IPO rumours persist for Chinese fast-fashion e-retailer Shein
21:58, 2 February 2022
Rumours continue to swirl that Chinese fast-fashion internet retailer Shein is moving forward with plans to launch an initial public offering (IPO) in the US, but the company has yet to officially confirm its intentions.
Still, that uncertainty hasn’t quieted the buzz from those who track retail trends as they speculate on the potential deal.
Shein is an e-commerce behemoth that retails thousands of inexpensive items on its website, the bulk of it apparel for women, men and children, along with accessories and beauty products. Most of the items are shipped directly from China, where Shein works with thousands of factories to add 500 to 1,000 new products to its site each day.
Shein’s founder and CEO, Chris Xu, is not known in the industry for his digital marketing savvy. According to Shein’s website, “We use on-demand manufacturing technology to connect suppliers to our integrated supply chain, enabling us to reduce inventory waste and deliver quality products at affordable prices to customers around the world.”
Secret sauce
Emerson Delgado, a retail strategy consultant manager at McMillan Doolittle, said the most striking aspect of Shein’s business model is its reliance on data science to relentlessly hone and refine its inventory selection.
“Shein’s secret sauce is the LATR (large-scale automated testing and reordering) model,” Delgado said. “It’s taking what used to be the art of trendspotting and switching it out for data science. They take very little risk. They’re using data science to completely optimise the supply chain and that’s the real game-changer.”
Shein – which originally got its start being called SheInside before shortening the name – has managed to increase its internet-only retail operations to a significant size in a relatively short period of time.
CB Insights puts Shein’s valuation at $15bn (£11bn) with revenues for 2020 of $10bn. Total funds raised to date are listed at $553.36m, with investors including Sequoia Capital China, IDG Capital and Tiger Global.
IPO rumours
Reuters recently reported on Shein’s IPO rumours from Singapore and Hong Kong, citing two unnamed sources. The process for Chinese companies seeking stock market listings in the US has become more complicated since July 2021, when securities regulators in China announced they were putting tighter restrictions in place for companies seeking to become publicly traded outside the mainland.
On its website, Shein states it ships its products to more than 150 countries, with the US providing its largest market. The company has its headquarters in Nanjing, China, and the company also maintains operations in Guangzhou, Singapore and Los Angeles.
The popularity of the Shein site among consumers is reflected in the downloads of its app. Tech Crunch reported that in May 2021, downloads of Shein’s Android and iOS shopping app hit number one in the US, bumping Amazon out of the coveted top spot. Shein has garnered 23 million followers on Instagram and another 3.4 million on TikTok.
Delgado said Shein’s heavy reliance on artificial intelligence means that it “spends less time and energy than other companies on making products that aren’t going to sell.”
Hot trends for cheap
Shein tends to draw a relatively young demographic seeking low price items that mimic the latest fashion trends. New Orleans resident Lesley Kuennen first began buying clothing from Shein three years ago. Since then, she has purchased hundreds of pieces. Kuennen is an optician who also works in the hospitality industry and does some modelling.
“They give you what’s hot right now at a good price for it,” Kuennen said. “My fashion sense is changing all the time, or the new trend is changing all the time, and I don’t expect the clothes to last past three or four washes. And I get a lot of positive feedback from people for a really cheap outfit.”
Delgado said Shein also has a competitive advantage because its location in China provides access to products close to where they are produced, allowing it to link supply with demand more efficiently.
“In fashion, traditionally, you have to order these large runs,” he said. “Shein has such strong relationships with the producers of the goods that they can order small runs and get it quickly. They’ve been building these strong relationships to get concessions like run sizes.”
Digital native has advantages
He added that being created from the ground up as a digital-only retailer positioned Shein to be nimble and responsive to the instant-gratification demands of the fast-fashion consumer.
“The digital realm makes it way easier to test new products, new layouts, new site architecture, and prices. Being born as digital first with the testing automation culture – and having all the processes anchored to that from the start – makes it so much easier than a company that has been around for decades. Implementing that data science is going to be harder for them. It can be a massive undertaking.”
Speed can be risky
Still, the hyper-accelerated nature of the business model comes with its own risks.
In July 2020, Shein came under fire for selling Muslim prayer mats as “fringe trim carpets.” Later the company apologised, calling it a “serious mistake” on Instagram.
A few days later, the company was in hot water again for selling a necklace with a metal pendant in the shape of a swastika. The company issued another, more effusive apology on Instagram, explaining the hooked cross symbol was intended to represent Buddhism, not Nazi Germany.
“The Buddhist symbol has stood for spirituality and good fortune for more than a thousand years and has a different design than the Nazi swastika which stands for hate – but frankly, that doesn’t matter because we should’ve been more considerate of the symbol’s hurtful connotations to so many people around the world and we didn’t.”
Both the carpets and necklaces were removed from Shein’s site.
The company has also endured criticism it hasn’t been transparent about labour conditions at the factories where the goods carried on its site are produced. And they have faced legal troubles over allegations of intellectual property infringements.
Details available on Shein and its founder are also inconsistent. A now-deleted Shein press release from 2013 states Xu is “an American-born Chinese graduate of Washington University”, but other sources state he was born in China.
Although Shein’s website says the company was founded in 2012, many other sources peg its starting year as 2008.