Fast-fashion giant Shein is preparing for a U.S. initial public offering (IPO), aiming for a valuation as high as $90 billion, according to sources familiar with the matter. This valuation target exceeds the company’s current private trade value.
Shein, established in China in 2008, has been leveraging data analytics to forecast customer demand and produce clothing in small batches, effectively managing inventory costs. While Shein has gained recognition for its innovation in the light-asset e-commerce model, it has its challenges.
The company is grappling with copyright infringement lawsuits and facing scrutiny from environmentalists. Moreover, it contends with rising competition from platforms like Temu, an emerging e-commerce site under China’s PDD.
Shein has reportedly been in discussions with potential investors, aiming to achieve a market capitalization ranging from $80 to $90 billion in its upcoming IPO. However, the exact timing of the IPO remains uncertain, influenced by market conditions and volatility.
Despite its aspirations for a $90 billion valuation in its forthcoming IPO, Shein’s recent journey in private trades has seen its value diminish. The company’s valuation has fallen below the $66 billion mark, a figure it had achieved in a funding round conducted in May. Recent transactions in the secondary market have estimated Shein’s worth to be approximately $50 billion to $60 billion.
In contrast, the fashion startup achieved an even higher valuation of $100 billion in April 2022, making it the third most valuable startup globally for that year. However, economic uncertainty and rising interest rates have given rise to caution among investors, leading to a decline in Shein’s valuation, echoing trends seen in other prominent tech companies.
While Shein has moved its headquarters from China to Singapore as part of a strategy to establish some separation from its place of origin, it still heavily relies on suppliers in southern China for its clothing in the U.S. market. However, Shein intends to enhance its sourcing strategies by exploring suppliers from alternative countries.
The startup reinforced its global ambitions by enlisting Marcelo Claure, a former SoftBank Group Corp. executive, to assist in managing its Latin American business earlier this year.
Despite its accomplishments, Shein has come under increased scrutiny of its supply chain practices. A member of the U.S. Congress has called for an investigation into the brand’s use of cotton sourced from China’s Xinjiang region.
If an inquiry is initiated and Shein is found to violate U.S. laws prohibiting forced labor, it could face potential restrictions on entering its products into the United States. Shein has admitted that 2% of its cotton originates from Xinjiang but denies any involvement with forced labor.
Additionally, Shein is grappling with fierce competition from Temu, owned by the Chinese e-commerce giant PDD Holdings Inc. Both companies have filed lawsuits against each other, with Shein alleging trademark and copyright infringement by Temu. In return, Temu has accused Shein of violating antitrust laws by using coercive tactics to obstruct clothing manufacturers from engaging with the platform. Shein has asserted that the lawsuit lacks merit and has vowed to defend its position vigorously.
Although private trade valuations don’t always offer a precise representation of a company’s actual worth, the rising competition in the fast-fashion sector, accusations of copyright infringement, and concerns about the potential use of forced labor issues may complicate Shein’s pursuit of a high-profile IPO.