Shein Expected to Make a Weak Hong Kong Debut as Valuation Falls
Synopsis
The FTC and 22 US states have sued Amazon, accusing the company of secretly increasing advertising prices and costing advertisers billions of dollars. Amazon denies the allegations.
Key Highlights
- Shein is expected to have a weak debut in Hong Kong.
- Only around 5% of Shein’s shares will be freely available for trading after the listing.
- Shein’s net income dropped 39% last year, while the company reported a loss in the first quarter.
Weak Start Expected for Shein
Shein is set to begin trading on the Hong Kong stock exchange on Tuesday, marking the end of a lengthy effort to access public markets after earlier listing plans in the US and UK fell through.
However, expectations for the debut are muted. Shares were already trading more than 10% below the IPO price in Hong Kong’s gray market on Monday, as per brokerage data. The IPO gives Shein a valuation of $26.5 million, a dramatic decline from its peak valuation of $100 billion in 2022.
Limited Shares Available for Trading
The IPO shares represent roughly 6.6% of Shein’s total share capital. Cornerstone investors purchased about 20% of the offering and will be unable to sell their holdings for six months.
That leaves only about 5% of the company’s total shares available for public trading initially, potentially limiting liquidity in the stock.
Tariffs Put Pressure on Shein’s Business
Shein built its reputation by selling extremely low-priced clothing, including $5 tops and $10 dresses. However, changes to tariffs and import duties in the US and Europe have put pressure on its business model.
The company has also faced increasing scrutiny over its business practices in Western markets. Those challenges contributed to previous efforts to list in New York and London being blocked.
Rising Costs and Falling Profits
Shein has faced additional costs after the US ended a tax exemption for low-value shipments last year. The European Union has introduced similar fees for inexpensive packages.
The impact has already appeared in the company’s financial results. Shein’s net income declined 39% last year, and the company reported a loss in the first quarter.
Shein expects its profit margin for the first half of the year to be slightly below the level recorded in the first quarter, citing higher duties, tariffs and shipping expenses in Europe and the Middle East.
Shein Expands Beyond Ultra-Cheap Fashion
Shein has been trying to reduce its reliance on its core low-cost fashion business by expanding its third-party marketplace.
The company also acquired US clothing brand Everlane in May and has said it wants to provide marketplace and supply-chain services to other brands. This follows it's 2923 acquisition of British fashion label Misguided.
Regulatory Investigations Add to the Risks
Shein continues to face regulatory challenges in several markets. The company has disclosed an ongoing investigation by the US FTC into its consumer protection practices, which could potentially result in significant penalties.
The European Commission is investigating Shein’s handling of illegal products and the design of its online platform. Ireland’s Data Protection Commission is examining the company’s transfer of data to China, while French authorities have also investigated illegal products offered through Shein’s marketplace.
Shein Reconnects With Its Chinese Roots
The Hong Kong listing represents a notable shift for Shein. Although the company moved its headquarters to Singapore, its public-market debut in Hong Kong reconnects the business with its Chinese roots.
At roughly $27 billion, Shein’s valuation is now close to that of H&M but remains significantly below Zara owner Inditex and Uniqlo operator Fast Retailing.
Shein continues to benefit from its highly responsive supply chain, but competition is intensifying, particularly from Temu, the e-commerce platform owned by China’s PDD Holdings.
The IPO also gives Shein a way to provide liquidity to early investors who backed the company at much higher valuations. The company has agreed to make around $3.5 billion in cash payments while also adjusting shareholdings.
Source: Reuters
At Inspirepreneurs Magazine, covering entrepreneurship, business failures, and the human stories behind the world's most ambitious founders. She writes at the intersection of strategy and storytelling.
