There has been a lot of talk lately about the prospect of a Shein IPO on the London stock market.
Shein is a massive online fast fashion specialist known for its low prices. An IPO, or initial public offering, is when a company floats on the stock market and private investors like me can potentially buy its shares.
For now, there has been no confirmation that the Shein IPO will go ahead in London. If it does, though, here is what I will be looking at when considering whether to add Shein shares to my ISA shopping basket.
Rise and Shein
In recent years the Singapore-headquartered company has been on a global expansion drive. It sells to online buyers in the UK, US, and many other markets worldwide.
As well as selling directly, the company also has a marketplace in some regions that opens up its sales channels to third-party sellers. This is similar to how Amazon developed, offering both its own direct sales and a marketplace to third-party vendors.
The company is led by chief executive Chris Xu, who founded it in 2008.
Low-cost model
Fast fashion has been big business in the past couple of decades.
Shein basically jumped on that bandwagon, but added some twists of its own. Even by the standards of fast fashion, its pricing is very cheap and that partly reflects its use of low-cost manufacturing sites in China.
It is able to turn around small batches of items very fast and produces in bulk only if a product line does well.
That means it can stay up to date with fast-changing trends and avoids the expense of warehouses full of unsold clothes.
Big but crowded market
So far that has helped Shein grow at speed.
For now its company accounts are not public, but press reports have suggested that its annual revenues are already in the tens of billions of dollars.
It has cut swathes through its market, increasing pressure on competitors. As a boohoo shareholder myself, “boohoo!” is indeed my reaction to that company’s poor recent performance. That seems partly at least to reflect the intense price competition among fast fashion retailers including Shein.
Shein has build market share quickly. But it continues to face a host of rivals including boohoo, ASOS, and Zara.
Risks and rewards
Shein’s last funding round reportedly gave it a $100bn valuation. With a large customer base, operational expertise, and strong price offering, I think the company could continue to grow sales at speed.
In a crowded market, though, a risk I see is that Shein may lack a sustainable competitive advantage over its rivals. For now it is synonymous with rock-bottom pricing. But fast fashion can be a business with low profit margins at the best of times. Competing on price may make those margins thinner still.
It remains to be seen whether the Shein IPO happens in London and at what price. If I was interested in investing, I would first want to review the company accounts in a flotation prospectus to make my own judgement about the value offered by the IPO share price.
However, Shein’s relatively undifferentiated place in a very competitive market makes me think it probably is not the sort of company in which I would choose to invest.
