Why Shein's IPO is important: doubts among investors and a warning of rising prices in Europe

Shein, the Chinese e-commerce giant known for its fast-fashion model, is set to go public tomorrow in Hong Kong with a valuation of $26 billion, significantly lower than earlier estimates. The company, which has long been positioned as a major competitor to European retailers such as Inditex, the parent company of Zara, faces challenges in maintaining profitability while offering low-cost clothing items, often priced under $10 per garment. This initial public offering (IPO) marks a pivotal moment for Shein, which had previously attempted to list on both Wall Street and the London market without success. The decision to go public comes amid shifting economic conditions and regulatory scrutiny. In recent years, Shein has benefited from favorable tariff policies that exempted low-cost orders from import duties, allowing it to thrive in markets like Europe. However, these advantages have diminished, forcing the company to reassess its business strategy. According to reports, Shein’s valuation has dropped substantially since 2022, when it was estimated at around $100 billion. Now, it will enter the stock market with a valuation roughly one-quarter of that figure, placing it sixth globally among apparel companies behind Inditex, Fast Retailing (owner of Uniqlo), Nike, Adidas, and H&M. Shein's IPO aims to expand its shareholder base and secure funding for growth. During its roadshow, executives pitched the company as a kind of "Amazon Web Services" for fashion creators and brands, emphasizing its extensive supplier network of 7,500 manufacturers and its robust supply chain infrastructure. The company has already acquired several firms, including the U.S.-based brand Everlane, in an effort to increase average customer spending and leverage sustainability initiatives. However, this acquisition faces delays due to U.S. government concerns over national security. Despite its rapid expansion, Shein has faced criticism regarding its business practices. Reports have highlighted issues related to product composition, labor exploitation, and data privacy. These controversies have raised questions about the company's long-term viability and investor confidence. Nevertheless, Shein continues to push forward with its transformation, aiming to establish itself not just as a retail brand but as a comprehensive supplier within the fashion industry. In its prospectus filed with the Hong Kong Stock Exchange, Shein outlines ambitious projections for the global online fashion industry, estimating annual growth of 3.4% through 2030. It anticipates that nearly 40% of textile sales will occur online by that year, reaching approximately $792 billion. These figures underscore the company's belief in the continued dominance of digital commerce in the fashion sector. The IPO also reflects broader trends in financial markets, where investors are increasingly cautious following concerns about inflated valuations linked to artificial intelligence and high corporate debt levels. While Shein's listing is not directly tied to AI, it highlights the growing importance of non-tech sectors in attracting investment capital. The company's ability to navigate regulatory hurdles and maintain profitability amid rising costs will be crucial to its future performance. As part of the IPO, Shein plans to issue a limited number of shares, raising approximately €1.5 billion to finance its operations and strategic acquisitions. The company's ownership structure will shift slightly, with the four co-founders retaining majority control through their Cayman Islands-based holding company, Shein Global Holdings Ltd. Institutional investors such as IDG and Sequoia Capital will hold the remaining shares. Shein's financial results have shown signs of strain recently, with a net loss of $99 million during the first quarter of the current fiscal year compared to a profit of $395 million in the same period last year. The decline is attributed primarily to the depreciation of preferred convertible shares valued at $328 million. For the entire year ending 2025, the company reported a reduction in profits by almost 40%, down to $2.064 billion. These figures indicate ongoing challenges in sustaining profitability despite the company's aggressive expansion strategies.