Canadian international luxury retailer SSENSE will seek protection from creditors. This decision follows the recently announced elimination of the de minimis exemption for small-value shipments to the U.S. President Donald Trump’s executive order from last month. In the process, this order suspended the long-standing exemption for duty-free shipping on any package valued at $800 or less.
The de minimis exemption, established in 1938, aimed to minimize the administrative costs associated with collecting small amounts of import duties. Over the years, the threshold for this exemption ballooned. Today, e-commerce businesses and international merchants benefit from a system that streamlines low-value cross-border trade and provides a clear and efficient process. Last year nearly 1.4 billion packages valued at more than $64 billion entered the U.S. duty-free. All of this was possible due to a very intentional exemption in the law.
SSENSE recently articulated their surprise, along with others, that the de minimis exemption was not eliminated entirely. Rami Atallah, co-founder of the company, stated that the change “created an immediate liquidity crisis no short-term fix could solve.” This sudden and unexpected change in policy has a drastic effect on their business operations, prompting SSENSE to seek an injunction to protect themselves.
As part of its strategy, SSENSE intends to file for creditor protection “to protect the company, retain control of our assets and operations, and defend our future,” Atallah added. The company’s goal of course is to continue thriving in the highly competitive luxury retail sector, despite the increased costs from the new regulatory environment.
The implications of the de minimis exemption’s suspension go beyond just SSENSE. Tapestry, the parent company of high-end retailer Coach, says it will see a $160 million hit to its profits as a result of shifting tariff policies. Consider that roughly one-third of this loss is due to the repealing of one specific exemption. This amendment makes it more efficient and cost-effective for U.S. businesses and consumers to ship goods to the U.S. Now, they will encounter obligations according to the U.S. tariff rate assigned according to country of origin.
Perhaps the greatest blow to Canada comes from the stiff 35% tariff slapped on their goods shipped into the U.S. Luckily, a significant number of these products continue to benefit from the North American Free Trade Agreement (NAFTA) exemptions. In response to the new tariffs, Canada has paused shipments to the U.S. This pause will remain in effect “until further notice” and reflects the increasing alarm of Canadian businesses.
The White House has a good plan to deal with these changes. Their recommendation is to provide a uniform payment ranging from $80-$200 per package. Previous administrations under both Trump and his predecessor, Joe Biden, the administration has attacked the de minimis exemption. They contend that it hurts U.S. businesses and can be abused as a tool for smuggling illegal goods, most recently calling for its elimination.
SSENSE remains steadfast in its belief in “the fundamental strength of our business,” emphasizing its commitment to adapt and thrive in this challenging environment. The Ontario based company has been granted creditor protection. At the same time, it’s doing all this while marshaling its ship during one of the most transformative times in global retail history.