Shein Faces a Tough Market and Tougher Questions on the Road to IPO

Shein, which has since moved its headquarters to Singapore, has filed a confidential initial public offering with the Securities and Exchange Commission, The Wall Street Journal reported Monday. A company representative declined to comment.

Shein has been steadily taking market share from some of the country’s most established retailers as it expands in the U.S. But after three years of explosive growth, most of the low-hanging fruit has been picked, said Neil Saunders, managing director and retail analyst at GlobalData. That means the company needs to look for other avenues of growth: acquisitions, partnerships, and expanding into fresh product categories to appeal to new consumer demographics.

A capital injection from a public offering would certainly help, Saunders said. But is this the right time?

The IPO market has been struggling for the better part of the last two years, as higher interest rates have dampened appetite for risky investments. A small flurry of IPO activity earlier this fall—spearheaded by
Arm Holdings,

Instacart,

Birkenstock,
and
Klaviyo
Klaviyo
—sparked hopes that things were looking up. But it’s been a few months since most of these companies made their market debut, and the scene remains fairly lackluster, with the shares of all but Arm hovering close to their listing price, or lower.

For Shein, which secured a valuation of roughly $66 billion in a fundraising round earlier this year, the risk may be worth it.

“Although it’s perhaps not the most ideal timing, there is a question about when it would be, because there’s no guarantee the market will be more resilient or robust later,” Saunders said. “It might be worse.”

David Hsu, professor of management at the Wharton School, agrees, adding that the company is well positioned for an IPO despite the current market. In 2022, Shein raked in about $23 billion worldwide and reported $800 million in earnings, people familiar with the company told Barron’s earlier this year. And while retail is a cutthroat industry, the company’s factory-to-consumer business model, which relies on proprietary software and data, is competitive and will be hard to replicate, Hsu added.

“Investors get quite excited about tech players and give them higher multiples,” Saunders agreed. “That holds in Shein’s favor.”

Market forces aren’t the company’s only concern. Although Shein is based in Singapore, it has drawn scrutiny from Washington over its ties to China. The company has also faced a drumbeat of inquiries into its sustainability, copyright, and labor practices. Earlier this year, a bipartisan group of lawmakers asked the SEC to put Shein’s IPO on hold until it can be verified that the retailer isn’t using forced labor from China’s minority Uyghur population. Those calls bubbled up again following Monday’s report.

“If fast-fashion giant Shein wants to go public, they should have to prove their products aren’t sourced from forced labor,” wrote Democratic Rep. Jennifer Wexton in a post on X Tuesday.

Shein has consistently disputed the allegations. Donald Tang, Shein’s executive vice chairman, earlier this year told Barron’s that the company makes its manufacturing partners sign a code of conduct and uses proprietary technology to trace the origin of materials used in its products.

Ultimately, there may not be much the SEC can do to directly block an IPO based on some of those claims, said David Kaufman, partner and co-chair of Thompson and Coburn’s corporate and securities practice. The agency’s purview isn’t to determine whether an offering is a good or bad investment, he said, but rather to ensure that a company has fully disclosed all potential risks, including Congressional inquiries.

The SEC can, however, tie up the process by requiring very detailed disclosures. That may prove unappealing for a company that has been so tight lipped in the past.

“You’re trading off that liquidity against this risk that you’re going to get a lot of scrutiny,” Hsu said.

Write to Sabrina Escobar at [email protected]