Will Shein leap and go for an IPO in the US?

• Confidentially filing for an IPO, Shein aims to capitalize on potential investor receptivity despite recent lackluster market debuts. 
• Shein is also gauging its resilience as a China-founded e-commerce giant amid anticipated heightened political scrutiny.
• That scrutiny is likely only to increase in 2024 as the Presidential election draws near.

Shein, the ultrafast fashion giant, is actively pursuing an initial public offering (IPO) in the US to secure its position as a global retail powerhouse. However, the journey to the public market is riddled with challenges as the fast fashion giant faces intense scrutiny from various quarters, including investors, politicians, and regulators.

Shein’s journey so far has been remarkable–from China to its current headquarters in Singapore. The mass market online clothing retailer was founded by Chinese entrepreneur Chris Xu. Within a decade of its inception, the company achieved a valuation of US$100 billion during an April 2022 fundraising round, a valuation higher than Zara’s owner Inditex and H&M combined.

By 2022, Shein was the world’s third most valuable startup. Fast forward to this week, when the fast fashion giant was reported to have confidentially filed to go public in the US, one of its largest markets.

Although, as of May this year, the company experienced a valuation dip to slightly over US$60 billion, should it proceed with its IPO, Shein is still anticipated to emerge as the most valuable China-founded company to go public in the US. So far, only Didi Global, the Uber of China, has come close when it delivered one of the year’s biggest IPOs in 2021, at a US$68 billion valuation.

Still, Shein’s move to discreetly file for an IPO in the market from which it receives the most scrutiny is being seen as an audacious move. It signifies the company’s ambition for financial expansion and is viewed as a strategic move to gauge investor sentiment. Despite a series of underwhelming market debuts in recent months, Shein and its underwriters are banking on a receptive market, showcasing confidence in the brand’s resilience and growth potential.

One of the major hurdles on Shein’s path to IPO success is navigating the heightened political scrutiny surrounding China-founded companies. With geopolitical tensions, concerns over human rights issues, and trade controversies, Shein is under intense examination. 

Around the world, the company has faced scrutiny for purported issues, including reported subpar working conditions in factories, alleged copyright infringement concerning independent artists’ designs, and criticism of the environmental impact associated with fast fashion. Shein, however, has consistently refuted these accusations.

In the US specifically, Shein is steadfast despite the ongoing scrutiny it receives on account of being Chinese-founded, no matter what it does to get on the good side of US lawmakers. Most recently, Shein and its rival Temu were accused of “building empires” by a US House committee in a report on cpmanies exploiting legislative loopholes to evade US import taxes and sanctions checks.

Other concerns raised by critics center around the possibility that Shein might engage contract manufacturers located in China’s Xinjiang region, where advocates and governments have made allegations of the internment of Uighurs and other predominantly Muslim minority groups. Beijing, however, denies any such abuses.

Shein and its lobbying effort for its US IPO

Persuading regulators of the integrity of its supply chain is expected to be a significant regulatory hurdle for Shein as it seeks approval from the US Securities and Exchange Commission (SEC) for its IPO launch. Earlier this year, a bipartisan effort led by a congresswoman urged the SEC to postpone Shein’s IPO until the company’s supply chain could be verified free from forced labor. 

Additionally, a coalition of Republican attorneys general from 16 US states has called for an SEC audit of Shein. The company has faced scrutiny from two separate Congressional committees for its sourcing practices and utilization of a trade loophole that allows most of its products to enter the US duty-free.

In its latest social impact report, Shein emphasized its collaboration with Oritain, a firm employed by the US government to examine cotton connections to China’s Xinjiang region. As previously disclosed to Reuters, Shein conducts tests on samples from every third-party cotton mill it collaborates with. Between June 1, 2022, and July 11, 2023, the company conducted 2,111 tests.

Nevertheless, critics argue that the testing procedures fail to adequately scrutinize the millions of garments Shein exports worldwide every year.

A separate Reuters report noted that public records reveal Shein allocated US$1.28 million for Capitol Hill lobbying this year in anticipation of its public debut – though it could be argued that figure is relatively small change both for a company of Shein’s size and for an influence-market as addled by pork-fat as Washington.

The company also engaged in private meetings with lawmakers, including prominent critics, aiming to reshape its image in Washington, as per insights from Congressional aides.

In addressing concerns about its supply chain, Shein representatives underscored the company’s commitment to diversifying its sourcing from China to include other nations, most notably India. They also highlighted efforts to increase the import of Chinese goods to the US via conventional container shipping, acknowledging the payment of tariffs on these items.

“Shein is fundamentally a Chinese company; investors should approach Chinese offerings with extreme caution. Its attempt to go public should prompt a closer look at its business practices, especially its links to slave labor and its evasion of US customs laws,” Republican Sen. Marco Rubio told Reuters. “I will closely monitor Shein’s disclosures in the lead-up to its IPO,” added Rubio, who criticized the retailer’s lobbying efforts in a letter distributed to other senators in June.

The Wall Street Journal, the first to break the news on Shein’s IPO, said that Goldman Sachs, JPMorgan Chase, and Morgan Stanley have been hired as lead underwriters on the offering, which could happen in 2024.

How will Beijing treat Shein’s US IPO?

Since a broad crackdown on overseas listings, fewer Chinese IPOs have been in the US. As part of Shein’s ongoing efforts to prepare for its inaugural share sale in the US, the company strategically positions itself as a global entity despite its Chinese origins.

It started in 2022 when Shein relocated its headquarters to Singapore and initiated the expansion of manufacturing facilities beyond its Chinese base. 

The e-commerce giant eventually established distribution centers in the US, Canada, and Europe to enhance shipping efficiency in these regions. Notably, the company acquired the British online brand Missguided in October and secured a stake in the fashion retailer Forever 21 in August.

There remains the possibility that Chinese regulators will subject Shein’s listing to scrutiny and mandate the company to seek approval. After all, Chinese securities regulations require companies to register for the sale of shares abroad, subjecting them to screening for state security and other potential concerns.

Such regulatory processes could introduce further delays to Shein’s IPO proceedings.

Shein files – but can it get over the hurdles?