Fast-fashion giant Shein is reportedly close to a debut on the UK stock market this summer at a value of around £50bn. Now there’s a sentence I never thought I’d write!
What’s the latest on this intriguing initial public offering (IPO)? And might I be interested in snapping up Shein shares?
Big sales and profits
Shein was founded in China in 2008 by online marketing specialist Chris Xu. And while the Singapore-headquartered firm doesn’t sell its products in China, most of its low-cost suppliers are still based there.
In the West, Shein’s brand and popularity were significantly boosted in recent years by the ‘Shein haul’ trend. This involves shoppers showcasing online a variety of clothing and accessories purchased from — or presented by — the online retailer.
These hauls are widely shared on YouTube, Instagram, and TikTok, giving viewers a glimpse of the latest fashion trends. I can’t say I’ve ever engaged in a Shein haul myself. Then again, the firm’s target audience is women under 35.
Last year, the company reportedly generated $2bn in profits on sales of $32.2bn. It also launched a global marketplace for third-party sellers. This year, sales could hit $50bn, according to Reuters.
The marketplace model is similar to Amazon, so this could turbocharge advertising and sales growth for years. I’d like to learn more about its plans here.
When might the IPO happen?
There haven’t been any official announcements confirming a specific IPO date yet. But we could be looking towards the back end of summer.
However, there’s a lot of opposition to this listing on ESG grounds, particularly concerning accusations of forced labour in Shein’s supply chain. The firm denies these allegations.
Given this though, things could quickly unravel if and when the shares hit the market. Then again, London’s been starved of action, so maybe the stock will soar. Whatever happens, I doubt it’ll quietly meander.
If the listing does go ahead, my plan would be let the inevitable noise die down. I’d wait a couple of quarters to learn more about the firm and its founder. Then I’d look at the valuation.
My immediate concern is the potential headlines I might wake up to with this stock. It carries a lot of baggage. Do I need the hassle? My gut feeling says no.
Looking at rival boohoo
What about Shein’s UK-based rival boohoo (LSE: BOO)? Would I invest in this beaten-down stock instead?
Well, Shein flies individually-packaged orders directly from China to UK consumers. The vast majority of these are worth less than £135, which means they’re exempt from import duty.
I think the relentless scrutiny of Shein’s business practices might lead to a reassessment of this tax advantage. That might level the playing field on price for the likes of boohoo, boosting its ailing share price in the process.
Arguably, the firm needs it, with revenue slumping 17% to £1.5bn in the 12 months to the end of February. Its pre-tax loss widened to £160m from £90.7m the year before, while active customers fell 11% to 16m.
The stock looks cheap trading on a price-to-sales (P/S) ratio of just 0.3. Yet I think that’s a fair reflection of the challenges the business faces right now. I have no plans to invest.
