Shein Scales Back Vietnam Expansion as Trade Rules Reshape Its Supply Chain

BY COMFORT OGBONNA

Shein is sharply scaling back an ambitious effort to expand its manufacturing and logistics operations in Vietnam, highlighting the challenges the fast-fashion giant faces as changing U.S. trade policies reshape the economics of its global supply chain.

The company began leasing about 15 hectares of warehouse space near Ho Chi Minh City more than a year ago as part of an effort to establish Vietnam as a major export and distribution base. The site was roughly equivalent in size to 21 soccer fields and was designed to support Shein’s strategy of shifting some production away from China.

At the time, expanding into Vietnam appeared to offer Shein a potential way to reduce its exposure to tariffs on Chinese goods and changes to U.S. trade rules.

The company had particular reason to consider diversification after the United States moved to restrict the duty-free treatment of low-value shipments, a policy that had played an important role in the business model of online retailers that ship inexpensive products directly to consumers.

Trade tensions between the United States and China also intensified, with tariffs on a wide range of Chinese products rising sharply in 2025.

Shein subsequently encouraged some of its largest Chinese suppliers to establish production operations in Vietnam, hoping the move would give the company greater flexibility and reduce its reliance on Chinese manufacturing for shipments to overseas markets.

Instead, the Vietnam expansion has been significantly reduced.

The warehouse complex, which was once the company’s largest bonded logistics operation in Vietnam and employed thousands of workers, now covers only about 6 hectares, according to people familiar with the company’s operations. Another person with direct knowledge said only about one-third of the originally planned site is currently being used.

Workers at the facility said mass layoffs began in April and that additional reductions were expected. Some teams have reportedly been reduced to roughly one-quarter of their previous staffing levels, while others have lost even more employees.

Activity at the facility has also declined sharply. During a visit in late July, only a small number of workers were seen at the site and just a few trucks were parked near the warehouses. Other facilities in the surrounding area, operated by different companies, appeared significantly busier.

The retreat from Vietnam reflects more than a change in Shein’s geographic strategy. It also demonstrates how difficult it can be to replicate the highly specialized manufacturing ecosystem the company has developed in southern China.

Shein’s business depends heavily on a vast network of small and medium-sized Chinese factories capable of producing large numbers of designs in extremely small batches. The model allows the company to test new products quickly, identify popular items and rapidly increase production when demand rises.

The speed of that system has become one of Shein’s biggest competitive advantages.

Factories within Shein’s Chinese supply network can produce millions of individual styles in small quantities, sometimes with only days between receiving an order and completing production. Some manufacturers operate on extremely narrow profit margins, accepting small orders because of the volume of business generated by the platform.

That system has proved difficult to reproduce in Vietnam.

Industry sources said Shein’s suppliers have encountered challenges finding enough workers willing to work the long hours and at the relatively low wages associated with the highly demanding production model.

“Sourcing diversification beyond China has practical limits, especially for companies like Shein whose competitive advantage depends on speed, flexibility, and extremely small production runs,” said Sheng Lu, a professor of fashion and apparel studies at the University of Delaware.

Some Chinese manufacturers that established operations in Vietnam have subsequently returned to China, according to people familiar with the industry.

A factory manager in Guangzhou’s Panyu district, an area known for its large concentration of small garment manufacturers, said some suppliers concluded that producing in Vietnam remained less efficient despite lower U.S. tariffs on Vietnamese goods.

The difference in production speed and efficiency, according to the manager, made it difficult for some factories to justify maintaining Vietnamese operations.

Changes in U.S. trade policy have also reduced some of the expected benefits of relocating production.

The United States ended the de minimis exemption for low-value shipments from all countries in 2025. The policy had previously allowed certain packages valued below $800 to enter the United States without the duties that would normally apply to larger commercial shipments.

The removal of the exemption dealt a significant blow to companies whose business models relied heavily on sending inexpensive individual packages directly to American consumers.

At the same time, U.S. tariffs on Chinese products have gradually declined from their highest levels, reducing some of the incentive for Shein’s suppliers to move production elsewhere.

Vietnamese apparel continues to benefit from lower tariffs than comparable Chinese products in some cases, but the gap has narrowed.

For example, a polyester knit dress imported from Vietnam or China can face a base duty of about 16%. Chinese products can also face additional tariffs tied to U.S. trade measures, potentially bringing the effective rate substantially higher than the rate applied to Vietnamese goods.

However, both China and Vietnam were recently subjected to additional U.S. tariffs of 12.5% related to allegations concerning the prevention of imports linked to forced labor. The additional tariffs have further weakened the economic case for relocating Shein-related production to Vietnam.

Shein is also strengthening its presence in China rather than continuing to shift substantial amounts of production overseas.

The company has increased investment in Guangzhou and the wider Guangdong province, where much of its manufacturing network is concentrated. Chief Executive Sky Xu made a rare public appearance in February and pledged more than 10 billion yuan, or about $1.5 billion, toward developing a smart supply-chain system in the region.

The renewed commitment to China comes as Shein prepares for a potential public listing in Hong Kong.

The company has previously explored listings in other major financial centers while moving its headquarters to Singapore as part of its international expansion. Its latest strategy, however, indicates a stronger emphasis on its Chinese manufacturing base even as it continues to operate as a global retailer.

The shift comes at a challenging time for Shein.

The company’s draft financial disclosures showed that U.S. revenue declined 14% during the first quarter, with the end of the de minimis exemption contributing to the decline.

Several suppliers said orders from Shein have either remained stagnant or grown only modestly. Some manufacturers are also preparing for weaker demand following new European Union rules imposing a €3 duty on low-value e-commerce imports.

The changes are putting pressure on Shein’s suppliers, many of which built their businesses around the company’s rapid growth and frequent small-batch orders.

Some manufacturers are now looking for additional customers and alternative online sales channels. Smaller suppliers have begun supplementing Shein-related business by selling products through other major e-commerce platforms.

Ping He, who has worked in operations management for Shein and TikTok Shop, said many smaller suppliers are increasingly looking beyond Shein as competition in online retail intensifies.

“Shein is not the prettiest boy in town anymore. There are many more options now,” He said.

Other manufacturers are also seeking customers that provide larger orders and longer production schedules, which can be easier and more profitable to manage.

For some factories, Shein’s small orders and narrow margins have become less attractive as production costs rise.

“Shein’s profit margins are just too thin … their order volumes are quite small, often just dozens of pieces at a time, which makes production a hassle. So we decided to drop them,” said Yang, a manager at a garment factory in Guangzhou’s Panyu district that previously worked with Shein.

The developments underscore the limits of Shein’s efforts to rapidly diversify its supply chain. While Vietnam remains an important manufacturing center for global apparel companies, replicating China’s enormous network of specialized factories, suppliers, workers and logistics providers has proved difficult.

For Shein, the experience also highlights the importance of balancing tariff diversification with the production speed and low-cost manufacturing model that helped fuel its rapid international growth.

As the company moves toward a potential Hong Kong listing and faces tougher trade rules in the United States and Europe, its renewed investment in southern China suggests that its manufacturing roots remain central to its strategy.

The future of Shein’s global supply chain may therefore involve some diversification outside China, but the company’s latest moves indicate that China remains difficult to replace at the scale and speed required by its business model.