Tag: tariffs

What Do We Know about Shein’s Sourcing and Supply Chain Strategies from Its IPO Filing?

According to Reuters, Shein has received the necessary approvals to proceed with its Hong Kong IPO, which could take place as early as this fall. As part of the IPO process, Shein has disclosed detailed information about its business operations. The following analysis focuses specifically on the company’s sourcing strategies and supply chain practices.

Overview of Shein’s market and financials

According to the IPO filing document, Shein serves “more than 273 million active consumers in approximately 160 markets across the world.” In the first quarter of 2026, about 22.5% of Shein’s net revenue came from the US, down from 24.1% in 2025, 27.0% in 2024, and 29.4% in 2023. Over the same period, the EU (about 32.1% in Q1 2026) and the rest of the world (about 45.4% in Q1 2026) accounted for a larger share of Shein’s revenue.

Shein’s gross margin increased from 60.6% in 2024 to 67.9% in 2025 and 70.4% in Q1 2026. This increase partly reflects Shein’s growing third-party marketplace business, in which Shein generally records only “service fees” from third-party merchants rather than the full value of merchandise sold, and does not incur merchandise cost of sales on those transactions. Thus, the increase in gross margin reflects, at least in part, a shift in business mix rather than a comparable improvement in the merchandise profit margin.

Meanwhile, Shein’s net profit margin declined from 8.7% in 2024 to 4.9% in 2025 and a negative 1.1% in Q1 2026. The pressure is particularly evident in fulfillment costs, which increased from around 42% of revenue between 2023 and 2024 to 45.6% in 2025 and 47.7% in the first quarter of 2026. Shein subsequently recorded a net loss of US$99 million in the first quarter of 2026.

What is Shein’s LATR Model?

Behind Shein’s “ultra fast fashion” is what it calls the “Large-scale Automated Test and Reorder (LATR) operating model.” Under this approach, new products are initially produced in batches of approximately 100–200 units, and demand is evaluated using real-time customer data. Products that perform well are replenished rapidly, often within five days. Shein believes this system enables it to simultaneously offer an extremely broad assortment, rapid product refreshment, and low inventory levels, the three objectives that traditional apparel retailers often struggle to achieve.

Warehouses play a critical role in Shein’s LATR model and supply chain. According to the company, it has approximately 6 million square meters of warehouse space across Asia, North America, Europe, the Middle East, and South America as of 30 June 2026. Once Shein’s supply chain partners produce a small batch of products, that batch is shipped to one of Shein’s warehouses. Upon receiving customer orders, Shein packages and ships products directly from its warehouses to customers around the world. Shein has also been increasing its efforts to establish new warehouses around the world to be closer to the markets it serves.

Where are Shein’s apparel products mostly made?

As of 2025, Shein works with 7,500 contract manufacturers as well as “large numbers of merchants, independent designers and other suppliers.” Most of Shein’s partners are small and medium-sized enterprises (SMEs). This suggests that instead of relying on a small number of vertically integrated factories, Shein leverages a large, fragmented, and flexible supplier network. The advantage of SMEs is that they can specialize in particular products or production processes and have unused capacity that can be activated when demand suddenly increases.

Shein also admits that its supply network is “built on a distributed footprint of supply chain and fulfillment locations anchored by a central logistics hub in China.” “In 2025, products stored in our central warehouses in the Chinese mainland represented over 90% of our net revenues.”

Furthermore, unlike most Western fashion brands and retailers, which are pursuing a strategy of “reducing China exposure” and “sourcing diversification,” Shein’s IPO filing document does not indicate a large-scale shift of its production away from China.

What are Shein’s key supplier selection criteria?

Shein says its suppliers do not have to be exclusive. Instead, contract manufacturers are permitted to supply other companies. No individual supplier accounted for more than 10% of Shein’s total purchases, and the five largest suppliers together represented only 14.9%–16.4% of Shein’s purchases from 2023 to 2025.

