Fast-fashion giant Shein is achieving a dramatic strategic shift, dropping its plans to list in London and turning to Hong Kong instead. The e-fashion retailer, offering everything from $5 bike shorts to $18 sundresses, struggled to get approval from Chinese regulators for its proposed London IPO.
Three individuals with knowledge of the situation said Shein plans to file a draft prospectus with Hong Kong’s exchange over the coming weeks. Shein plans to complete its public offering in the Asian financial center by the end of the year.
The London Setback
The move was preceded by months of anticipation for the nod from Chinese regulators. While Shein received the approval from Britain’s Financial Conduct Authority in March, the China Securities Regulatory Commission (CSRC) has been, as always, mum.
What the company had been anticipating to be a quick follow-up approval has become quite a long wait, with no indication from Chinese regulators.
This regulatory hurdle is a significant stumbling block to Shein’s global ambitions. Shein was having difficulty building itself as a global brand, having even attempted to list in New York before London. A listing in Hong Kong essentially returns Shein to China’s orbit and detracts from its efforts to build global credibility.
Shein is facing Political Complications
The delay is not in isolation. There are some contentious matters that have made listing challenging for Shein. Claims that the products of the company use Xinjiang Chinese cotton have raised alarms, especially with global concerns about forced labor in the region.
There is even a preliminary preparation of a legal challenge to the London IPO on specific grounds of forced labor by a non-governmental organization.
The situation places Beijing in a delicate situation. The government of China risks being embarrassed if these claims become more public in the form of a high-profile London listing. Add to this the ongoing trade tensions between China and the US, and it is no wonder that Chinese regulators are taking things slowly.
Shein maintains it has no tolerance for child labor and forced labor in its supply chain, but the scandal continues to hover over the company’s growth plans.
Business Model Under Pressure
Beyond regulatory challenges, Shein’s business model per se is also facing strong headwinds. Shein based its success on shipping products directly from Chinese factories to consumers worldwide under trade policies that allow small packages to enter most countries duty-free.
The Trump government recently extinguished this benefit by abolishing the “de minimis” exception for Chinese products. Earlier, shipments worth under $800 could come into the US duty-free. Now, these shipments have minimum tariffs of 30%, directly impacting companies like Shein, Temu, and Amazon Haul that depended on rock-bottom prices.
The European Union is also considering the same modifications to its duty-free allowance on parcels under 150 euros, further putting pressure on Shein’s business model.
Financial Implication
These concerns have already started to affect the valuation ambitions of Shein. Reuters recently stated the firm was ready to cut its IPO valuation to around $50 billion for a London listing, nearly 25% below the $66 billion valuation it had in a 2023 private fundraising round.
The ultimate IPO valuation, wherever Shein is going public, will in part be determined by how well the company adapts to the loss of duty-free shipping privileges that underpinned its bottom-of-the-barrel prices.
Shein doesn’t operate any factories, but has some 7,000 third-party manufacturers, mostly based in China, with some in countries such as Brazil and Turkey. This strategy provided them with phenomenal flexibility and cheapness, but is now at risk of changing commerce policies.
The company’s move to Hong Kong is more than a place relocation; it is a wider strategic overhaul because Shein will be compelled to cope with a more complex regulatory and commerce environment. Whether this will ultimately serve it or not remains to be seen.
