Shein to set up huge Vietnam warehouse in US tariff hedge: Report

* Fast-fashion giant to have first warehouse in Vietnam * It is leasing facility near Ho Chi Minh City, sought more, sources say * China's low-value shipments face US duties, Vietnam's remain

Hanoi/Shanghai: Fast-fashion online retailer Shein is leasing a huge warehouse in Vietnam, two people familiar with the deal told Reuters, its first in the country, in a move that could reduce its exposure to unpredictable US-China trade tensions.

Shein, which was founded in China and sells products including $5 bike shorts and $18 sundresses, has agreed to lease nearly 15 hectares of industrial land for a warehouse near Ho Chi Minh City, Vietnam's commercial and trading hub, the two sources said, declining to be identified because the information was not public.

The online retailer, which almost entirely relies on China-based suppliers to make garments for the United States and other markets, has been caught in the crosshairs of a tit-for-tat China-US trade war that threatens to upend global supply chains, despite a recent de-escalation.

One of the sources and a third person said Shein had been looking to rent more storage space in Southern Vietnam in addition to the large warehouse - equivalent to about 26 football pitches - which would store clothing and apparel from contractors before export.

Reuters could not establish where products housed in the leased warehouse would come from.

The retailer has previously flagged plans to source some products from Turkey and Brazil, and Shein suppliers from its traditional production base in southern China have told Reuters they are losing orders to Vietnam as some Chinese manufacturers opened factories there.

Shein, which is seeking a London listing, did not respond to questions from Reuters about the leasing of the warehouse space. It had previously denied it was shifting production capacity out of China.

The area around Ho Chi Minh City hosts an international airport, Vietnam's largest port for imports from China and another port that handles most seaborne exports to the United States.

Under a US threat of punitive tariffs, Vietnam is cracking down on some imports from China, which Washington has said have for long been illegally rerouted through Vietnam to the United States to avoid higher duties.

Reuters had no access to the details of the warehouse lease and could not establish whether Shein would be able to revise its plans should U.S.-China trade tensions de-escalate further, reducing the appeal of diversification overseas.

Given the ongoing instability of the situation, however, analysts say Shein has little choice but to reduce its reliance on China.

"It would be dangerous for them not to diversify," said Manish Kapoor, CEO and founder of e-commerce supply chain solutions firm Growth Catalyst Group.

Army of suppliers

The fashion giant has built in China a formidable army of suppliers who can turn out crop tops and other fast fashion for a few yuan apiece to feed demand for cheap clothing from Gen Z consumers around the world.

Shein has said it is expanding its network of contractors in China and is also investing 10 billion yuan ($1.37 billion) in industrial projects in the south of the country, including a $500 million supply chain hub near Guangzhou. The first phase of that hub, currently under construction, will span about 49 hectares, around the size of Vatican City.

Shein became a behemoth selling more than $30 billion worth of goods annually on a foundation of cheap prices and advantageous trade rules, such as the US "de minimis" exemption that allowed duty-free entry for low-cost imports worth $800 or less.

The Trump administration scrapped that exemption for Chinese products on May 2, effectively exposing Shein's packages to a levy of 120%, before the US agreement with Beijing earlier this week reduced the duties to 54% on parcels worth $800 or less, and to 30% for low-value commercial shipments.

The US-China thaw has caused concern in countries benefiting from those tensions, but current US levies on Beijing keep Vietnam competitive as shipments from China's neighbour still enjoy duty-free treatment if they are worth $800 or below.

The reprieve could be short-lived, however. Kapoor says he is advising clients not to rely on drop-shipping "de minimis" imports from anywhere as a core part of their logistics strategy.

"We're advising people to expect that this "de minimis" exemption could be gone completely [before long]," he said.

Vietnam's other exports to the US face a 10% tariff until July when the levy would rise to 46 per cent if Hanoi does not otherwise reach an agreement with the White House.