The news: Regulation, tariffs, and rising customer-acquisition costs are putting growing pressure on the economics of low-cost, cross-border Chinese ecommerce platforms like Shein and Temu.

• Q2 results from PDD, parent of Temu and Pinduoduo, demonstrate the tension. While revenues rose 8.1% YoY, net profit fell 12%, and sales and marketing expenses increased 9.2%, as the company needs to boost spending to drive sales.
• Shein’s revenue growth decelerated to 8% last year from 20.7% a year earlier, while the end of de minimis, along with a one-time accounting charge, contributed to a $99 million loss.

Zooming in: The challenges continue to mount. PDD was recently fined more than $230 million in the EU over the risk of consumers finding illegal items on its platform. Shein, which faces its own regulatory headwinds as it moves toward an IPO, has seen its valuation fall from $98.2 billion in 2022 to roughly $27 billion.

Geographic diversification is also becoming a less effective escape valve. After the US closed the de minimis loophole, the platforms looked to Europe and other international markets for growth. But that strategy has become more difficult as the EU and other countries move to tighten similar rules, making it harder to simply shift the low-cost cross-border model from one market to another.

Implications for marketers: Temu and Shein built their businesses on massive acquisition spending that drew consumers in with rock-bottom prices. But as their tariff advantages disappear, regulatory costs rise, and discretionary demand softens, that playbook is becoming less effective.