Stumbling blocks to Shein‘s initial public offering (IPO) keep growing.
The Chinese fast-fashion brand filed for a London flotation of its IPO earlier this year, but it is still awaiting U.K. regulatory approval from the Financial Conduct Authority (FCA). And even if approved, Chinese regulators—China Securities Regulatory Commission (CSRC)—could still block the flotation. That’s not all—Shein also could have valuation issues to deal with.
Shein initially planned for an IPO in the U.S., but eventually shifted its focus to London after drawing scrutiny from Washington lawmakers due to concerns over both ties to the Chinese government and alleged use of forced labor in its supply chain. Shein reportedly failed to secure CSRC approval for a U.S. IPO due to its supply chain issues.
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But some British lawmakers have been pushing for closer scrutiny of Shein’s labor practices. British Labour Party politician Liam Byrne last month called for the ban of imports made in the Xinjiang region in China, the area with links to the exploitation of Uyghurs and other Muslim ethnic groups via forced labor. Shein has maintained that it doesn’t have suppliers in the region. A company spokesperson told Sourcing Journal previously that “Shein has a zero-tolerance policy for forced labor,” and that its suppliers must adhere to a strict code of conduct “aligned to the International Labour Organization’s core conventions.”
A Bloomberg report on Wednesday indicated that the U.K. government is leaning toward leaving concerns over Shein’s labor practices to the FCA, which has oversight over listing rules. But even if Shein garners FCA approval, the fashion brand needs to secure the CSRC’s nod as well.
Although Shein is headquartered in Singapore, the company was founded in China. It still has close ties to China, where the majority of its staff and vendors are located. Those close ties mandate that any offshore IPO requires approval of Chinese regulators. The fast-fashion firm could also elect to float on the Hong Kong Stock Exchange or even the Singapore Stock Exchange. But exchanges in the West are the preferred way to go, given the wider level of activity and the potential for greater attention from Western investors.
And the U.S. and U.K. aren’t the only ones keeping tabs on Shein. In September, Italy launched a greenwashing probe into Shein. The Italian antitrust watchdog is probing Infinite Styles Services Co., a Dublin-based operation that manages Shein’s online presence. The probe’s focus is over the possibility of misleading sustainability claims connected with Shein’s clothing. And this month, Vietnamese regulators are requiring that Shein and its Chinese rival Temu register their respective domains in order to continue selling online to consumers throughout the country. Concerns over deep discounting and the potential for sales of counterfeit goods caught the attention of regulators. A Shein spokesperson said in an e-mail to SJ that it is working with local authorities in Vietnam on compliance.
And now Shein could have a different problem on its hands.
Last month, the fast-fashion firm’s first-half profits reportedly fell to just under $400 million, representing a 70 percent decline from a year ago, according to a report from Reuters. Revenue for the period reached $18 billion, but growth slowed to 23 percent for the half versus 40 percent growth in the same year-ago period. The slowdown also impacted net margins for the fast fashion brand. One reason for the decline is the intense competition Shein faces from its Chinese rival Temu.
Shein hasn’t officially launched the customary road show for investors ahead of its IPO, although sources said it had initiated meetings with some potential investors in Europe last month to gauge interest in its IPO. Now Shein has to show that the sales drop-off and margin decline were just a one-time aberration. If it can’t do that, Shein could see a hit on the valuation of the company.
Shein in March 2023 raised $2 billion from an investor group led by private equity firm General Atlantic, with participation from existing backers Abu Dhabi sovereign wealth fund Mubadala and venture capital firms Sequoia Capital and Tiger Global Management, among others. The raise pegged the company’s valuation in the range of $64 billion. Even worse, investors might want to see what the next earnings report show, meaning that there could be a longer delay in Shein’s IPO plans.
