Groups of urban villages on the outskirts of the Chinese southern metropolis Guangzhou count fast fashion retailer Shein as so key to their fortunes, locals regularly call themselves residents of “Shein villages”.
Shein has quickly become a retail giant in recent years, now selling over $30bn worth of goods annually. The Chinese company’s model has been built on cheap prices and convenient trade rules, such as the US “de minimis” exemption that allows low-cost imports to enter the country duty-free.
Equally important is the efficient supply chain, powered by hundreds of buzzing factory floors. Here, thousands of “villagers” toil for hours in conditions that have regularly been called into question. These employees react in real time to online orders for leopard print palazzo pants or peasant blouses at unbeatable prices, as Shein only grows in success.
On a recent visit to Shein villages in Panyu District, however, the mood was glum. Three factory bosses along with four local downstream suppliers said Shein’s local orders were in decline, pointing the finger at moves to diversify production to Vietnam.
As companies reliant on China for production reel from tariff rates of 145 per cent and cancellation of the de minimis threshold for packages from China, questions are being asked about how long the good times can keep rolling – for Guangzhou’s factories and also for Shein.
Factory owner Mr Li has been in business since 2006, manufacturing apparel for both the Chinese and international markets. He has been working with Shein for five years and says orders from the firm this year have dropped by 50 per cent as more orders have moved to Vietnam.
“The impact is quite obvious,” he said, “tariffs are not something that we can see an end to for the time being, and we don’t know what will happen next.”
Here, thousands of small contract manufacturers produce small batches of crop tops and mini-skirts for a few yuan apiece that are then quickly shipped to young consumers around the globe paying a few dollars each for the same items.
“To be honest, cross-border [ecommerce] has been crazy in the past two years. Before, there was no such business in China,” says factory owner and Shein supplier Mr Hu, 56. “It was Xu Yangtian of Shein who made it happen,” he said, referring to the Chinese-Singaporean entrepreneur and founder of Shein. “He caused it to emerge.”
Hu and Li declined to use their full names for privacy reasons.
Shein, which recently secured UK approval for a London IPO that can only go ahead with a nod from Chinese regulators, is also investing 10 billion yuan ($1.37bn) in industrial projects in South China, including a $500m supply chain hub in Guangzhou’s Zengcheng district.
Both factory bosses confirmed earlier media reports that Shein has begun incentivising its biggest suppliers to move production to Vietnam with promised minimum orders and longer lead times, having been told directly by Shein or informed by other suppliers who were briefed on the plans.
“Since Chinese new year, when Trump came to power, Shein has been asking many leading factories to find ways to open factories in Vietnam,” Hu said, adding that his firm, which employs about 100 people and manufactures 200,000-300,000 pieces per month for Shein during busy periods, was too small to be considered a candidate for an incentivised move.
In a statement replying to Reuters questions, Shein said reports that it was shifting supply chain capacity out of China were “untrue” and pointed to a growth in suppliers in China, up to 7,000 from 5,800 last year.
