Should You Get In on a Shein IPO?
The fast-fashion retailer's stock debut should be huge.
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Fast-fashion site Shein has resumed its planning for an initial public offering on Wall Street that, when it lands, should rank as one of the largest IPOs on record for a retail stock.
The China-founded company, now based in Singapore, has hired Goldman Sachs GS , JPMorgan Chase JPM and Morgan Stanley MS as lead underwriters on an IPO, according to multiple reports, and it has filed to go public in the United States.
As I discussed last fall, Shein had been planning for an IPO last year. However, it met its match in the Fed. Higher interest rates cooled interest in tech and discounted the potential valuation that Shein -- valued as high as US$100 billion in one round of financing -- could achieve.
The planned IPOs also necessitated a change of base for the company, founded in Nanjing in 2008. Founder Chris Xu, known as Xu Yangtian in China, had worked in search engine optimization for a clothing trading company, then started a business that initially focused on selling wedding dresses. Due to a dispute with past partners, Shein traces its current roots to 2012, when it changed its name and morphed into a general fashion retailer, initially not making its own designs but sourcing articles in Guangzhou's wholesale clothing market.
Shein (pronounced "She-In," a shorter version of an earlier iteration, "She Inside") began making its own clothes in 2014. It became a fast-fashion behemoth during the pandemic, appealing to teens and 20-somethings with rapid replication of catwalk styles, often shipped from manufacturers straight to homes. It condensed an already-rapid cycle pioneered by the likes of Inditex (BME:ITX and IDEXY ) subsidiary Zara and H&M (STO:HM-B and HNNMY ).
There are accusations that Shein knocks off the designs of others. There are accusations that Xu hasn't always done right by the partners who once stood by his side. And that US$100 billion valuation from April 2022 has sunk in later transactions of the private shares, with a fundraising in May that pegged the valuation at US$64 billion.
CB Insights currently estimates Shein now is worth US$66 billion. That figure nevertheless makes Shein the world's third-largest "unicorn startup," behind only TikTok parent ByteDance and the California-based spacecraft operator SpaceX.
Shein may seek a valuation of around US$90 billion in any IPO, which likely will be pushed into 2024. It has not yet decided the size or valuation of the deal, so plans could change, as we saw those attempts last year derailed by market moves. However, it has filed with the U.S. Securities and Exchange Commission to list in New York.
If Shein attempts to list 10% of its shares at that valuation, its US$9 billion float would approach the US$9.1 billion that Porsche (DE:P911) achieved in 2021.
Shein's backers include Abu Dhabi's sovereign wealth fund, Mubadala, as well as HongShan, the China arm spun off Sequoia Capital. Shein has relied on data analytics to forecast demand and keep assets light, and turnover moving fast.
Shein's revenue last year stood at US$23 billion, more than H&M and approaching Zara. It says it has posted record sales and income for the first three quarters of this year. A valuation at 3x last year's revenue seems reasonable, implying US$69 billion, given that Inditex trades at 3.5x sales. But Shein functions on fine margins, estimated at 3.5% last year, while Inditex is generating profits at 13% of sales.
Shein is now expanding well beyond fashion and sells kitchen appliances, electronics, car parts, pet supplies, you name it -- putting it in competition with companies such as Amazon AMZN , which is a holding of the Action Alerts PLUS portfolio, and Alibaba Group Holding (HK:9988 and BABA ).
More on point might be the competition that it faces from Temu, the overseas-focused, Boston-based platform of e-commerce operator PDD HoldingsPDD . PDD is now based in Ireland but got its start with Pinduoduo specializing in group buying e-commerce inside China. Temu and Shein have sued each other, each claiming they've been badmouthed by the other.
The Shanghai Securities Journal first reported Shein's recent filing for an IPO, with The Wall Street Journal, the Financial Times, Reuters and Bloomberg all confirming the plans.
Retail stock listings have not had a strong recent track record. Sandal specialist Birkenstock HoldingBIRK has seen its shares fall as much as 21% below its US$46 listing price, although the shares have recovered and are now just below the listing level.
Whether Shein sounds attractive depends on how high you value its technical expertise. Chip designer Arm Holdings ARMwent public in September at US$51 and also drifted below that price, only to recover. It's now up 21%. Porsche shares have been volatile but currently stand a narrow 2.7% above the IPO price of €82.50.
Shein likely will be a solid performer as a stock. Inditex is trading at all-time-high levels.
However, there's still a long road to go before Shein hits the market with its shares. The company will face questions from U.S. regulators about the U.S. law banning the import of products using cotton from the Xinjiang region of China, something that Shein denies. Still, its quiet move of headquarters to Singapore last year and its desire, at a corporate level, to shun the limelight will be sorely tested by the disclosures and publicity surrounding a listing.
Chinese regulators may also ask questions about its Wall Street debut, given that Chinese companies must now get regulatory approval to list abroad. Although Shein has shifted its corporate headquarters, it still makes the bulk of its clothing in China to ship directly to consumers abroad.
Shein shares should be attractive, once they eventually start to trade. But watch this space as it details those plans.
(AMZN is a holding of Action Alerts PLUS. Want to be alerted before the portfolio buys or sells these stocks? Learn more now.)
