Shein's Price Drop Could Prompt IPO Recalculation – RealMoney

Has the fast-fashion phenomenon that is Shein finally met its match in the US Fed?
Shein is soooo hot right now. It’s the top fashion app in the United States. Its latest round of financing valued it at US$100B. And the Chinese company is beating the world’s leading clothing retailers at their own game.
The Chinese retailer outdid (AMZN) as the top e-commerce app download in the United States in the first half of this year, Apptopia numbers show, with 22.4 million downloads. It has somehow condensed the already-compressed turnaround cycle of Zara, the star subsidiary of the Spanish conglomerate Inditex (IDEXY) , to make fast fashion even faster.
It is also the world’s third-most-valuable private company, according to CB Insights. Its US$100B valuation ranks it behind only second-top SpaceX, at US$127 billion, and fellow Chinese tech play ByteDance, the parent of TikTok, the most-valuable private company in the world at US$140 billion.
Shein’s valuation, though, is reportedly now in rapid descent. Insiders have been offering and trading shares at deep discounts, according to the Financial Times, slashing its valuation by one-third.
Shein shares have been changing hands in the private market at prices equivalent to between US$65B and US$85B, the FT states, citing three people “briefed about the matter.”
Shein is pronounced like two words, “She In,” in case you’re wondering. The Nanjing-based company took to Twitter (TWTR) to make that point explicit.
What has produced such a sharp change in the company’s fortunes? The tech selloff this summer prompted by the Federal Reserve’s interest-rate increases is to blame. It has left venture-capital and private-equity investors looking to trim risk, and even liquidate capital if they face redemptions.
Private companies are notoriously hard to value, but there are marketplaces for the shares of the largest, most-liquid non-listed entities. The FT reports that US$100M in Shein shares changed hands at a US$65B valuation, while US$200M traded at US$70B. One person turned down shares at a discount of around 30%.
Shein, founded in 2008 by Chris Xu, is generally pretty quiet as a corporate entity. And it played true to form in this instance, issuing a statement that the purported trades had nothing to do with Shein Corp.
“There have been no company-authorized transactions since April, including any secondary-market transactions which would require prior company approval,” a spokesperson told the FT.
Xu, who started out in search-engine optimization for a clothing sourcing and trading company, started his own business to sell wedding dresses at first, under the name ZZKKO. The company changed name in 2012 to SheInside, then abbreviated that.
It targets Gen Z shoppers with a flurry of discount codes and special offers, and by working with influencers and celeb sponsors. It has moved way past its roots sourcing clothing as a “drop shipper,” and now produces its own designs. Its designers can deliver as many as 2,800 new styles per week, with its supply network built out from the wholesale clothing markets in Guangzhou. The Chinese manufacturers are willing to turn around short runs in double quick time.
Although the manufacturing takes place in China, Shein doesn’t sell its goods there. It has national versions of its Web site for many of the 220 countries to which it ships, with top traffic to the Shein site from the United States, Brazil, France, Spain and Canada.
I wrote in February how the company is looking at a Wall Street listing, looking to raise as much as US$1B. But it started work on an IPO in early 2020, and may now be looking at a 2024 debut at the earliest.
The listing has been delayed due to tension between U.S. and Chinese stock regulators over Chinese listings in the United States. Shein has also had to contend with accusations that its designs often look surprisingly similar to ones that have appeared on rival brands such as Zara. And it goes to great lengths in insisting that its supply chain is vetted for violations of child labor and forced overtime.
There are of course the long-standing complaints that fast fashion creates waste. Add to that an addictive app and numerous “haul videos” with influencers showing how much they got for so little, and it’s easy to see how teens and adults alike can spend more than they meant on items they don’t really need.
Still, there’s no doubting Shein’s success in creating an itch, and scratching it. It has won venture-capital backing from big names such as Sequoia Capital’s China unit and Tiger Global Management. A round of Series F funding in April raised US$1.5 billion according to Crunchbase, by bringing in the private-equity house General Atlantic and seeing Sequoia and Tiger expand their stakes. That April round produced a US$98.5B “pre-money” valuation, per Crunchbase’s very precise tracking.
Shein was valued at just US$4.5B when Sequoia and Tiger led a financing round in 2019, and US$15B at the round in 2020. The sudden escalation in the private company’s shares mean it is now worth more than Zara parent Inditex (US$66.3B market capitalization) and Swedish rival H&M Hennes & Mauritz HNNMY (US$14.0B). Perhaps combined.
The summer selldown in equities will no doubt defer Shein’s listing plans yet again, at least until the markets stabilize. There’s also the risk that the Fed’s actions have dented consumer confidence and could spark a retail recession.
Fashion could therefore be where it’s at in terms of M&A. Brand builders may calculate it’s time to sell out and move on.
I wrote on Wednesday about the leading South Korean search engine Naver and how it hopes to use the US$1.2B acquisition of fashion-resale site Poshmark (POSH) to break into North America. It’ll be building on the popularity of K-Pop and K-Fashion, and is equally attracted by the Millennial and Gen Z user base of Poshmark, who often spend 25 minutes on the site sharing and liking images of their fashion with their friends.
TikTok and ByteDance are also looking to set up live shopping in the United States. While plenty of TikTok users use livestreaming to promote their wares for sale, the app company is in talks with potential partners such as Los Angeles-based TalkShopLive, the FT reported at the start of this week. It already teamed up last year with Shopify (SHOP) to allow business accounts to integrate their catalogs into their profiles.
It’s not clear how it would set up its live sales. TikTok has already been testing live shopping in the United Kingdom as of last year, but was reportedly disappointed by the results and put plans for expansion to Germany on hold.
The livestreaming prospects could, however, see Shein, Naver and ByteDance go up against one another for the fashion business in the United States. How Amazon fares in fending off those Asia-based e-commerce intruders will be fascinating to watch.
(Amazon is a holding in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells AMZN? Learn more now.)
At the time of publication, Alex Frew McMillan had no position in the securities mentioned.
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