Chinese “fast fashion” giant Shein went public on the Hong Kong Stock Exchange on Tuesday and the results have not been encouraging.
The company, once privately valued at over $100 billion, was only valued at $26.5 billion in its initial public offering (IPO) and its shares have slumped with each passing day.
Market-watchers pronounced Shein’s debut on the stock exchange “flat” and “disappointing” given the amount of money that was once surging through the online retailer’s veins. Shein was a pioneer in the business model that combines online ordering, fast shipping, loose customs rules for small packages, and very cheap goods — a model that originally flourished by letting worldwide customers shop for a vast catalog of fashion items at bargain-bin prices.
“Fast fashion” eventually expanded to include many other products, driving the growth of competitors like Temu, whose name has become a slang term for shoddy knockoff products.
The business practices of these companies attracted a great deal of negative attention in recent years — from their use of forced labor in China to keep prices low, to their abusive and predatory policies toward suppliers. Some Shein and Temu products were not only poorly made but outright dangerous to consumers, especially children.
President Donald Trump’s trade policies were seen as an existential threat to China’s online retailers, particularly by ending the tax exemptions that allowed a tidal wave of low-value parcels from China to enter the United States tax-free. Similar policy changes followed in the United Kingdom and Europe.
It took Shein four years to get to the stock market, struggling every step of the way against regulators in both China and the Western world. Among other problems, the Chinese Communist government seemed nervous about market regulators scrutinizing Shein’s use of products from occupied East Turkistan, home of the oppressed Uyghur Muslims and epicenter of international complaints about slavery and genocide in China.
Reuters on Tuesday said Shein had been “humbled by tariff and duty changes in the U.S. and Europe,” creating “investor concerns about setbacks that have undermined the company’s competitive advantages.”
The result was a flaccid opening on the Hong Kong Stock Exchange as the company that once looked like a gold mine lost ten percent of its value immediately, closed beneath its opening stock price, and then slipped for the next two days.
“I think the weak debut shows that even after the huge valuation reset, investors still don’t see Shein as obviously cheap,” chief investment strategist Charu Chanana of Danish investment bank Saxo told Reuters.
Chanana felt Shein’s stock was considerably overpriced, given the “weak growth visibility and significant regulatory and trade risks” facing the company.
China’s state-run Global Times on Thursday tried to put the best possible spin on the dismal market news by claiming “the retailer’s distinctive China‑based industrial supply‑chain and large global user community continue to stand as key competitive assets.”
“Shares of Shein extended decline in the morning trading on Thursday. The stock tumbled 5.22 percent to HK$43.6 on the third trading day following its IPO,” the Chinese Communist paper dolefully reported.
The Global Times quoted analysts who said the end of special tax exemptions for micro-shipments in the U.S. and Europe wiped out the price advantages that made so many consumers willing to overlook the low quality and moral hazards of Shein’s products.
The biggest advantage remaining to Shein’s business model is its ability to “quickly iterate and deliver products,” creating a “high frequency” of new item launches that competitors are hard-pressed to match.
This constant blizzard of new items was a key appeal of the fast-fashion industry when it got off the ground in the early 2010s and Shein remains one of the few platforms that can boast of having millions of items for sale, with a restock cycle of less than a week for anything that sells out.
The disappointing IPO was bad news for Shein because it planned to use the influx of investor capital to purchase more brands and dramatically expand its offerings. Its first announced acquisition target was U.S. apparel brand Everlane, which has brick-and-mortar retail outlets in addition to its online store. Everlane reportedly caught Shein’s eye by running a successful fast fashion business without the morally questionable advantages in cheap labor that drive the Chinese business model.
Shein still has a good-sized war chest for acquisitions, including $15 billion cash on hand and $1.74 billion from its IPO, but the company was clearly hoping for a lot more money from its stock offering, and the company’s slowing growth might make some brands reluctant to get on board with its expansion plans.