Clouds are gathering over the initial public offering (IPO) of Chinese fast fashion company Shein. Concerns about Shein's growth potential are emerging as the tariffs threat from the Donald Trump administration and intensified competition from other companies coincide.
According to the Financial Times (FT) on the 23rd (local time), Shein's operating profit for last year is estimated to fall to $1 billion (about 1.4 trillion won), a 40% decrease from the previous year. Annual revenue is expected to increase by 19% year-on-year to $38 billion (approximately 54.6 trillion won). These results fall far short of the $45 billion revenue and $4.8 billion operating profit that Shein projected during its 2023 investor presentation (PT).
Shein's poor performance stems from intensified competition with Temu, a Chinese fast fashion company with a similar business model. Temu has increased Shein's air transport expenses and marketing expenditures by securing some of Shein's partner companies in China. In response, Shein once pushed for business diversification but later experienced confusion by refocusing on the fashion business.
The FT evaluated, "The low revenue reflects the challenges Shein faces in securing approval from regulatory authorities for its London listing and overcoming geopolitical changes that pressure valuation."
Shein is moving towards an IPO in the UK aiming for April of this year. In the funding round of 2023, Shein was valued at $66 billion (approximately 94.9 trillion won). However, it has been reported that some investors and stakeholders are pressuring Shein to lower its valuation to around $30 billion for the IPO.
The Trump administration's tariffs on China are also one of the factors making it difficult for Shein to go public. The U.S. imposed an additional 10% tariff on products from China starting from the 4th, in order to hold China accountable for the influx of drugs such as fentanyl, and revoked tax exemption benefits for imports under $800 (about 1.16 million won). This is likely to deal a significant blow to Shein, which primarily sells low-priced products.
The U.S. has since suspended the policy of revoking tax exemptions for products under $800, but the industry believes that Shein's product prices will likely rise. According to global data, Shein recorded $8.5 billion (approximately 12.1 trillion won), accounting for 28% of its global sales last year, solely in the U.S.
Some analysts are predicting that Shein's public listing within the year will be difficult. Shein submitted IPO documents to the UK regulatory authorities last year, and with changes in listing rules set to take place in July, if the listing is not completed within this period, it will have to start the listing process from the beginning. Shein attempted a New York listing in 2023 but faced rejection from the U.S. Securities and Exchange Commission.