Shein, Belle of the Wall Street Ball? Maybe
The guessing game around Shein and a potential mega IPO pulls together some of the most important threads in fashion today and ties them all together into a knot.
The question is, will the fast-fashion giant be able to untie that knot and continue on its way to global domination, or will the swirl of controversy around the company slow its rise?
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Much depends on the charm offensive that has Shein working to pull itself into the fashion mainstream.
In addition to establishing itself as a global brand, Shein is burnishing its eco credentials and trying to convince skeptics that it doesn’t source goods using forced labor in Xinjiang. Also important are questions around the trade “loophole” that allows the company to ship packages under $800 in value to the U.S. without paying duties and whether it could be eliminated.
But those worries might not be enough to derail an offering — if one is indeed in the cards.
“Based on their growth, the Street is going to love an IPO,” said Michael Prendergast, managing director in Alvarez & Marsal’s Consumer Retail Group, assuming one materializes. “There will be some noise in regard to their ESG, I’ll call it a lack of focus, and the sustainability impacts that have been negative press for them, but I think the numbers will outweigh any of that.
“It’s a terrific story,” he said.
Specifically, it’s a growth story — something Wall Street can’t get enough of. The company’s information is not public, but it is said to be targeting $60 billion in revenues by 2025 with valuation at somewhere in the same ballpark.
While Prendergast pointed to Zara as the granddaddy of fast fashion, he said, “Shein has taken it to a whole new place and they’ve also really tapped into Gen Z and the Millennials through social media. The downside is they’ve been able to do whatever they want, however they want with no public attention and they’ve really done that on their own, very brazenly and very successfully.”
That success — and the glare of the spotlight that even the rumor of an IPO has brought — has the company working hard to tell its message anew and frame its own story for a broader audience.
Peter Pernot-Day, global head of strategy and corporate affairs at Shein, spoke with WWD last month on the sidelines of a Shein X fashion show in Paris, presenting the company as a patron of the younger designers at the show, a player in the industry and a responsible corporate citizen.
“Paris is obviously the center of fashion,” Pernot-Day said. “I think that we, as a fashion company, want to highlight our contribution. We also really want to celebrate these young and emerging designers and give them a stage that I think is worthy of their creative energies.”
He said Europe is the brand’s second biggest market behind the U.S. and that France is a critical component.
“We are looking to engage in a strategy we call localization, so in 2023 and 2024, our principal objectives are around building teams in our critical markets, and so this is an example of that,” he said.
But that love of France is, at least on some fronts, unrequited.
In response to public calls for action against Shein, French Finance Minister Bruno Le Maire asked the Directorate General for Competition Policy, Consumer Affairs and Fraud Control, or DGCCRF, to inquire into the negative impacts of fast fashion companies, and in particular Shein.
“I share your concerns,” Le Maire said in a video posted to Instagram. “Today, fast fashion produces as much CO2 as maritime transport and air transport combined. And two decades from now, it will account for 25 percent of the planet’s CO2 emissions. It’s an unacceptable drift.”
He asked the DGCCRF to investigate the safety of fast-fashion products, amid concerns over the manufacturing conditions and types of materials used in their production, as well as price practices.
Some of those same questions — and more — are also being asked in the U.S., where the company has taken flack for its environmental footprint and faced concerns that it uses cotton from Xinjiang, China, in violation of the Uyghur Forced Labor Prevention Act.
Pernot-Day argued that Shein is being transparent.
“We have zero tolerance for forced labor,” Pernot-Day said. “We have no manufacturing facilities in the Xinjiang region of China. We have a robust supplier code of conduct and responsible sourcing policy that we audit against. We conducted 2,800 audits in 2022, we will conduct 3,600 in 2023 and we hold our supplier partners accountable.”
He also said the company’s business is misunderstood to a degree.
“If you look at, let’s just say traditional retail, each sku [stock keeping unit] results in the production of thousand and thousands of copies of that garment,” Pernot-Day said. “At Shein, we only produce 100 to 200 copies of any given product. We put it on the website. If that product is in demand, only then will we go back to our supply chain to produce more.”
Pernot-Day acknowledged the “market speculation” about an IPO, but said, “We don’t really have plans to IPO.
“When you’re a disruptor like we are, I think that many people are drawn to the business and there’s a lot of assumptions that are made about us because we have this novel way of doing things,” he said. “And I think what really makes us unique is this combination of technologies that’s allowed us to be radically customer-focused, and I think that’s why we have such low inventory, that’s why we have such an efficient model, and that’s why we can be so price-competitive.”
Shein is also trying its hand at being a platform — or an everything store — setting up marketplaces selling goods from third-party vendors in the U.S., Brazil and Mexico and expanding the approach to Germany, Spain, France and Italy. A large marketplace business would put the company into more direct competition with giants like Amazon and Walmart.
Bruce Winder, retail analyst and author, said, “Shein has created a new low in terms of price point” and has redefined the sector into something that is really “fast, fast fashion or ultrafast fashion.”
He expects the company to do really well for the time being, considering that concerns for environmental stewardship are “considerably less outside of the Western world. Shein has a huge market to sell into whether it’s South America, the rest of Asia, India or Eastern Europe. Environmental protection is just not that topical. So Shein will fill that void, which will be absolutely massive.
“There’s a big Shein-ification that’s happening not just in fashion, but also in home goods where all kinds of start-ups are looking to do the Shein model,” Winder said. “A lot of companies are trying to Shein-ify different verticals and different industries.”
Neil Saunders, managing director of retail at GlobalData, said consumers love Shein’s low prices, but that its “biggest challenge is on the reputational front. There’s a lot of scrutiny now over Shein’s practices and factory conditions, particularly as it moves toward an IPO.”
They are tricky waters to navigate.
Saunders pointed to Shein’s influencer tour, which brought a group of famous online types to visit a facility that makes samples versus its true factories. He said the effort “really fell flat on its face and unleashed a backlash because everyone knows that it’s fake.”
“People question things very intensely in the U.S. and elsewhere,” Saunders said. “You can’t just put a gloss on sustainability or ethical practices these days. U.S. companies themselves have learned that. So Shein has got a lot of convincing to do. A lot of people see its sustainable and ethical efforts as being extremely fake. That is not going to do it any favors not just with customers, but also potentially with investors in an IPO.”
Saunders estimated that the odds of an IPO are 50-50.
Sonia Lapinsky, a partner and managing director in AlixPartners’ retail practice, added: “They’ve grown like crazy. They seem to have a real competitive advantage compared to many of the U.S. retailers.”
So far, the company has been able to guide its own evolution, moving with pressures from outside, but still keeping its hands very much at the wheel.
Lapinsky said any real pressure from outside “would take an upswell for consumers going against them” and that upswell clearly hasn’t come.
That would make an IPO “the first real challenge to their business model,” she said.
Public companies are under much more regulatory scrutiny and also face the whims of shareholders, who buy and sell with the ebbs and flows of any business and tend to come with big expectations.
And while IPOs are a key point on a company’s trajectory, it’s not the end point.
Witness the listings in the class of 2021, which have almost uniformly seen big declines after their much ballyhooed offerings, from Warby Parker Inc. to Rent the Runway to Allbirds Inc.
“People were looking at tech-world valuations then and trying to apply them probably more broadly than they deserved,” Lapinsky said. “We’re now entering into a calmer, more realistic IPO market — although then you see $60 billion [reported valuation estimates] for Shein.”
But with other sources of outside funding wilting in the face of higher interest rates and investors finding they have fewer exits, the IPO just might be back big time.
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