Shein Group Ltd. is under pressure to cut its valuation to about $30 billion as it prepares to go public, Bloomberg News reported this week. That would still overprice the fast-fashion retailer caught in the crosshairs of US President Donald Trump’s trade war.
Bloomberg
Shein has been looking to list for at least the past year or so. With London increasingly losing out to New York when it comes to initial public offerings, British authorities have been keen to woo the seller of $15 dresses and $2 glass drinking straws. Around six months ago, a valuation of about $60 billion was said to have been targeted. Shein shareholders are suggesting the company lower its sights to get its offering away, according to Bloomberg. Assuming the $30 billion is equity, this would be a more realistic target — but it might still prove punchy given the considerable uncertainties around Shein’s business in the US, its biggest market.
Shein made more than $2 billion of net income in 2023, according to the Financial Times, surpassing $700 million in 2022 and $1.1 billion in 2021. Assuming it added another $1 billion last year, and perhaps $500 million this year — although this could prove optimistic — then it would trade on a price-to-earnings ratio below 10 times. That would be a steep discount to Zara owner Inditex SA’s near 30 times ratio.
This valuation looks much more sensible, given the risks to Shein’s growth. But this discount may still not be enough for Shein to tempt investors; even putting aside the environmental, social and governance risks, there’s the perennial question of what they would be buying shares in.
Shein is headquartered in Singapore, but the ultimate controlling party is registered in the Cayman Islands. It, of course, owns its brand, which has become extremely well known, thanks to all those Shein Haul videos on TikTok. But its main business is operating an e-commerce platform that reacts to the looks on social media in real time, with these garments supplied by a network of about 5,000 factories, mostly in China, none of which it owns.
Trump has added another layer of uncertainty. Earlier this month, the US president imposed an additional 10% tariff on products made in China. Shein has already been diversifying its manufacturing base, expanding in Brazil, for example, where it was supplied by 100 factories in 2023 and is planning to eventually expand this to 2,000. The company is asking some of its top suppliers in China to set up new production facilities in Vietnam, Bloomberg News reported.
Another feature of Shein’s business is that it ships direct to western countries from China in smaller package sizes, rather than holding inventory in warehouses closer to shoppers. That’s allowed it to take advantage of the so-called “de minimis” rule whereby customers can receive parcels without paying import duties. Trump announced that that the exemption would be scrapped, but then temporarily paused measures to crack down on the loophole after packages piled up at the border.
Shein has been building distribution infrastructure outside of China, for example in Indiana and Southern California in the US, as well as Canada, Poland, Italy and the United Arab Emirates. It could continue this expansion by adding more warehouse capacity in the US.
But the prospect of higher tariffs, as well as extra costs from operating more extensive logistics facilities, would make it more like a traditional retailer, and less like a nimble upstart offering rock-bottom prices. A $20 dress previously shipped duty free to a US customer could increase to between $25.80 and $27.40, Bloomberg Intelligence estimates. If this were the case, it would be competing more closely with the likes of Associated British Foods Plc’s Primark, which is expanding in the US, as well as Gap Inc.’s Old Navy, Walmart Inc. and Target Corp., as well as the dollar stores such as Dollar Tree Inc. and Dollar General Corp.
Already the noise around tariffs and import taxes is taking its toll on Shein’s US sales growth, which slowed in early February, before recovering after the abolition of the de minimis rule was delayed, according to data from Bloomberg. This could reflect a post-holiday season slowdown across the retail sector; but it’s still concerning.
Shein executives have sought to reassure shareholders about the potential impact of the US’s punitive moves. The company’s head of strategic and corporate affairs in North America told the Retail Week and The Grocer conference recently that the company’s cheap prices didn’t rely on customs policies. Executive Chairman Donald Tang said in a letter to investors that growth remains strong, Reuters reported. He added that he had long supported the ending of the de minimis rule. Still, any IPO is likely to be delayed until the second half of the year, the Financial Times reported. That would give the company time to adjust its supply chain to cope with the impact of higher tariffs and import duties.
Compared with where the price chatter started, and where Inditex trades, the latest number doing the rounds might seem like a bargain. But given the risks to the business, this still isn’t as cheap as one of Shein’s summer dresses.
