As Temu, Shein pivot to Europe, they again meet regulatory scrutiny

Temu and Shein are pivoting to Europe as their business in the U.S. takes a major hit from unfavorable trade policies. But the China-founded budget e-commerce apps may not receive a warm reception in their new target markets. 

In recent weeks, complaints have been filed against Temu and Shein in the EU, accusing them of unsavory business tactics. That comes as the bloc prepares a new two-euro flat fee on previously customs-free small packages from online marketplaces like Temu and Shein. 

Experts say the new developments could be ominous signs for the platforms, as their business has already suffered from the May closure of a small package tariff exemption in the U.S., as well as new duties at 54%, or $100 for those sent through the postal service. 

“As regulatory and trade pressures intensify in the U.S., Temu and Shein are increasingly turning to Europe and the UK as critical growth markets,” Anand Kumar, associate director of research at Coresight Research, told CNBC. 

However, Kumar said that the companies have begun to face regulatory headwinds in Europe and the U.K. that echo the scrutiny they’ve encountered in the U.S. 

“The EU’s proposed €2 customs fee is more than a minor surcharge—it’s a strategic regulatory move aimed at curbing the unchecked growth of ultra-cheap cross-border e-commerce, and it could reshape how platforms like Shein and Temu operate in Europe over the next 2–3 years,” he added. 

Temu and Shein have boosted their ad spending in Europe, particularly in the U.K. and France, according to a report from Reuters, reflecting their shift away from the U.S.

The growing importance of the EU and U.K. to the two companies has also been reflected in data from Consumer Edge Research, which traces consumer trends based on a sample of credit and debit card info. 

According to the data it sent to CNBC, Temu’s consumer spending in the U.S. fell about 36% in May from a year earlier, while Shein’s fell 13% over the same period. The company added that its data shows that some of Temu and Shein’s U.S. customers have shifted their spending toward legacy department stores and fast fashion retailers. 

Those trends coincide with data from market intelligence firm Sensor Tower showing that app usage of Temu and Shein in the U.S. is slowing significantly.

However, the opposite trends for the platforms were observed in the U.K. and EU. In May, year-over-year consumer spending growth reached 63% in the EU and 38% in the U.K. Shein experienced growth of 19% in the EU and 42% in the U.K. over the same period. 

For Temu, Consumer Edge data showed that growth was especially pronounced in the key market of France, Europe’s second-largest economy.  

To capitalize on the momentum in Europe, Temu and Shein have been aggressively expanding their operations across the region, including ramping up warehouse capacity, experimenting with localized business models, as well as significantly increasing digital ad spending in key markets like the U.K., France and Germany, according to Coresight’s Kumar. 

“This expansion is not merely opportunistic—it signals a strategic shift in how these companies envision their next phase of growth,” he said. 

“That said, the European market is not without its challenges. The region enforces stricter regulations on product safety, consumer protection, and fair competition, all of which require Temu and Shein to invest more in compliance and operational transparency,” he added. 

Experts say that those challenges and the EU’s potential duties on small-value packages may be signs of more pressures to come for Temu and Shein. 

According to French local media, the wording of an “anti-fast fashion” bill, which is under debate in the French National Assembly, was recently rewritten to single out ultra-cheap platforms like Shein and Temu. 

The bill, first approved by France’s lower house of parliament in March last year, seeks to penalize fast-fashion products for their environmental impact.

Meanwhile, on Thursday, the pan-European consumer organization BEUC filed a complaint with the European Commission against Shein over its use of deceptive techniques, or “dark patterns” that cause overconsumption. 

That comes after the European Commission announced its own investigation into Shein’s compliance with EU consumer law in February and, in May, urged Shein to respect EU consumer protection laws. 

BEUC has also filed a complaint against Temu, while 17 of its members filed the same complaint with their competent national authorities, the group said. 

Xiaomeng Lu, director of geotechnology at Eurasia Group, told CNBC that the latest scrutiny Temu and Shein are experiencing in the EU is reminiscent of that in the U.S. 

“[Temu and Shein] offer cost effective solutions and an efficient supply network that fare well in the fast moving fashion world. However their labor practices and human rights standards may not fully align with high value markets like the EU and U.S.,” Lu said. 

That conflict and “rising protectionism” globally are the “key drivers of these regulatory reactions,” she added.

In the U.S., officials had also taken issue with Temu over its alleged non-compliance with the Uyghur Forced Labor Prevention Act (UFLPA), which prohibits the import of goods made with forced labor from China’s Xinjiang region.

According to Coresight’s Kumar, Europe, for its part, is progressing toward stricter oversight through the Corporate Sustainability Due Diligence Directive — which EU member states have until July 2026 to integrate into their national laws. 

The directive would compel companies operating in the EU to identify and mitigate human rights abuses in their supply chains, disclose environmental impact and sustainability metrics and face legal consequences for failing to take adequate preventive steps.

That means Temu and Shein will face stringent compliance demands in the EU, Kumar said. However, the region still offers meaningful opportunities for expansion in an increasingly protectionist global trade environment, he added.