Europe’s retail sector has spent the past decade preparing for disruption. What it has not prepared for is this scale of shock. Chinese ultra-low-cost players such as Shein and Temu have become industrial-scale competitors shipping an estimated 600,000 parcels a day to Germany alone.
Their market penetration is accelerating at a pace Europe’s mid-market retail has never seen before: 32% of German consumers buy from Temu, and 16% from Shein, with Temu nearly doubling its website users to 20.7 million monthly within a year.
This growth is not happening in a vacuum. It is happening in a European market already saturated with inventory, squeezed by weak consumer sentiment, and struggling under double-digit cost inflation. The result is brutal and straightforward: an oversupply shock that is driving price declines and eroding margins faster than most retailers realise.
Our recent analysis with Kearney, covered exclusively by Handelsblatt, quantifies the effect with unsettling clarity. The European market saw an 11% surge in product supply across 35 consumer categories in the run-up to Black Friday, driven overwhelmingly by redirected Chinese inventory following the collapse of U.S. De-Minimis rules.
Our joint modelling shows that if current import patterns continue, European retailers could face up to €144 million in lost profit in the 30-day promotional window surrounding Black Friday.
The projected impact is not evenly distributed:
- Electronics: potential –€57m, due to extremely high price transparency and SKU comparability.
- Fashion & Accessories: potential –€49m, driven by intensified undercutting from Chinese fast-fashion entrants.
- Furniture: potential –€28m, as high-volume, low-differentiation categories become vulnerable.
These figures illustrate what the market is on track to experience under today’s price pressure and import trends.
Unless European retailers adjust, 2026 will look even worse.
Europe has an oversupply problem and it’s bigger than most retailers admit
The narrative many retailers cling to, that this is a temporary distortion caused by U.S. tariff policy, is dangerously incomplete.
Yes, Trump’s 2025 tariff reshuffle prompted Chinese exporters to redirect stock to Europe, resulting in year-over-year increases in imports of key categories, including bedding (+58%), toys (+46%), and small electronics (+41%). The deeper issue is Europe’s structurally flat demand and chronically overloaded supply chain.
Our joint analysis with Kearney suggests that retailers will likely be compelled to engage in earlier and deeper discounting cycles simply to maintain last year’s volumes. The model indicates that under current competitive pressure, promotional-period profitability is expected to decline to approximately 10.4%, compared with 10.8% in the previous year, and significantly below the roughly 16% margin typically observed outside the Black Friday discount window.
The takeaway: Europe cannot discount its way out of a supply shock.
The biggest misconception: “Shein and Temu can’t be profitable”
They absolutely can and their unit economics are terrifying
European executives often soothe themselves with the belief that Shein and Temu operate at unsustainable losses, that the prices are “too low to make money.” This was also said about Gorillas, Getir, and fast-fashion platforms of the early 2010s.
Comparing Shein or Temu to the failed quick-commerce boom is strategically naïve.
Unlike those ventures, Chinese platforms:
- Control entire supply chains end-to-end.
- Operate ultra-short production cycles measured in days.
- Deploy massive data-driven pricing algorithms.
- Minimise return rates through highly personalised recommendations.
- Ship at industrial scale, with cost structures unmatched in Europe.
Their profitability is embedded in their production model, logistics architecture, and cost base. European retailers underestimate this at their peril.
Thanks to the ability to shift stock globally, these players can weaponise surplus inventory in a way no European retailer can match.
The mid-market is the most exposed and price sensitivity is already breaking it
Premium and luxury retailers will feel this pressure, but they have stronger brand equity and pricing power. The mid-market, especially apparel, home, consumer electronics, and general merchandise, is at the epicentre of the shock.
Our daily price-sensitivity modelling shows that the mid-market is simultaneously:
- More exposed to substitution (high overlap in SKUs vs. Shein/Temu).
- More exposed to algorithmic undercutting (Chinese platforms can adjust price in seconds).
- More dependent on promotions to drive volume.
When a €25 product can be bought on Temu for €6, most retailers experience a slow-motion margin leak.
This is why the German market is showing such pronounced distress signals: electronics, fashion, and furniture alone account for the majority of the €144m profit erosion this season.
Europe’s policy response will come
Brussels has finally woken up. Plans are underway for:
- A €2 small-parcel fee on imports from third countries.
- Abolishing the €150 customs threshold.
- Stricter enforcement of EU consumer, environmental, and product-safety standards.
