Shein looks like $66bn worth of buyer’s remorse waiting to happen

The wardrobe additions you tend to regret are not the expensive items you love, but the marginal purchases that seem like a bargain yet quickly fall apart (the exception being if you’re a cabinet minister using Waheed Alli’s credit card). On that basis, fund managers should be wary of splashing out on what Gen Z shoppers call a “Shein haul”.
The Chinese fast-fashion giant, valued at $66 billion in its latest private funding round, wants to float on the London stock market early next year. It has been given the cold shoulder by New York and would prefer not to list in Hong Kong, which is increasingly darkened by the shadow of Beijing.
There is debate about whether a company that vigorously takes advantage of the tax rules on small imported packages, undercuts high-street retailers and benefits from an opaque supply chain should be allowed to sell its shares in the UK.
If it managed to float and sold more than 25 per cent of its equity — and there have been indications it could aim to sell less — Shein would enter the top end of the FTSE 100. But there is a serviceable free-market scenario in which the institutions that determine the success or failure of every initial public offering are allowed to work out for themselves that Shein would rapidly unravel as a public company.
Founded in 2008 and now based in Singapore, the purveyor of £2 T-shirts is being stretched on a rack of geopolitical tensions. It is viewed with suspicion in the US, which passed a law in 2021 seeking to ban imports of clothes with cotton made using forced labour by Uighur Muslims in China’s Xinjiang region.
It is viewed as a potential traitor by Beijing, which is super-sensitive to the idea that a Chinese company could try to deny its roots or contradict the regime’s line on Xinjiang. Shein has said it has “zero tolerance” for forced labour but has stopped short of mentioning Uighurs or Xinjiang for fear of angering China. A source says that doing so would be like hailing Taiwanese independence.
Last week, China accused the American parent of Calvin Klein of boycotting cotton from Xinjiang. PVH was given 30 days to explain itself or face a blacklisting. This might also have been a warning to Shein.
One benefit of its position is that Shein, which made profits of more than $2 billion last year on $45 billion of goods sold, can ship clothes cheaply to the West. It initially orders thousands of designs in small batches from Chinese factories, ramping up volumes for ones that go “viral”. Most customers’ orders are dispatched from a warehouse in a free trade zone in Guangzhou and air-freighted as individual packages, meaning they usually slip under the threshold for import duties. In the UK, parcels worth less than £135 are duty-free. In the US it is $800, in the EU €150.
In contrast, most “normal” retailers incur duties as they ship big consignments to warehouses in the West for onward distribution. Amazon acknowledged the appeal of the Shein model over the summer when it outlined a plan to air-freight goods from China to western consumers prepared to wait a little longer in return for lower prices.
This isn’t going to last. Washington has proposed a crackdown on what it called the “overuse and abuse” of the $800 rule. The EU is looking at doing something similar. Traditional retailers lobbied Jeremy Hunt when he was chancellor and are likely to carry on with Rachel Reeves, especially if America and Europe take action. Shein says it will be fine without the tax arbitrage, but it’s been a big part of its magic to date.
There is competition. Temu, launched by the Chinese online retail platform Pinduoduo, has copied Shein’s style and pushed aggressively into the US. Temu has grown a user base to rival Shein’s and could sell $54 billion worth of goods this year, according to analysts at Bernstein.
Sentiment around UK ecommerce stocks such as Asos and Boohoo collapsed three years ago. Simon Irwin, an analyst at Tanyard Advisory, said: “There is a finite market share for an offer like Shein’s in any given market, and I suspect it’s a bit smaller than people think. My gut feeling is that in major western markets, it’s probably hitting a brick wall.”
Then there is governance. Shein’s founder, Sky Xu, leaves the frontman stuff to Donald Tang, a Chinese-American investment banker. But Xu owns 37 per cent, with most of the rest held by venture firms such as Sequoia China. He will have to engage with the outside world at some point. Shein is shopping for a UK advisory board, as did Huawei, another company with a complicatedly Chinese identity. That is unlikely to do more than add window dressing.
There will be hype and talk that a weak London market should embrace a multibillion-dollar float. Singapore is being touted as an alternative venue. If they do their jobs properly, professional investors will see through it. I am not sure what the Chinese translation is for caveat emptor, but it should be plastered across any Shein share sale.
Without getting too Jean-Paul Sartre about it, when is a sale and leaseback not a sale and leaseback? I ask because Morrisons sold a 45-year income stream from 75 supermarkets for £331 million to the investor Song Capital last week.
Clayton Dubilier & Rice, the private equity firm that swallowed the grocer in a toppy takeover three years ago, pledged not to do “any material store sale-and-leaseback transactions”. But CD&R needs to pay down a mammoth debt pile. The Song Capital deal breaches the spirit, if not the letter, of the 2021 promise in that it introduces operating leverage. Sir Ken Morrison, who once branded a Morrisons boss’s strategy “bullshit”, would have had a pithy word to say about it.
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