Fast fashion retail giant Shein is on the brink of a significant milestone. According to various media reports, the company is set to file for an IPO in London, aiming for a valuation of around GBP 50 billion (USD 64 billion).
This move comes after facing regulatory and political hurdles in the US, where it initially sought to list. Shein’s strategic shift to the UK also highlights its ongoing efforts to navigate geopolitical tensions and secure a favorable market for its public offering.
From China to the world
Founded by the reclusive Chinese entrepreneur Sky Xu (also known as Xu Yangtian) and now headquartered in Singapore, Shein has transformed into a global fashion powerhouse by riding on the back of unprecedented success during the Covid-19 pandemic that struck at the turn of the decade. The company’s success is most notably built on a unique “small order, quick returns” model, allowing it to offer a vast array of low-priced clothing, driven by algorithms that predict consumer demand and help minimize excess inventory.
This approach enabled Shein to rapidly gain popularity over the past few years, particularly when e-commerce grew massively due to the pandemic. Shein achieved impressive financial performance as a result, amassing a profit of USD 2 billion in 2023.
However, Shein’s valuation has fluctuated significantly over the recent period. In April 2022, the company raised USD 1 billion in funding at a staggering valuation of USD 100 billion. A year later, Shein lost one-third of its value in a May 2023 deal that saw it raise USD 2 billion from Sequoia Capital, Atlantic Investments, and the Mubadala Investment Company. Fast forward to 2024, that valuation had been cut further to a range of USD 45–55 billion after investors sold shares on the private market.
The fact that Shein’s potential IPO, with a target valuation of around GBP 50 billion, remains poised to be the second largest in the history of the London Stock Exchange despite the valuation dip, highlights the meteoric rise of Shein.
ESG concerns cast a shadow
Shein’s change in valuation can be attributed to the challenges it currently faces. The company has been under intense scrutiny over its environmental practices and alleged use of forced labor in its supply chain. Investigations have revealed concerning labor conditions, including excessive overtime and links to Uyghur forced labor, which have raised environmental, social, and governance (ESG) concerns among potential investors. These issues could hinder Shein’s IPO success, as European institutional investors have increasingly prioritized strong ESG ratings.
In response, Shein has made efforts to bolster its green credentials. The company launched a resale platform in France, with plans to expand to the UK and Germany, although no date has been specified. Shein also maintains that it has a zero-tolerance policy for forced labor and emphasizes its commitment to upholding the highest standards of human rights and supply chain visibility.
Political support and strategic moves
Political leaders in the UK, including chancellor Jeremy Hunt and Labour Party officials, have shown keen interest in securing Shein’s IPO, seeing it as a significant boost for the City of London and the wider financial services industry. The UK government has been scrambling to make the country more attractive for companies to set out their stall, especially after several firms opted for the US instead.
Chancellor Jeremy Hunt and Shein’s executive chairman Donald Tang have held meetings to discuss the possibility of floating in London. A Labour Party spokesperson confirmed to BBC that meetings with Shein representatives had taken place, stating that they “expect the highest regulatory standards and business practices from any company operating in the UK. We believe the best way to ensure this is to have more companies operating from and regulated by UK law.”
It’s worth noting that Shein’s strategic shift to London comes after facing hurdles in the US, where it initially sought to list. US lawmakers raised concerns about Shein’s links to China amid intensifying tensions between Washington and Beijing. The company’s move to list in London is seen as a way to bypass these geopolitical challenges and secure a favorable market for its public offering.
Supply chain and business model
Shein’s distinctive business model has been a key driver of its success. The company uses algorithms to predict customer demand and cater to preferences, employing a production model that prioritizes small orders and quick reorders to minimize inventory pileup and reduce waste. Shein collaborates with over 5,000 third-party manufacturers for rapid product turnaround, ensuring it can release a large number of new styles daily.
This highly digitalized, direct-to-consumer (D2C) approach saves significant costs on rent, wages, warehousing, and shipping. By selling directly to consumers, Shein claims that it can pay suppliers quickly, sometimes within a week, compared to the industry average of around 90 days. This model has allowed Shein to remain cost-efficient and competitive in the fast fashion industry.
Market expansion and competition
As Shein continues to expand, it has ventured into other sectors, becoming a marketplace for third-party sellers. This puts it in competition with e-commerce giants like Amazon and Pinduoduo’s Temu. Shein has offered incentives to third-party sellers, such as zero commission and advertising fees for the first three months, to recruit them to its platform.
This new model pits Shein directly against Temu, which has used Chinese third-party sellers to sell extremely low-priced products worldwide from the start. The competition between Shein and Temu has evolved into a battle in court. Both companies have sued each other in the US, with Temu alleging that Shein pressured suppliers into exclusive deals to undercut rivals, while Shein accused Temu of directing influencers to make false claims against it.
The suits were dropped in October 2023 but the fight flared anew in December when Temu sued Shein again, accusing the latter of attempting to intimidate merchants to “steal Temu’s business secrets and simultaneously forcing merchants to leave Temu.”
Regardless, both Temu and Shein have disrupted the e-commerce supply chain by placing orders with suppliers and delivering within days, relying on real-time data to quickly analyze demand and replenish orders as needed. The market is becoming increasingly crowded, with TikTok, Amazon, Alibaba’s AliExpress, and Sea-owned Shopee all leveraging China’s expansive supply chain to compete for consumers globally.
The road ahead
Shein’s journey to a potential IPO in the UK encapsulates the broader narrative of a fast-growing global retailer grappling with the intricacies of international expansion, regulatory hurdles, and the pressing need for sustainable and ethical business practices in the modern market landscape. The company’s ability to maintain its growth trajectory while addressing ESG concerns and regulatory challenges will be crucial to its success in the public market.
While an IPO would represent a significant milestone for Shein and the city of London, the company’s road ahead seems fraught with challenges, from regulatory approvals and geopolitical tensions to addressing ESG concerns and maintaining investor confidence. As Shein navigates these complexities, its ability to adapt and uphold high standards will determine its success in the global market.