a shopper buys five different types of item in one order.

Shein's third-quarter results will show more of the impact, which Shein has previously said could exceed that of the US removing de minimis last year.