Shein allocates sourcing orders in part based on each supplier’s expertise, not solely on price. According to Shein, “our cloud-based software solutions enable suppliers to be fully digitally integrated with our supply chain from end to end, giving us full-chain visibility. This allows us to automatically allocate orders to suppliers based on expertise, price, capacity and other factors, helping suppliers maximize capacity utilization.” Thus, Shein’s supplier network seems to be differentiated by production capabilities rather than treated as a pool of interchangeable factories.

Shein also expects its suppliers to be flexible and nimble, with the ability to produce small initial batches and rapidly scale up production when demand is demonstrated. According to the company, “because an initial production batch consists of approximately 100 to 200 items, we can quickly launch a large number of new products with minimal upfront commitment, inventory risk, and resource waste. If a product sells well, we can rapidly scale up its production to meet consumer demand. We can rapidly launch small initial batches, and restock products that are in demand in as few as five days.”

Overall, Shein’s business model means it needs a network of specialized factories with flexible capacity. Its technology essentially acts as the coordination mechanism connecting those factories to rapidly changing demand. Shein also says it connects with its suppliers closely and deeply through digital technologies. Shein argues that such integration helps its suppliers “enjoy more predictable order flow, improved asset utilization and higher returns on investment, even with small batch production.”

How have de minimis removal and tariffs affected Shein?

Shein acknowledged that the removal of the U.S. de minimis exemption has already reduced its U.S. sales, slowed company-wide revenue growth, and increased fulfillment expenses. Shein says it is also aware of the EU de minimis rule changes.

In response to the removal of de minimis, Shein says it “for products previously eligible for the de minimis exemption, we have transitioned from a simple customs entry process for de minimis packages to a customs clearance process that requires more extensive documentation and procedures. Amongst other things, we have adopted necessary protocols for the formal entry process to ensure compliance with the more stringent documentation and other procedural requirements”

Regarding tariffs, Shein says “As a result of the recent developments, our China-origin products have become subject to tax rates ranging from 10% to 87.5% (increased from 0-62.5% during the Track Record Period prior to the removal of the de minimis exemption and the Trump Administration’s recent imposition of additional tariffs).

To mitigate the tariff impacts, Shein has been “pursuing a wide range of options, including increasing our prices in the U.S. market to offset a portion of the increased.”

How does Shein see the impacts of environmental regulations? How does sustainability fit its business model?

Shein argues that its demand-driven production system reduces overproduction by producing only small initial batches and replenishing products only after actual consumer demand has been observed. According to the company, this approach minimizes excess inventory, lowers waste, and improves profitability simultaneously. In other words, sustainability is portrayed as aligned with operational efficiency rather than being a cost imposed by regulation.

However, reducing unsold inventory is distinct from addressing the broader environmental impacts associated with the high-volume apparel overconsumption problem.

In the IPO filing document, Shein also introduces the company’s evoluSHEIN sustainability roadmap, which includes responsible design, material sourcing, circularity initiatives, and decarbonization efforts across the value chain. Shein intends to integrate sustainability into product development, manufacturing, and logistics while continuing to emphasize affordability and efficiency.

Supplier auditing

According to Shein, under its Responsible Sourcing (“SRS”) program, suppliers are audited by both in-house teams and internationally renowned third-party auditors, including Bureau Veritas, Intertek, Openview, SGS, TÜV Rheinland, and QIMA, all members of the Association of Professional Social Compliance Auditors. Shein ran roughly 4,200, 4,550, and 5,150 SRS on-site audits in 2023, 2024, and 2025, respectively, covering contract manufacturers representing about 95% of company-branded procurement value each year.  In 2025, over 99% of Shein’s on-site SRS audits were conducted by third-party auditors.

Additionally, Shein discloses that 5, 12, and 5 suppliers were terminated in 2023, 2024, and 2025, respectively, for SRS policy violations. The supplier code of conduct is said to align with the International Labor Organization (ILO) core conventions and the UN Universal Declaration of Human Rights.

