If the Trump administration bears punitive tariffs on Chinese import measures, Shein is exploring ways to restructure its U.S. business, which jeopardizes its plans for a London stock market flotation.
The fast fashion company's U.S. business, which accounts for about one-third of its $38 billion revenue, will be seriously injured when it closes a tax exemption called "De Minimis" this week.
This would allow Shein to order homes directly from Chinese warehouses to shoppers and pay a 120% tariff on cheap clothes it sells to customers in the largest market in the U.S.
Two people familiar with the company’s deliberations say a solution being considered is to transfer production from the U.S. market to countries outside China. Although most of Shein's supply chain is located in China, the company has some manufacturing capabilities in other countries, including Brazil and India.
However, its supply chain capabilities in these countries are limited, and it is doubtful that it will reach a scale that matches Shein's operations in China, which has a network of 7,000 suppliers. Transferring production elsewhere would significantly reduce Shein's U.S. operations, according to industry insiders.
Any efforts to deal with President Donald Trump's tariffs by moving manufacturing from China could also arouse government anger.
According to Bloomberg, China's Ministry of Commerce has been blocking Shein and other exporters from transferring supply chains to other countries. Shein had previously said that this is not transferring supply chain capabilities from China to China.
Sources familiar with Shein's thinking said no decision was made at the board level regarding any restructuring in the United States. They added that despite the risk of sales risks, Shein still benefits from a healthy balance sheet due to its asset lighting business model.
If the tariffs do cause lasting damage to Shein's U.S. business, the company will be forced to postpone its widely expected London IPO, which was originally scheduled for the first half of this year.
"Inside, we're all focused on figuring out how to deal with the tariff situation right now. No one can start thinking about an IPO until that's clear," said an executive who refused to name because of the sensitivity of the problem. Shein declined to comment.
Shein's price rose 377% before the implementation of higher tariffs, such as hair bundles. However, in its core apparel business, most prices have risen much lower.
Shein executives are closely monitoring geopolitical developments and hope that negotiations between Washington and Beijing can bring tariffs to acceptable levels.
The rapid growth of Shein, led by its co-founder Sky Xu, is achieved through import taxes on low-value packages that arrive in the United States and Europe. Both the EU and the UK have begun preparing to terminate their respective low-value import plans.
The United States will replace its "minimum" exemption, which applies to goods worth less than $800, with a 120% tariff or a $200 fee, depending on how the goods are delivered. These changes will apply to goods in China and Hong Kong.
In April, Shein's U.S. revenue was huge because customers expected this change and therefore had a huge revenue. Another person near Shein said it is confident it can withstand changes to the smallest rules of the United States.
Other reports by Eleanor Olcott in Beijing