Shein (SHEIN), a Chinese fast-fashion company that rose to fame with its "$10 dress" and was once valued at more than $100 billion (about 142 trillion won), cut its valuation to below $30 billion (about 42 trillion won) ahead of its Hong Kong initial public offering (IPO), but investors are reportedly asking for an even lower price. As Shein's growth formula, built on ultra-low prices, wobbles under tariffs and intensifying competition, the market's view of Shein's future growth value is also said to be falling sharply.
On the 10th (local time), the Financial Times (FT) in the United Kingdom reported that Shein's IPO underwriters recently pitched a valuation below $30 billion to potential investors. While Shein internally set a target valuation of $30 billion, investors are said to be showing interest in a valuation in the mid-to-high $20 billions. That is more than 70% lower than the valuation of over $100 billion recognized during its 2022 private fundraising.
Shein grew rapidly during the COVID-19 pandemic on the back of explosive online spending. It quickly drew in young consumers in the United States and Europe by touting low prices and shipping small-batch items made in Chinese garment factories directly to customers. Coupled with the U.S. duty-free regime for small-value imports, Shein was able to sell clothes priced at just a few dollars in the global market.
Riding a steep growth curve, Shein tried twice to list on the New York Stock Exchange in 2022 and 2023, but ran into political backlash and regulatory concerns over China's supply chain, including allegations of forced labor in Xinjiang. It then won listing approval from financial authorities in London in 2024, but as the Xinjiang supply chain controversy resurfaced, it failed to obtain final approval from the China Securities Regulatory Commission (CSRC). Although Shein is headquartered in Singapore, most of its production and supply chain remain in China, putting it under CSRC review. Shein ultimately pivoted to Hong Kong, and after winning CSRC approval last month, it is again speeding up its listing process that has dragged on for more than four years.
The problem is investors' expectations, which have already fallen. Shein's sales occur mainly overseas, including in the United States and Europe. As a result, it is directly affected by these markets' tariff and trade regulations. After the United States ended its duty-free benefit for imports under $800 (about 1.13 million won) in May last year, the European Union (EU) also began imposing fees on low-priced e-commerce imports starting this month.
Accordingly, the profitability of Shein's "ultra-low price" business model, its core competitive edge, is no longer as strong as before. Shein's net profit fell from $3.4 billion (about 4.8073 trillion won) in 2024 to $2 billion (about 2.8278 trillion won) last year, and it turned to a loss in the first quarter of this year with a net loss of $99 million (about 140 billion won). Its operating margin fell to 2.9% from 3.9% a year earlier. Shein said, "It is too early to assess the impact of EU tariffs, but it could be similar to or greater than the impact seen after the U.S. ended the small-value duty-free policy."
On top of that, competition is intensifying as Temu of Pinduoduo (拼多多), a Chinese rival, targets the U.S. and European markets with a direct-shipping model similar to Shein's, while rising air freight rates are adding to expense pressures.
FT said, "People involved in Shein's IPO warned that Shein could struggle to persuade major Chinese institutional investors." Because Shein ultimately chose a Hong Kong listing, demand from Chinese institutional investors is crucial for a successful IPO. Against this backdrop, analysts say a key variable for the IPO could be what price Chinese institutional investors put on Shein's identity as a "Singaporean company that started in China" and on its business structure, under which results are heavily influenced by U.S. and European consumer demand and trade policies.