However, in the IPO filing document, Shein didn’t mention anything related to forced labor risk, Xinjiang cotton, or UFLPA-related compliance.

What important business issues does Shein see over the next few years?

According to the IPO filing document, Shein sees its future success as depending on the company’s ability to continue expanding internationally while adapting to increasingly complex trade and regulatory environments. Shein regards investments in technology, artificial intelligence, supply chain resilience, fulfillment infrastructure, and marketplace expansion as central strategic priorities.

Importantly, Shein acknowledges that “we have grown rapidly since our inception, and there is no assurance that our growth will continue. In particular, we recorded a net loss of US$99 million for the three months ended 31 March 2026, and there is no assurance that we will achieve or maintain profitability in the future.”

Shein also noted that international tensions are expected to “escalate at an accelerated pace,” potentially creating additional barriers to trade. Its China-based sourcing model therefore represents a strategic vulnerability, even if maintaining production in China remains economically advantageous. As Shein acknowledged, “We sell products to a large number of countries and regions around the world, including the United States and Europe. Currently, the substantial majority of the products sold by us or on our marketplace originate from the Chinese mainland. Tariffs and other trade restrictions imposed by any country where we sell products, particularly on products shipped from China, could significantly hinder our ability to sell products to that country.”

by Sheng Lu

Related reading: Wearing thin: Five things to know about Shein (Udaily, Aug 2026)

FASH455 Reading Discussion: Can Tariffs Revive “Made in the USA” Textiles and the Western Hemisphere Textile and Apparel Supply Chain?

Background Reading

Read the following article before completing the discussion: Kate Nishimura (May 4, 2026). It Will Take More Than Tariffs to Bring Back US Textile Manufacturing, Industry Insiders Say. Sourcing Journal.

Discussion

Based on the article, do you think tariffs are an effective strategy for strengthening the U.S. textile industry and the Western Hemisphere textile and apparel supply chain today? Why or why not?

In your comment:

  • Clearly explain your viewpoint
  • Apply at least one key concept learned from our lectures in April/May
  • Use specific examples, data, or arguments from the article to support your viewpoint

You may also address any of the following aspects in your comment:

  • Why do some U.S. industry stakeholders, such as NCTO, prefer U.S. apparel sourcing from the Western Hemisphere over Asia?
  • How do trade agreements such as USMCA or CAFTA-DR support regional textile and apparel supply chains in the Western Hemisphere?
  • What are the advantages and limitations of producing textiles in the United States while assembling apparel in nearby countries in the Western Hemisphere?
  • Do you think tariffs encourage long-term investment in U.S. textiles, or do they mainly create short-term adjustments in sourcing strategies?
  • How could rising geopolitical tensions and supply chain disruptions increase the importance of Western Hemisphere sourcing?

Conversation with Katherine Tai, US Trade Representative, on International Trade and US Trade Policy (February 2024)

  • Speaker: Katherine Tai (U.S. Trade Representative, Office of the U.S. Trade Representative)
  • Presider: Michael Froman (President, Council on Foreign Relations; Former U.S. Trade Representative, 2013-17)

Excerpt from the conversation

Worker-Centric US trade policy

Question from FROMAN: “Back in the old days, there was a notion that since the U.S. market is relatively open—we don’t have that much protection here, the average applied tariff is about 3 ½ percent—that if we were able to reduce barriers to other countries disproportionately we could export more made by U.S. workers, and that export-related jobs paid more than non-export related jobs, and that we could use access to our market as a way of getting other countries to reform their labor practices and raise their standards, which would create a more level playing field. That theory is sort of out of vogue at the moment. But, tell me, can you envisage what an agreement that is worker-centric looks like that reduces barriers or increases trade?”

