Fast Fashion Sensation Shein Sizes Up U.S. Listing Despite Slowing Sales

Key Takeaways:

• Fast fashion retailer Shein is reportedly reviving its plan for a New York listing, even as its valuation reportedly shrinks
• After explosive growth in the past few years on the popularity of its cheap, trendy clothing, the company’s sales may have slowed sharply last year, as new competitors emerge

By Jose Qian

China’s Shein has taken the global fashion world by storm in recent years by combining the world of fast fashion with the even faster realm of e-commerce. But the company is quickly discovering that life in the fast lane has plenty of ups and downs, as it contends with slowing sales and a steady stream of scandals about some of its business practices that are causing its value to shrink.

The company could soon come under some of the biggest scrutiny yet in its short lifetime, with reports that it’s seeking to revive a plan to list in New York, in what would almost certainly become one of this year’s biggest listings by a Chinese company.

Shein, which sells trendy clothes to mainly Gen-Zers in more than 150 countries, has used private money to bankroll its growth so far. It is currently in talks to raise a fresh $3 billion, which would value it at $64 billion, media reported last month. That would be down by more than a third from its peak of $100 billion following a fundraising last April, which made it the world’s third largest private company behind only TikTok parent ByteDance and Elon Musk’s SpaceX.

Separate reports late last month said Shein has hired Bank of America, Goldman Sachs and JPMorgan to work on a potential IPO, following the recent resolution of several major regulatory issues in both the U.S. and China that could pave the way for a new round of Chinese listings in New York. But Shein, sometimes called “China’s most mysterious billion-dollar company,” said it had no plans to go public.

Shein reportedly moved its headquarters from China to Singapore about a year ago, a move that was likely made to bypass Chinese regulators to prepare for an IPO.

The company produces clothing in China, though it doesn’t sell there. Instead, it has found gold selling to consumers in the U.S., its biggest market, as well as Europe and Asia. Most of what has been written about its finances comes from media reports, often citing unnamed sources, since the company is private and doesn’t release financial information, despite the big attention it has attracted due to its meteoric rise.

Reports say the company has been profitable since 2019. Its revenue in 2021 reportedly grew 60% to $15.7 billion, slowing sharply from 250% a year earlier. Observers expect the growth slowed further still last year, as it struggled with numerous supply chain and other disruptions caused by some of China’s strictest measures to control the spread of Covid since the pandemic began.

In addition to such temporary obstacles, analysts and investors may also worry about Shein’s longer-term prospects due to increasing competition from China-based rivals that can copy its business model with relative ease, said Wang Qi, a marketing professor at China Europe International Business School (CEIBS).

Considered one of the biggest new challengers in years to traditional fast-fashion brands such as Zara and H&M, Shein has defied the odds against Chinese firms seeking success abroad by creating a globally recognizable brand. It is now the world’s most visited apparel site, featuring an impressive 5,000 new items on its site every day.

Key relocation

Pronounced “she-in,” Shein was founded in the eastern city of Nanjing in 2008 by Chris Xu, a former search engine optimization specialist, to sell Chinese-made wedding dresses to western buyers over platforms like Amazon. Its turning point came in 2015, when Xu move to Guangzhou, China’s leading clothing manufacturing hub, and hired a team of in-house designers that had their products made using the city’s large network of local factories.

As of August 2021, close to 2,000 garment factories in the Guangzhou’s Panyu district worked as Shein suppliers, according to local financial media Jiemian. Its proximity to the center of the industry also allows the company to quickly spot the latest trends and make its own products faster than most overseas competitors.

Unlike traditional designers that conduct market research before making products, Shein pushes out anything and everything, and only then analyzes buying patterns to tailor subsequent products – a business model known “consumer to manufacturer” (C2M). The company can now bring new clothing to market in as little as seven days, in what analysts call “real-time fashion.”

“Shein can be categorized as a data-driven C2M fashion retailer with an agile supply chain,” Wang said. “It constantly uses algorithms to identify real-time fashion trends and provide market feedback to small and medium sized OEMs that it collaborates with.”

To appeal to its predominantly young female users, Shein adds up to 50,000 new fashion items to its site each week with prices as low as $10 for dresses and $5 for tops. That has made it a favorite among millions of Gen-Z consumers, who love the “Instagrammability” of the company’s flashy items with rock-bottom prices. Like many trendy brands, Shein also relies on key opinion leaders (KOLs) to promote its brand.

The average price of women’s clothing on the company’s website is about $10-$15, with a profit margin of 5% to 10%, according to a 2021 research report by Guosheng Securities.

Shein’s success can be attributed to three key elements – an agile supply chain, low prices and a digital supply-chain management system, according to Wang. “OEMs and ODMs for Shein are able to produce a large assortment of fashion within a short period and at the lowest cost of production,” she said. China’s rapid development in e-commerce and digitalization also provides the company with a talent pool that has helped to build its data-driven platform and digital supply-chain management system, Wang added.

But the company’s rapid growth and lack of transparency have also attracted unwanted media attention, with many questioning whether Shein’s low prices are sustainable while maintaining high labor and environmental standards. Frequent media reports cite sweatshop-like conditions at some of the company’s production partners in Guangzhou, many of which are little more than small workshops with little regard for international labor practices.

The latest Fashion Transparency Index report, compiled by the non-profit Fashion Revolution, gave Shein a score of just 1 out of 100 — far below the likes of H&M, Gap, and Nike. In terms of supply chain traceability, the company scored an even lower zero. Brand consulting site Brandwatch said 70% of online conversations around Shein were negative between 2020 and 2023. 

In the meantime, Shein is having to fend off other Johnny-come-lately Chinese players aiming to copy its success. One notable example is e-commerce giant Pinduoduo PDD, whose Temu service launched in the U.S. last September and took only one month to reach the top of the U.S. Google and Apple App Stores, surpassing Shein. Temu has continued growing since then, and ranked among the top five downloads in the U.S., even as Shein’s ranking began to decline.