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There are new reports that Chinese fast fashion giant Shein is considering a blockbuster initial public offering (IPO) in the London Stock Exchange. If this global growth stock lists in the UK, it would be the biggest ever on these shores.
What do we know about Shein? And what would it mean for its smaller UK rival? boohoo (LSE: BOO)?
An e-commerce giant
Shein ranked as the second most downloaded shopping app worldwide in 2023, according to Statista.
It had more than 261 million downloads, more than Amazon! – and is now the largest digital-only fashion retailer in the world.
Top shopping apps worldwide in 2023, by number of downloads (in millions)
I read that management believes revenue could surpass $58.5 billion in 2025. If so, that would be huge growth from the roughly $30 billion it was expected to generate in 2023.
At first glance, this would make the rumored IPO valuation of between $70bn and $90bn (£55bn-£71bn) look plausible. However, I don't see any reliable profit figures for any company.
Would you invest?
I would certainly be interested in seeing the IPO prospectus. However, I have reservations because Shein has been accused of performing forced labor in its supply chain.
Additionally, artists have accused her of stealing designs and there are even reports that some of her clothes are made from potentially dangerous materials.
Shein denies these accusations. But he worries me that many institutional investors are still discouraged.
That said, the company is reportedly trying to replicate Amazon Marketplace by allowing third-party retailers to sell products on its platform. In addition to driving growth, this diversification could help reduce the risks associated with its own supply chain.
Will it happen?
Although founded in China, Shein has never sold products there and is based in Singapore.
It was preparing to go public in New York this year. However, she is now exploring alternatives such as London due to regulatory hurdles in the US due to some of the allegations highlighted above.
UK Chancellor Jeremy Hunt has reportedly met with Shein's CEO to discuss the potential IPO. That's not surprising. Last year alone $1 billion was raised on the London Stock Exchange, the lowest sum since 2009.
The UK market is clearly desperate for new listings. Personally, however, I have my doubts that this will happen. I'll believe it when I see the LON ticker symbol: SHE (or whatever).
What about Boohoo?
I wonder what Boohoo thinks of all this. After all, Shein has been gobbling up market share and putting pressure on it with unbeatably low prices.
In boohoo's first half, covering the six months to the end of August, sales fell 17% year-on-year to £729m. The company suffered an adjusted pre-tax loss and net debt rose to £35m.
Worryingly, active customers decreased to 17 million from 19.2 million the previous year.
The most positive thing is that the company has opened a new warehouse in the United States and, at the same time, has reduced costs. So it may not all be doom and gloom.
My fear, however, is that the fast fashion market is a race to the bottom. And that Shein, with its potentially huge post-IPO war chest, will continue to put enormous pressure on boohoo's growth and margins.
Therefore, I have no intention of investing, despite the 90% drop in the share price in three years.
