By Katherine Hamilton

Shares of discount retailers slipped Monday as tariffs threaten to raise prices for some of the most cost-sensitive U.S. consumers.

PDD Holdings, which owns budget e-commerce company Temu, stock fell 6% to $105.38. Dollar Tree shares fell 2% to $71.76 and Five Below declined 1% to $92.85.

Temu, which has been taking up more market share in the ultra-low budget retailing space, may face increasing challenges to keeping prices low as the tariffs go into effect, KeyBanc analyst Brad Thomas told The Wall Street Journal.

Temu and the clothing e-retailer Shein keep their prices low by relying on a tariff loophole that waives duties on goods from China that are worth less than $800. President Trump's executive orders on tariffs closes that loophole, known as de minimis, which may pressure Temu and Shein to raise prices.

By offering goods at a price that is 20% to 40% cheaper than U.S. competitors, and Temu is estimated to have made about $20 billion in 2024, Thomas said. Dollar Tree and Five Below, meanwhile, work mainly with middlemen so they won't be negatively impacted by the de minimis rule going away, Thomas said.

Dollar Tree and Five Below are still at risk, though, because they both get about 40% of their products from foreign vendors, the vast majority of which come from China, according to separate annual reports from both companies.

A 10% tariff on goods imported from China would likely drive up the cost of procuring those products, Bank of America analysts led by Lorraine Hutchinson said. That may translate into higher consumer prices at Dollar Tree, which charges $1.50 for many of its products, and Five Below, which keeps most goods under $6.

"The consumer is not positioned to pay more for discretionary goods given pressures elsewhere in their budgets," BofA analysts wrote in a note.

Write to Katherine Hamilton at katherine.hamilton@wsj.com

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February 03, 2025 16:38 ET (21:38 GMT)

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