Response from TAI: “The percentage of (U.S.) exports to GDP is around 10 percent—maybe 11 or 12 percent. So it’s not very high. Some of our—some of our trading partners have very, very high exports as a proportion of GDP (e.g., 25 percent)…So you just have to put that (trade liberalization) into context. I think you also have to think about the fact of the balance of exports and imports…”

“We’re trying to create and maintain jobs, and good jobs, at home… so then the question becomes not what do I have to pay you to do X, Y, or Z, but how can we put the forces of our cooperation together? What does the deal look like where we are building our middle classes together? And I think that the worker pieces then come in, along with the environment pieces, as something that I shouldn’t have to pay you to do, but as something that you should want to do…”

“Traditionally we’ve kept our scorecard by, you know, how many trade agreements you finished and how many you’ve gotten across the finish line… Our progress lies very much in how the conversation has fundamentally shifted. That the conversation now is very much focused on supply chain resilience, on equity, and how not to leave those within our economies behind further, how not to leave those developing countries behind further.”

Digital trade

Question from FROMAN: “For a long time, the U.S. had a position around the free flow of data across borders, not taxing digital products across borders… given the fact that the U.S. economy is probably—certainly the leader in all things digital, what does it mean for us to move away from defending these principles that have been so core to what we’ve tried to do before?”

Response from TAI: “So in early 2000s that we’re negotiating (digital trade)… It’s called the e-commerce chapter. And it’s the e-commerce chapter in several iterations of FTAs (free trade agreements)…And I think that that makes sense if you think about what the digital economy looked like in the early 2000s. It really was about e-commerce…At the time—thought about e-commerce digital trade provisions as largely facilitative provisions. The flow of data was there, and we wanted to safeguard the flow of data to facilitate traditional trade transactions, the movement of goods across borders, the analogy to services we used also in digital.”

“In 2024, one of the things that you realize is that the flow of data, the decisions around where data needs to be stored, how it needs to be handled, has—on much, much different dimensions because over this period of time, in fact, in the digital economy the data is no longer just about facilitating traditional types of transactions. The data has become the commodity in and of itself. The data is now what has value. The ability to accumulate that data and for vast amounts of data then to be combined with computing power to create things like generative AI and large language models, it starts to give you a sense, just as a normal trade negotiator, that there are much, much bigger equities at stake in what we might be doing in our trade negotiations…It’s not just about facilitating trade, but around how we regulate data and how we regulate the companies that accumulate, harvest, and trade in this data is something that we need to resolve and advance before we can thoughtfully and responsibly engage in trade negotiations to figure out what the limits are in terms of what we should be doing, and what the goals are for what we should be doing with our trading partners… what underlies the digital economy and our digital existences, and just thinking about what the rules should be for how that data is handled, who has rights to that data, and then the international components around trade and prosperity but also trade and national security.”

Tradeoffs in trade policy

Question from FROMAN: “Trade is a great area to talk about tradeoffs. We hate being overly dependent on China for basic goods. We also hate inflation and higher cost of living. The actions taken to deal with the first one will likely exacerbate the second one… How do you talk about that tradeoff with communities around the country? And do you make explicit that, yes, you’re going to pay more at Walmart for this for that, but we’re going to become less dependent on China as a result?”

Response from TAI: “That today, we know that we have critical dependencies and vulnerabilities that are actually bad from a national security and just a geopolitical standpoint. For every sector where we feel that we are critically vulnerable to another country and, say, China in particular, I think that it creates a sense of angst and insecurity that is destabilizing for the world economy and, frankly, for the world… if you look at it from a more holistic, medium-term perspective, supply chain diversity and supply chain resilience is actually a management tool for inflation… “

“For as long as there are concentrated pockets for production and supply—and this is internationally, but this is also the logic behind taking on dominant players in our economy—for as long as you have that kind of dominance, you’re going to have in the hands of certain players the ability to distort the market and to take advantage of that dominance by jacking up prices, whether it’s shrinkflation, or greedflation, or in the international context economic coercion… if you think about the tradeoff as between today and tomorrow, it’s not zero-sum at all. And in fact, these changes are ones that we need to be able to manage, not being faced with the same risks over and over and over again.”

