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Add Texture to GoogleSelling at higher prices to restore profit margins: at Shein, this strategy is worth a closer look. The Chinese ultra-fast fashion group aims to broaden its price range and bring in higher-end brands. This strategy, which is among its priorities for the next one to two years, sheds more light on its challenges than the stock market reaction alone. Orders continue to pour in, and the customer base is expanding, but profits are dwindling. For a company that intends to maintain its consumer prices, the challenge is a delicate one: how can it generate more value without sacrificing the affordability of its offerings?
Low prices are no longer enough to protect profits
The contrast is stark. In the second quarter of 2026, Shein recorded 298 million orders, a 7.6% increase. Yet its adjusted net income plummeted by nearly 67%, to $228 million. As a percentage of revenue, it now represents only 2.1%, down from 6.2% a year earlier. The business is certainly thriving. But what’s left for the company—once costs are absorbed—is shrinking.
Management cites rising oil and transportation costs. Rather than passing these costs on to customers, it has chosen to absorb them to support order volumes. This decision comes at a cost: the costs of fulfilling these orders have risen by 18.1%. The increase in volume does not offset the pressure on profitability.
Over the first six months of the year, adjusted operating income confirms this decline. It fell from $1.085 billion in the first half of 2025 to $538 million, a 50.4% drop. The issue therefore goes beyond a simple sales slowdown. Shein must return to a business model where additional purchases generate sufficient profit, rather than merely inflating the transaction count.
Raising prices without announcing a major shift
It is in this context that the company’s move toward higher-end brands should be viewed. The group’s rationale is based on operational leverage: higher average prices would make its business model more profitable. This is not an announced shift toward luxury. Shein is seeking to expand its price range, not to abandon its current offerings.
A few names are already giving substance to this diversification. The in-house brands Musera and Aloruh grew during the quarter, while expanding their collections to include beachwear, loungewear, and sportswear, as well as formal attire. Among its partners, AiiRZ saw its orders increase by more than 50%. These results point to opportunities for growth, though they are not yet sufficient to determine their future contribution to the group’s profits.
Another key issue will be clarity. While the product range expands and prices become more varied, customers still need to be able to distinguish what justifies these differences. Management therefore plans to better explain the differences between products, both in product applications and through brand marketing. This task is less spectacular than expanding the product lineup, but it is directly linked to the goal of selling at higher prices.
The announced investments in quality, compliance, and transparency support this initiative. They are among the priorities for the next one to two years. Their importance cannot be overstated: expanding the price range cannot rely solely on a new commercial presentation. Shein itself places these initiatives alongside its goal of profitability.
A Larger Customer Base, but Revenue Remains Virtually Flat
The paradox in the financials also stems from the gap between user base and revenue. Over the twelve months ended June 30, the number of active customers rose from 254 million to 291 million. In the first half of the year, the group processed 549 million orders, up 6.4%. However, its net revenue rose by only 1%, to $20.1 billion, or approximately 17.7 billion euros.
The second quarter paints a similar picture: $11.1 billion in revenue, representing 0.9% growth. These figures might suggest that each order is automatically generating less revenue. However, this interpretation requires caution, as the composition of the business is changing.
Shein highlights the growing importance of its marketplace. For products sold by third parties on this platform, the company recognizes only the services billed as revenue, not the total value of the goods. An additional order therefore does not contribute to the bottom line in the same way depending on its source. According to the group, this accounting difference explains part of the modest revenue growth. It does not negate the decline in profits, but it prevents us from confusing revenue stagnation with a lack of commercial momentum.
Europe Is the Focus of Tensions
The regional results are less ambiguous. Europe, which accounts for about one-third of the business, posted a 13.9% decline in revenue in the second quarter, to $3.77 billion. In the United States, revenue fell by 6% to $2.5 billion. Both major markets are slowing, with a particularly sharp contraction in Europe.
However, a new burden is compounding this weakness. Since July 1, the European Union has been imposing a fee of three euros per customs code on low-value packages. The effects are expected to be felt starting in the third quarter. This measure therefore does not explain the results reported at the end of June; it will weigh on the following period, at a time when margins are already under pressure.
For founder and president Sky Xu, customs duties and the persistent volatility of logistics costs are fueling uncertainty for the second half of 2026. He nevertheless remains cautiously optimistic about adjusted net income for this period. Caution prevails: maintaining prices while absorbing new constraints leaves little room for error.
The stock market expects more than just volume
These first results since the IPO triggered another drop of nearly 14% in the stock’s price in Hong Kong during the trading session following their release. Prior to this decline, the stock had already lost about 27% to 28% since its debut. The market does not seem willing to view customer growth as a sufficient response to eroding profitability.
Yet the gap with private valuations was already considerable. When Shein went public on the Hong Kong Stock Exchange on September 1, it was valued at around $26.3 billion—far from the nearly $100 billion reached during private funding rounds. The offering raised $1.7 billion. The half-year report now adds operational concerns to this financial reassessment.
The group still has the resources to act: its cash balance stood at $15.2 billion at the end of June, and the second quarter generated $813 million in operating cash flow. On the ground, it has brought its inventory closer to the European market and equipped its new facilities with robotic order-fulfillment systems and automated sorting. It is also here—between better-positioned inventory and lower processing costs per package—that Shein’s margin will be determined, starting in the quarter when the European operation begins to have an impact.