Shein, the ultra-fast fashion giant, has become a critical player in the local economy of Guangzhou’s “Shein villages,” where small factories quickly churn out affordable clothing for global consumers. But as Shein diversifies its production to Vietnam, factory owners in the region face uncertain times.
Shein’s success has been built on low prices, efficient supply chains, and favorable trade rules like the U.S. “de minimis” exemption, which allows low-cost imports to enter duty-free. The rapid response of factories in these urban villages, producing batches of trendy apparel on-demand, has helped Shein become a $30 billion company. However, recent visits to these villages revealed a decline in local orders as Shein has moved some production to Vietnam.
Several factory bosses in Guangzhou’s Panyu District reported a significant drop in orders, blaming Shein’s shift to Vietnam to avoid rising tariffs and trade uncertainties. One owner, Mr. Li, who has worked with Shein for five years, stated that orders have halved, reflecting a broader shift in production patterns. “The impact is quite obvious,” Li said. “We don’t know what will happen next.”
Factories in these villages typically produce affordable items like crop tops and skirts, which are then shipped globally at a low cost. For many of these factory owners, Shein’s arrival marked a new era of cross-border e-commerce. “Before, there was no such business in China,” said Mr. Hu, another factory owner and Shein supplier. “Xu Yangtian of Shein made it happen.”
Despite Shein’s global growth, which includes plans for a $500 million supply chain hub in Guangzhou, the company’s increased production in Vietnam poses challenges. Factory owners confirm reports that Shein has incentivized major suppliers to relocate to Vietnam, where costs are lower and tariffs are more favorable. However, some smaller factories, like Hu’s, do not meet the criteria for relocation support.
In response to these reports, Shein denied shifting production out of China, claiming that its Chinese supplier base had grown from 5,800 to 7,000 suppliers in the past year. However, Shein declined to comment on specific incentives for suppliers to move operations to Vietnam.
This shift to Vietnam presents a catch-22 for Shein: while moving production helps avoid tariffs on U.S.-bound goods, it could disrupt the company’s fast-paced model. “Shein will have to change its business model to diversify its supply chain, but doing so could hurt its turnaround times and costs,” said Sheng Lu, a professor at the University of Delaware. Industry experts warn that these disruptions may lead to higher prices for consumers, threatening Shein’s competitive edge.
For factory owners like Li, the prospect of moving operations to Vietnam is daunting. The cost of relocation and the slower pace of production in Vietnam make it an unattractive option. “Here we can finish 1,000 pieces in one day, but in Vietnam, it takes a month,” Li explained. With limited options, some factory owners see moving to Vietnam as their only chance to survive.
As Shein’s future unfolds, both the company and its network of suppliers face significant challenges in adapting to shifting global trade dynamics.
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