Shein Loses Its Shine On Bumpy Path To London Listing

Key Takeaways:

• Shein’s reported plan to list in London as soon as April could face a new hurdle after British regulators grilled the company about its cotton sourcing
• Controversy about its business practices and rivalry with PDD’s Temu may force the fast fashion sensation to eventually consider listing in Hong Kong

By Xia Fei

It’s known for its slick business model that delivers low-cost dresses from factories in Guangdong to teenagers in the West within days. But Chinese fast-fashion retailer Shein’s own path to going public has been anything but smooth.

After several rounds of delays, including shelving plans for a New York IPO as China-U.S. relations soured, the fast fashion sensation is now on track for a listing as early as April on the London Stock Exchange, according to a Reuters report last week. Revival of the London plan comes about half a year after the Financial Times reported Shein’s London listing plan had collapsed and the company had already given up on New York due to deteriorating geopolitics.

News of the London plan’s death was probably premature. Still, it’s far from clear that Shein will ultimately find a home in London, which has managed to attract few, if any, major Chinese stocks despite its status as one of Europe’s largest stock exchanges.

Details about Shein’s IPO plan remain fuzzy. But the company is reportedly negotiating with Britain’s financial regulator to waive the usual rule requiring all companies to sell at least 10% of their shares in a new listing, Reuters reported in December. Shein was last valued at $66 billion, meaning a 10% floatation would raise $6.6 billion, dwarfing the 2.5 billion pound ($3 billion) listing by French media group Canal+ (CAN.L) that was London’s largest last year.

The London bourse may welcome such a blockbuster listing to help inject some vitality into an otherwise dull market, as only 18 companies debuted on the exchange last year. Shein’s listing plan may have gotten a quiet show of support as recently as this past weekend, when British treasurer Rachel Reeves said London was a “natural home” for Chinese finance during her trip to Beijing and Shanghai. Reeves was the most senior British government official to visit China since former Prime Minister Theresa May’s talk with President Xi Jinping seven years ago.

Despite that positive signal, Shein’s date with destiny in London is far from set in stone.

At a hearing in front of the British Parliament last week, Shein’s general counsel Zhu Yinan refused to directly say whether the company’s products contain cotton from China’s Xinjiang region, where the West alleges that labor violations have been common in recent years.  

“You have given us almost zero confidence in the integrity of your supply chains,” said Liam Byrne, chair of the Business and Trade Committee. He added that Zhu’s evasiveness “bordered on contempt of the Committee” and urged the LSE and Financial Conduct Authority to check Shein’s disclosures.

Such controversies over the company’s sourcing of raw materials, along with its ESG practices and alleged intellectual property infringement, could all undermine Shein’s ability to fetch a desirable valuation on the public market. At the same time, governments in countries from the U.S. to South Africa are canceling or reconsidering exemptions that help Shein and other cross-border e-commerce companies avoid paying import tariffs on goods they ship abroad. Such moves could wreak havoc on Shein’s business model, which has won over consumers with ultra-cheap fashion products, such as cocktail dresses costing as little as $10.

Losing its shine

Founded in Nanjing and now based in Singapore, Shein’s meteoric rise is a textbook case of China’s ability to harness supply chains and the huge troves of data they generate with laser-like precision. Drawing on such data, Shein has brought new meaning to the “fast” in fast fashion by churning out new garments at lightning speed by working closely with a network of manufacturers in China.

But outside its huge fanbase of young consumers who love its cheap clothes, Shein has an equally large and more influential base of detractors who criticize the company for more than just its questionable cotton sourcing.

Last September, Italian authorities investigated the firm over alleged “greenwashing” due to its “generic, vague and misleading” claims about its environmental practices on its website. In Vietnam, Shein, along with rival Temu, have been forced to halt operations as they work to register their businesses with the government. The company, founded by 40-year old Chris Xu in 2008, has also become mired in multiple lawsuits over alleged copyright infringement.

The jury is still out as to how much damage Shein’s business model will suffer following the recent U.S. decision to end its “de minimis” exemption, which allows the import of items worth less than $800 to the country duty free. Some analysts believe Shein can weather that storm, partly by shipping its products in bulk to the U.S. and storing them in local warehouses, so that sales are for goods already in the country.

Meanwhile, Shein’s profits are also facing pressure, as Temu, owned by e-commerce giant PDD Holdings PDD lures away Shein suppliers and customers. According to Sensor Tower, Temu’s app had more than 8 million downloads in the third quarter of 2024, compared to less than 6 million for Shein. Shein’s revenue growth also slowed to 23% during the first half of 2024, while profits plunged over 70% to below $400 million, according to a report by The Information.

Some investors are already expressing a lack of confidence in the company with their feet. Private market exchanges of Shein’s shares valued the firm at $45 billion to $55 billion in late 2023, according to Bloomberg. That could fall further as investors worry about the company’s shrinking profitability.

Homecoming?

Reports of Shein’s IPO plan first emerged as early as in 2022, but the company may have had second thoughts after Russia’s invasion of Ukraine led to high market volatility. As the London plan advances in fits and starts, there are good reasons to believe that Shein may ultimately be forced to go to its Plan C and list in Hong Kong.

While the company tried to strip away its Chinese identity by relocating to Singapore, its listing outside Mainland China, where most of its supply network is based, may still require a green light from China’s securities regulator. Yet the company’s name has yet to appear on lists of companies that have applied for offshore listings with the China Securities Regulatory Commission.

The company’s biggest obstacle to such a listing still seems to come from overseas lawmakers. The imminent ban by U.S. politicians of TikTok, a video app sensation owned by Chinese firm ByteDance, serves as a chilling reminder that close ties to China can easily draw national security concerns. Shein, which controls troves of personal data on American teenagers, has already been in the crosshairs of the U.S. Congress concerned about similar data risks.

Such factors may leave Shein with no choice but to go to Hong Kong, even if that means accepting a lower valuation than New York-listed global peers like Amazon AMZN and H&M HNNMY. Hong Kong stocks now trade at an average price-to-earnings (P/E) ratio of 14.4, versus 16.1 in London. While such lower multiples may be tough to swallow, Shein may find it has no choice but to sell its shares closer to home where regulators would undoubtedly welcome its stock with open arms.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.