The current reality is this:
None of it is implemented yet.
Even the most optimistic regulatory timelines place meaningful impact around 2026–2028. Until then, millions of additional parcels will continue entering Europe every day, further depressing prices and raising competitive intensity.
What we learn from “Digital China”
In China, pricing is not just a tactical lever used to clear slow-moving stock. It has become a central part of marketing strategy, customer acquisition, and ecosystem building.
Rather than spending massive budgets on ads via Google or Meta, companies like Temu or Shein are redirecting a portion of what would be ad spend into price subsidies, effectively using discounts as a media investment. The goal isn’t only immediate sales, but also long-term customer acquisition, repeat purchases, and building loyalty through volume and retention.
In this sense, what we’re seeing in Europe is a form of customer acquisition warfare. That redefines the battlefield for European retailers, from “who can sell more profitably” to “who can acquire, retain, and extract lifetime value first.”
As Björn Ognibeni, Co-Founder ChinaBriefs.io & XRLAB-MCM, describes: “Chinese companies move fast not because they have better capabilities, but because they’re willing to challenge fundamental assumptions at a pace that feels uncomfortable in the West.”
That’s a profoundly different mindset than traditional Western retail, and until now, most European players have not adapted.
Read on: From strategic discounts to smart deals: How digital China made pricing the new marketing
What should European retailers do?
European retail cannot discount its way out of the current supply shock. Competing with Shein, Temu, and JD.com on price is unwinnable. The path forward requires precision, speed, and a fundamentally different view of pricing.
Here are five moves that actually work.
1. Replace rule-based pricing with predictive, profit-driven pricing
The era of fixed price ladders and manual approvals is over. Chinese entrants adjust prices in seconds. European systems are still, at times, adjusting in weeks.
Retailers need predictive pricing that anticipates demand, not just reacts to it:
- Margin-optimising price curves
- Inventory-sensitive adjustments
- Competitor-aware simulations
- Real-time elasticity modelling
This is how you avoid unnecessary discounting and protect margin in oversupplied markets.
2. Stop assuming Chinese players are unprofitable
One of the most dangerous beliefs in European boardrooms is that Shein and Temu “can’t possibly be making money.” They can.
Their unit economics are built on:
- Vertically integrated supply chains
- Ultra-short production cycles
- Massive scale efficiencies
- Data-driven demand steering
They profit where European retailers bleed. This means waiting for them to collapse is not a viable strategy. The only rational response is to identify where you can compete, and exit the categories where you can’t.
3. Treat pricing as a customer acquisition lever, not just a margin lever
A core principle from the rise of “Digital China” is that price is the new marketing.
Chinese platforms often funnel money that Western brands spend on Meta/Google ads into:
- Subsidised intro prices
- Loss-leading offers
- Engagement-linked discounts
- First-purchase incentives
The aim is retention, habit formation, and long-term value extraction. European retailers don’t need to replicate this model, but they do need to understand it and start using price more strategically:
- Targeted price investments for high-value segments
- Bundle logic that lifts basket size
- Differentiated offers for members vs non-members
- Promotional spend tied to lifetime value, not panic
Smart pricing beats blanket discounting every time.
4. Reduce overcommitment and build faster “read and react” cycles
European retailers are still trapped in long buying cycles and large pre-season commitments. Meanwhile, Chinese competitors test micro-batches, scale hits instantly, and kill misses in days.
Europe doesn’t need to match their speed but it must adopt the logic:
- Smaller initial buys
- Faster allocation cycles
- High-frequency demand signals
- Tighter integration between buying, pricing, and marketing
- Inventory-led pricing triggers
This reduces the need for margin-killing discounting and builds resilience against supply shocks.
5. Compete where Europe has an advantage, not where China does
European retailers won’t win a price war. However, there are battlegrounds where they can win decisively:
- Product quality and durability
- Trustworthy returns and warranties
- Regulatory compliance
- Sustainability, traceability, and ethics
- Brand equity
- Reliable fulfilment and post-purchase support
Chinese ultra-low-cost platforms can copy prices, but they cannot copy trust, service, or reputation. Retailers need to reposition value around these differentiators and communicate them relentlessly.
Conclusion: Europe must brace for impact and move now
The European retail sector is facing the most significant low-cost supply shock in a decade. Shein, Temu, and JD.com are aggressive, data-driven market entrants reshaping pricing architecture across the continent.
For retailers, the response must include a combination of speed, precision, and technological maturity in order to stay profitable.
