Trump's trade war convinced Lovesac to move manufacturing out of China and into Vietnam. Take a look inside one factory that's trying to cash in on the shift.

Kate Taylor

Feb 26, 2020, 19:55 IST

Trump's trade war convinced Lovesac to move manufacturing out of China and into Vietnam. Take a look inside one factory that's trying to cash in on the shift.

Kate Taylor/Business Insider

A worker prepares the stuffing for a Lovesac couch.

Furniture company Lovesac, along with companies like Adidas and Samsung, is shifting product from China to Vietnam and other Asian countries - in part to dodge the impact of the US-China trade war.
"Trump will try to convince you that these Chinese companies pay those tariffs, but they don't," said Lovesac CEO Shawn Nelson. "It's Lovesac and American companies like mine that pay the tariffs."
We visited a factory in Ho Chi Minh City, Vietnam that is taking on more Lovesac production as the company attempts to move manufacturing outside of China.
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The trade war is helping convince companies to move manufacturing from China to Vietnam as they attempt to dodge President Trump's tariffs.

In 2019, Vietnam exported almost $47 billion more than it imported from the US. That's a significant increase from the $34.9 billion trade surplus between the countries in 2018. Companies including Samsung, Nike, and Adidas have shifted production into Vietnam from China as tariff concerns have grown.

"Trump will try to convince you that these Chinese companies pay those tariffs, but they don't," Lovesac CEO Shawn Nelson recently told Business Insider. "It's Lovesac and American companies like mine that pay the tariffs."

As they attempt to diversify outside of China, companies like Lovesac are turning to Vietnamese factories. Recently, Business Insider visited Tan Hoang Gia Trading Co., a factory in Ho Chi Minh City that has been taking on more Lovesac manufacturing in recent years.

Here is a look inside a factory taking on more work due to the trade war.

Tan Hoang Gia Trading Co. was founded in the mid-1990s, a few years before Lovesac. Today, it is painted bright Lovesac teal.

According to leadership at the factory, Tan Hoang Gia is hoping to shift towards solely manufacturing products for Lovesac.

Employees also wear the Lovesac teal-colored shirts.

Some of the first steps of the production line, which spans multiple warehouses, are producing the wood that will become the base of Lovesac's sectionals.

A few steps are automated, such as this one, in which a machine precisely cuts the wood into the necessary shapes.

However, most of the labor is done by hand.

While Lovesac is attempting to move manufacturing away from China, the country remains part of the company's supply chain.

For example, the plywood used to make Lovesac sectionals at Tan Hoang Gia is sourced from China.

"You're chopping down trees in one country, to rail them to another country, to use coal-powered electricity to build them, diesel fueling them across an ocean to land in America, rail to Chicago, only to FedEx them back to you in California, if you live there," said Nelson. "That is the craziest thing I've ever heard."

In the long term, Nelson says he wants to invest in local manufacturing and move much of Lovesac's production to the US.

Nelson says that currently, it is too expensive to manufacture Lovesac products in the US, where he says it would cost two to three times as much to produce goods.

"To be honest, we would prefer to make everything in the US, and in fact, we have longterm plans to do exactly that," Nelson said. "But, it's going to require robots, automation, new materials, and technologies that we're currently researching."

Minimum wage in Ho Chi Minh City was raised by 5.5% at the beginning of 2020, to 4.42 million Vietnamese dong a month. That is the equivalent of $190.90 in monthly pay.

When we visited the factory, workers were swiftly cutting wood, stuffing pillows, and weaving different elements of Lovesac products together.

The sectionals — or as Lovesac calls them, Sactionals — swiftly moved from one station to another, transforming from bare wood to furniture, ready to ship out of Ho Chi Minh City.

Some stations had entire teams, while others were just have one or two workers completing a specific task.

While the factory is in discussions to produce different models for Lovesac, when we visited, production was focused on Sactionals.

Upstairs, dozens of women sat behind sewing machines, stitching away.

More men and women worked nearby, measuring, stitching, and cutting fabric.

Some employees stood on tables to precisely arrange the yards of material.

Workers sewed cover after cover.

The finished products piled up quickly.

Others fitted the covers over Lovesac's cushions.

Downstairs, workers were getting ready to ship out a container full of Lovesac packages.

According to Tan Hoang Gia Trading Co., the factory sends out about 10 to 12 shipping containers filled with Lovesac products a week.

The factory's goal is to reach 20 a week, if Lovesac ups its orders.

Nelson says that Lovesac was attempting to diversity outside of China even before the trade war.

The trade war "just accelerated us pulling trigger on actually manufacturing in Vietnam and Malaysia and now Indonesia and India as well," Nelson said.

A bit before noon, a truck packed full of Lovesac products headed to a port in Ho Chi Minh City — its first transfer before continuing on to the US.

In the long term, Nelson may want to move Lovesac's production to the US.

But, right now the company is betting big on Vietnam.

And, Tan Hoang Gia Trading Co. is ready to cash in on that bet.

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