US trading partners

Comment from TAI: “when you talk about some evolution in our (trade policy) approach, I just want to be clear, the evolution in our approach is about what should be in those things, what should be in those agreements, what should be in the exercises and the cooperation that we undertake with our partners. This is not a walking away from those partners, at all…You’ll see how much time I spend in Brussels, how much time I’ve spent in Asia, and the Indo-Pacific over the course of the last three years. And you’ll see that the prioritization of our like-minded partners, our traditional partners if you will, is still very much there.”

Tariffs

Comment from TAI: “What is really important to appreciate about tariffs is that they’re a tool. They’re a tool that can be used in constructive ways… They’re a tool, at least for us, in trade remedies… They are a tool for remedying unfair trade. I actually kind of like the way the Europeans describe these types of tools—dumping, countervail. They call them trade defense instruments.”

“What I also want to reflect is that trade policy and economic policy isn’t just tariffs… we have kept a lot of the tariffs, because we see strategic value in those tariffs in this exercise of building up the middle class and reinvigorating American manufacturing and the American economy… it needs to take the tariffs as a tool, the investments as another tool to help reinforce, policies that support and empower all workers, and to encourage our partners to be supporting and empowering their workers, and then also promoting economic vitality, opportunity through the enforcement of our competition laws…”

Textile industry strategic or not?

Comment from TAI: “You know, there are things that are more strategic, things that maybe we feel like are less strategic or not strategic. But, you know, I think that is actually a really, really important question. And it’s a hard one—what’s strategic and what isn’t? We clearly did not think that surgical masks—surgical, you know, medical-grade gloves and ventilators were that strategic. And so we let that go wherever it was going to go. And in the early days of the pandemic, boy, did that hurt us a lot. So, you know, one of the—one of the stories that came out of the pandemic was all of our—all of our textile manufacturers, you know, were told your industry is not that strategic. They’d been told it for a long time. And yet, we know that it is important. It’s politically important. And USTR has for a very long time had a textiles office and textiles negotiator…it was that textiles industry, what we still have, that was able to repurpose their capabilities and to step up, and to actually start producing some of these things that we were really deficient in during the pandemic, and to save us. So I think that where you draw the lines on strategic and nonstrategic… It’s not necessarily obvious.”

Video discussion questions [For students in FASH455, please address at least two of the following questions in your response]

#1: Tai emphasizes the importance of creating and maintaining good jobs at home and building middle classes together with trading partners. How can the textile and apparel trade contribute to the goal?

#2: Reflecting on the textile industry’s response during the pandemic, Tai raises questions about what industries are considered strategic and the implications of such categorizations. How should policymakers determine which industries are strategic, and what criteria should be used in making these decisions?

#3: How has the role of data evolved in trade discussions, and what are the potential challenges in regulating data in international trade agreements? What are the implications of digital trade governance on today’s fashion business?

#4: Tai discusses the strategic importance of supply chain diversity and resilience. How might diversifying supply chains contribute to national security and economic stability, and what are the challenges in achieving this diversification? Please use the textile and apparel sector as an example.

#5: Any other reflections, thoughts, or feedback on the conversation?

[discussion is closed]

USITC Assessment on the Economic Impacts of the Section 301 Tariffs—Textiles and Apparel

In March 2023, the US International Trade Commission (USITC) released its official assessment of the economic impacts of Section 301 tariffs on imports from China.

USITC adopted two methods to estimate Section 301 tariffs’ economic impacts:

  • Econometric model estimates using monthly trade data (10-digit HS code) from January 2017 to December 2021.
  • A set of partial equilibrium models that linked section 301 tariffs to domestic prices and production at the four-digit NAICS code level. USITC used data from 2018 to 2021 as the base year.
  • USITC only considered Section 301 tariffs’ direct impacts, i.e., “how tariffs impacted prices, production, and trade for products subject to section 301 tariffs and domestic sectors that compete directly with those imports.”

