Lululemon says closure of de minimis hole will crush margin

LULULEMON Athletica says the end of the de minimis exemption will hurt its gross margin more than tariffs.

The yogawear retailer, which has been struggling to keep sales momentum up, warned on Thursday that it would take a US$240 million hit this year from President Donald Trump’s decision to end the de minimis exemption and from higher tariffs. 

De minimis – which loosely translates as “too small to matter” – refers to small packages shipped directly to consumers from abroad, millions of which arrive in the US every day. A shipment that qualified as de minimis came with big perks, including no duties.

The US trade provision dating to the 1930s ended Aug 29. The value of goods subject to the de minimis tariff exemption had been US$800 since 2016.

Based in Vancouver, British Columbia, Lululemon relied heavily on the de minimis exemption, shipping two-thirds of its US e-commerce orders from Canada. Most of those orders are under US$800, so they qualified for the policy.

“The increased rates and removal of the de minimis provision have played a large part in our guidance reduction for the year,” Lululemon chief executive officer Calvin McDonald said on an earnings call with analysts. The company cut its earnings per share and revenue outlook. BLOOMBERG