A Shein IPO Should Be A No Brainer Investment, Yet Caution Reigns

The founder of Gen Z super brand Shein must be wondering whether the company will ever catch a break over the long-running soap opera that is the fashion retailer’s much vaunted IPO.

On the face of it, investing in Shein should be a no brainer. And yet, and yet…

Shein generated revenues of an estimated $32.5 billion in 2023, a 43% increase on the $22.7 billion it made in 2022. It has around 88.8 million active shoppers, 17.3 million of whom are based in the U.S. and Shein’s app was downloaded 238 million times in 2023, making it the most downloaded fashion app of that year

Those are off-the-scale figures and the potential value of its IPO could reach north of $65 billion whether it list in London or New York.

Yet the IPO has been dogged by questions over Shein’s sustainability and governance practices and as a result the company in recent weeks has begun to lean towards an IPO on the London Stock Exchange (LSE) after butting up against repeated roadblocks over its original plans to list in New York.

Britain’s two main political parties, Labour and the Conservatives, are locked in a General Election battle that will culminate on July 4, but both have courted Shein and so there are currently few obvious political hurdles in a U.K. market desperate for a good news story for the beleaguered LSE.

Shein’s FTSE 100 Question

Shein has been preparing a confidential filing for an IPO in London, which indicates a move towards using the platform in the U.K. although it is not definitive or binding, though the float is unlikely to take place until after the European summer vacations in August.

But last weekend The Sunday Times reported that Shein may not qualify for inclusion on the FTSE 100 Index because the number of shares being sold by Shein will not meet the minimum requirement for inclusion on FTSE indexes. Companies incorporated outside the U.K. must have a minimum free float of 25% under stock exchange rules.

There have also been growing reports that institutional investors are wary of the potential listing, with the appetite for risk dampened by series of reforms over accounting, governance, regulation and disclosure, notably new powers for the Financial Conduct Authority (FCA) and European lawmakers over greenwashing.

Institutional Caution Over Shein

The Financial Times has reported that some fund managers with ESG mandates have been shunning the proposed listing, and holdings in Shein for the major institutional investors may prove reputationally problematic as they come under ever-increasing scrutiny over the ethics and governance of the companies that they invest in.

Stepping up the pressure, Florida Republican Marco Rubio has written to U.K. Chancellor Jeremy Hunt to raise concerns, stating: “Shein previously sought to list in New York City but failed due to concerns about its unethical and irresponsible business practices. At the time, I warned U.S. securities regulators about Shein’s alleged exploitation of slave labor and trade loopholes.

“I now feel a duty of friendship to repeat these warnings and urge caution before the United Kingdom allows Shein to list in London,” he said.

And the British Fashion Council (BFC) recently became the latest industry body to speak out about its planned London flotation, which it deemed a “significant concern” to the fashion sector.

For its part, ever since the early indications that Shein may be interested in going public, the company has been on a charm offensive to stress the measures it is taking to be more environmentally responsible. Whether those green punches are landing is another question.

It has also emphasized its role as a technology-led company, and it is through technical innovations that it has forged ahead of many of its apparel rivals.

Shein’s management must surely be looking at the soaring sales and financial performance, plus the brand’s growth trajectory, and be wondering why the mood music seems to be playing a different tune.