What Could SHEIN's Move to Vietnam Mean for Sustainability?

SHEIN is currently reassessing its supply chain approach in the wake of actions by US President Donald Trump aimed at modifying the dynamics of tariff-free imports, posing a significant challenge to SHEIN's existing business framework.

The fast fashion giant has already come under scrutiny for unethical manufacturing practises and human rights violations in its factories — so what does a potential move from manufacturing in China to Vietnam mean for ESG?

What are the supply chain tariffs?

Historically, SHEIN has capitalised on a trade provision known as the de minimis rule — which has permitted goods valued at less than US$800 to be shipped into the US devoid of any tariffs.

However, with President Trump's recent decision to eliminate this exemption and impose an additional 10% tariff on all goods imported from China, SHEIN has initiated a strategic pivot towards Vietnam as an alternative production base to circumvent escalating costs.

The company, originally founded in China but now headquartered in Singapore, has directly engaged with thousands of Chinese factories to dispatch low-cost fashion globally.

Nevertheless, the tightening grip of US trade policies has expedited SHEIN's drive to diversify its manufacturing locations beyond Chinese borders.

Shifting operations to Vietnam

Vietnam has emerged as a pivotal player in SHEIN's strategic overhaul due to its competitive labour costs and well-established garment production infrastructure.

Additionally, Vietnam's involvement in various free trade agreements offers a buffer against the harsh financial impacts of US-imposed tariffs.

This relocation is not just a tactical shift but is synchronised with a wider movement within the fashion sector to restructure supply chains in a time where there are geopolitical fluctuations.

This strategic realignment will enable SHEIN to preserve its competitive pricing model while ensuring uninterrupted access to critical markets such as the US and Europe.

Despite no official commentary from the company on this operational shift, market analysts deem it an essential manoeuvre for SHEIN to continue its growth trajectory in the face of increasing regulatory pressures.

What is the potential sustainability impact?

Vietnam's labour costs are competitive, which is attractive for SHEIN's business model. 

However, this raises concerns about potential labour exploitation and working conditions in the new manufacturing locations.

SHEIN has faced criticism for unethical manufacturing practices and human rights violations in its Chinese factories. 

The company will need to implement robust labor standards and monitoring systems in Vietnam to avoid similar issues and improve its social responsibility profile.

Challenges in SHEIN's IPO ambitions

With these supply chain adjustments, SHEIN's plans for an initial public offering (IPO) are also undergoing recalibrations.

Initially aiming for a London market entry in early 2025, the company is now grappling with delays due to the volatile landscape shaped by US tariffs.

Valued at US$66bn during its most recent funding round in 2023, SHEIN remains a formidable entity in the fashion world.

The uncertainty sparked by shifting regulations in pivotal markets like the US has forced SHEIN to reconsider its timeline for going public.

Despite this, the firm is still avidly pursuing UK regulatory approval while simultaneously adjusting its operations to tackle the emerging tariff challenges.

Florimond De Tinguy, VP of Sales at VTEX, explains the significance of SHEIN’s strategic shift: “When a brand is preparing for an IPO, it must navigate market-driven shifts, such as investor sentiment and regulatory changes.

"However, some emerging factors, that were always possible, can signal a broader industry trend, prompting companies to reassess their timing and strategy.

"SHEIN’s decision to rethink its much-anticipated London IPO speaks to the drastic changes that tariffs have caused on the retail sector.

"Amid mounting pressure on its valuation, which many estimated fell from US$90bn to US$50bn in February, SHEIN’s decision to delay its UK listing is the starkest example yet of growing caution in retail.

"The brand’s shift in focus from rapid expansion to strategic adaptability reflects a recognition that in today’s volatile environment, survival and long-term success depend on flexibility and foresight.”

What are the long-term impacts of tariffs on supply chains?

SHEIN's rapid growth post-COVID-19 was significantly propelled by the de minimis provision, enabling cost-effective shipments into the US.

A recent US congressional report disclosed that more than 30% of de minimis shipments to the US were accounted for by SHEIN and its chief competitor, Temu.

As Trump amplifies efforts towards imposing tariffs, both SHEIN and Temu faces escalating cost pressures.

Analysts from RBC Capital Markets caution that the abolition of the de minimis rule could severely disrupt their business models, resulting in increased prices for consumers.

While SHEIN has not relinquished its IPO aspirations, the firm is prioritising supply chain adjustments to safeguard profit margins, indicative of a broader trend within the industry towards re-evaluating sourcing strategies in response to geopolitical risks.

SHEIN’s expansion into Vietnam signifies a long-term strategy aimed at buttressing supply chain resilience and sustaining competitive pricing, despite ongoing geopolitical upheavals.

Whether these measures will suffice to keep the business thriving under intensifying regulatory scrutiny is yet to unfold.

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