According to two sources familiar with the matter, Chinese fast fashion giant Shein has confidentially filed for the US IPO. The company wants to taste the waters of investor appetite in one of the world’s largest capital markets. Goldman Sachs, JPMorgan Chase, and Morgan Stanley reportedly have secured roles as lead underwriters for Shein’s upcoming initial public offering (IPO).
The confidential report of Shein’s US IPO filing first surfaced in China’s Shanghai Securities Journal last week. The Wall Street Journal later corroborated this report on Monday, citing insider sources. It is reported that the Singapore-based company could launch its share sale sometime in 2024.
Shein previously attempted to list in the IPO in 2020 but dropped the plan back then. Reuters in July reported that the company has been in discussion with at least 3 investment banks about a potential IPO.
In August though, 16 Republican attorneys general urged the Securities and Exchange Commission to investigate Shein’s supply chain amid allegations of forced labor, a move preceding the company’s potential IPO.
Shein’s US IPO ambitions
Currently, Shein has not settled on the size of the deal or the valuation for its upcoming IPO, according to insider sources. Bloomberg had reported earlier this month that the company aimed for a float reaching up to $90 billion.
Shein’s decision to go public reflects the growing trend of Chinese companies seeking listings on American exchanges.
Until now, the most valuable Chinese-founded enterprise to make its public debut in the United States was Didi Global, the ride-hailing giant, which achieved a $68 billion valuation during its entrance to the market in 2021.
This benchmark sets the backdrop for Shein’s US IPO, positioning it to potentially surpass previous records in terms of market valuation.
It’s still unclear if Shein has filed with the China Securities Regulatory Commission (CSRC) for the US IPO. Chinese companies require clearance from the regulator before proceeding with offshore offerings. CSRC has not responded to a comment request.
Challenges for Shein’s US IPO
Shein has filed for a US IPO with the backdrop of a challenging environment for initial public offerings (IPOs). The fast-fashion giant’s move occurs amid a market struggling to recover momentum, marked by a series of lackluster stock market debuts.
Recent months witnessed the emergence of four significant IPOs. But noteworthy to say that three out of these four offerings failed to meet investors’ expectations.
Shares of German sandal maker Birkenstock (BIRK.N), grocery delivery app Instacart (CART.O), and chip designer Arm Holdings experienced declines below their IPO prices in the days following their market debuts.
However, Arm’s shares have since rebounded and are currently trading above their initial offering prices.
Jason Benowitz, senior portfolio manager at CI Roosevelt said,
“It doesn’t strike me as the most opportune time for Shein to come public, but if they need capital the markets are open and investor sentiment has been more positive than it was a few weeks ago,”
This year, US IPOs have successfully raised approximately $23.64 billion, reflecting a notable increase from the $21.3 billion raised during the corresponding period last year.
However, it is noteworthy that the figures fall significantly short of the remarkable $300 billion reached in 2021 when the IPO market approached its peak.
Affordable fashion, direct shipping advantage for Shein
As Shein files for a US IPO, let’s know the advantages the brand brings for itself. Shein is renowned for its affordable $10 tops and $5 biker shorts.
They adopt a distinctive business model by shipping the majority of its products directly from China to customers. This process involves air transportation, with each item dispatched in individually addressed packages.
Shein’s direct shipping strategy serves a dual purpose, preventing the accumulation of unsold inventory in warehouses and sidestepping import taxes in the United States, a key market for the company.
This approach enables the e-tailer to leverage the de minimis provision, exempting low-cost products from tariffs. This strategy is contributing to the brand’s cost-efficient and agile business model.
Meanwhile, critics argue that the de minimis provision enables companies to circumvent elevated tariffs on Chinese goods. Thus they are raising concerns about potential loopholes in trade regulations.