Regarding the overall impact of Section 301 actions, USITC found that the tariffs imposed on Chinese goods resulted in a price rise paid by US importers, but the exporter prices received by Chinese firms were mostly unchanged. As a result, “imports from China decreased in quantity, leading to a substantial decline in their import value. These changes, in turn, caused an increase in production and prices in US domestic industries that were competing with Chinese imports.”

USITC also evaluated the specific impacts of Section 301 tariffs on the Cut and Sew apparel (NAICS 3152) sector. According to USITC:

“nontariff-inclusive value” refers to the change in the value of imports from China excluding the value of the section 301 duties themselves, which provide an indication of the change in import quantities because export prices are mostly unchanged.

First, Section 301 tariffs hurt US apparel imports from China. USITC estimated that US woven apparel (NAICS 3152) imports from China decreased by 14.7% in 2019 but fell nearly 40% in 2020 and 2021 due to Section 301 tariffs. However, USITC didn’t explain why imports from China suddenly worsened, nor if other factors, such as the Uyghur Forced Labor Prevention Act (UFLPA), played a role.

Second, Section 301 tariffs mostly replaced US woven apparel (NAICS3152) imports from China with other sources. However, the direct benefits of Section 301 tariffs to US domestic cut and sew manufacturing seemed limited. Specifically, USITC estimated that US woven apparel imports from sources other than China increased by 7.1% in 2019, 24.8% in 2020, and 25.2% in 2021 due to Section 301 tariffs. In comparison, Section 301 tariffs resulted in modest growth of US domestic woven apparel (NAICS3152) production (up to 6.3%) over the same period.

Actual trade and production data further showed that US woven apparel (NAICS 3152) imports from sources other than China increased from $55.3 billion in 2018 to $61.2 billion in 2021 (or up 10.7%). Over the same period, US domestic woven apparel (NAICS 3152) sales & value of shipments declined from $7.49 billion to $7.38 billion (or down 1.4%) (Data source: Census). In other words, no clear evidence suggests that Section 301 tariffs boosted US domestic woven apparel production.

Third, Section 301 tariffs made US woven apparel (NAICS 3152) imports from EVERYWHERE more expensive. On the one hand, USITC found that the price of US woven apparel (NAICS 3152) imports from China increased by 4.4% in 2019, 14.7% in 2020, and 14.5% in 2021 due to the Section 301 tariffs. However, similar to the case of trade volume, USITC didn’t explain why Section 301 tariffs’ price impact suddenly became more significant in 2020 and 2021. (Note: In fact, the Tranche 4A tariffs were 15% since September 1, 2019, but were reduced to 7.5% effective February 14, 2020, because of the US-China Phase One deal.)

Meanwhile, due to limited production capacity outside of China, the Section 301 tariffs caused an increase in the cost of US woven apparel imports from all other countries. Specifically, USITC found that the price of US woven apparel (NACIS 3152) imports from sources other than China increased by 3.2% from 2018 to 2021. (Note: given the hiking sourcing costs in 2022, the price increase could be more significant should USITC include updated 2022 trade data in the estimation.)

Additionally, USITC acknowledged that its estimation may “likely captures the most significant impacts of these tariffs in the short run.” However, some effects of section 301 tariffs would likely be delayed. For example, USITC said, “if importers and domestic producers anticipated the tariffs remaining in place long enough,” they may consider more costly changes, such as adjusting their supply chains and investing in domestic production.

Discussion questions:

  • Based on USITC’s assessment, should President Biden keep or remove the Section 301 tariffs on imports from China? Why or why not?
  • Regarding the impact of Section 301, any questions remain unanswered or can be studied further?
  • Any findings in the USITC report surprised you and why?

Additional readings: