Shein, a fast-fashion brand, has benefited from the favorable trade regulations such as the “de minimis” threshold in the United States, allowing low-priced goods to enter the American market duty-free. However, amidst the trade war between China and the U.S., questions arise about how long Shein’s “good times” can continue.
A recent visit by Reuters to Shein Village in Panyu District, Guangzhou, revealed a subdued atmosphere. Three factory owners and four downstream suppliers reported a noticeable decrease in local orders from Shein, attributing it to the transfer of production capacity to Vietnam.
With the U.S. imposing steep tariffs of 145% on Chinese goods and canceling the tax-free policy for small packages from China, the future of Guangzhou’s “Shein Village” and Shein itself is now shrouded in uncertainty.
“Shein Village” houses hundreds of factories capable of swiftly fulfilling online orders, producing fashion items from leopard pants to countryside-style tops at rapid speeds. Mr. Li, the owner of a clothing factory established in 2006, disclosed that orders from Shein have halved this year, with more orders being redirected to Vietnam. The impact is evident, and the future remains unclear in the face of persistent tariffs.
In “Shein Village,” thousands of small-scale factories produce trendy items in small quantities at low costs, swiftly selling them globally to young consumers.
56-year-old Mr. Hu expressed, “Honestly, cross-border e-commerce has been insane in the past two years; there was nothing like this in China before.”
Two factory owners confirmed that Shein has recently encouraged large suppliers to set up production facilities in Vietnam, offering guaranteed orders and extended delivery periods. This information either comes directly from Shein or indirectly from other suppliers.
Since the Chinese New Year, following the return of Trump to power, Shein has directed many large factories to establish footholds in Vietnam, according to Mr. Hu. However, his factory, with a monthly output of around 200,000 to 300,000 pieces during peak seasons, is unable to qualify for funding under Shein’s relocation incentive program.
When questioned by Reuters, Shein responded that claims of relocating production capacity were untrue, highlighting an increase in the number of Chinese suppliers from 5,800 to 7,000 over the past year. Yet, Shein did not directly address whether they provide incentives to encourage major Chinese factories to move to Vietnam and if this impacts orders from other Chinese suppliers.
Shifting production to Vietnam may allow Shein to continue utilizing the tax-free policy for small packages to send goods to the U.S. at low or no tariffs, but the applicability of this policy in Vietnam remains uncertain.
Alison Layfield, the Product Development Director at ePost Global, added, “They will certainly try to pass on the costs to consumers, but consumers may no longer be able to place orders at the previous prices and quantities.”
Sheng Lu, a professor of fashion and apparel studies at the University of Delaware, pointed out that without adjusting its business model, Shein may struggle to achieve a diversified supply chain. “Its model of fast-paced small-batch releases is smart, but a full relocation to Vietnam would inevitably affect delivery times and costs.”
For Mr. Li, relocating to Vietnam involves high investment costs and lower labor efficiency compared to China, making it unappealing. “We can produce 1,000 pieces of clothing a day here; it would take a month there.”
He plans to focus on the domestic market, but he acknowledges that for other factories, “they only have two options: bankruptcy or moving to Vietnam.”