Fast fashion retailer Shein has risen from an obscure position to become the dominant player in the market. In less than a decade, it has become the most popular online shopping site for Generation Z. In 2022, it was the world’s third largest and most valuable startup, with a valuation of more than $100bn – more than fast-fashion predecessors H & M and Zara combined.
The Singapore-headquartered platform is targeting a valuation of $90bn in a potential US initial public offering (IPO) after its valuation dropped below $66bn in May 2023, along with other startups. Investors are cautious toward risk assets and IPOs, given the uncertain economic outlook and higher interest rates.
Challenges ahead for Shein’s IPO
Shein, which was founded in China more than a decade ago, was the first company to use data analytics to predict client demand and manufacture small quantities of specific items to keep inventory costs low. It is known for producing large quantities of trend-led clothing at an average price between $3 and $5 per piece.
While it has been recognised for its creativity in its low-asset e-commerce model, it faces mounting hurdles from copyright infringement proceedings, environmentalists’ criticism and competition from other e-commerce companies in China. It must also deal with accusations that it is exploiting forced labour and violating labour laws.
a) Copyright infringement
Shein faces frequent lawsuits for copyright infringement over allegations that it steals designs and uses them in products without permission. In July 2023, three designers sued the company for copyright. As a result, Shein took disciplinary action against some of its designers and manufacturers. In addition, the company uses image-recognition technology to detect suspected infringement and conducts manual checks.
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b) Environmental criticism
In 2021, the company’s operations produced approximately 6.3 million tons of carbon dioxide. It has previously denied accusations of forced labour and stated that it has sought to comply with local customs and import laws.
GlobalData has found that of those consumers who ordered items from abroad in the past year, 51.1% did not consider the environmental impact of their order, and the remaining 48.9% who did consider the environmental impact were not deterred from making an order. Younger consumers are purchasing from abroad in the highest proportion, with 52.1% of 16 to 24-year-olds having ordered from abroad in the past year, despite 71.1% of this demographic stating that they considered the environmental impact before ordering from abroad based on GlobalData’s October 2023 monthly survey of 2,000 nationally representative UK respondents.
Shein has started working on solutions to reduce its carbon footprint through a new recycling platform.
c) Forced labour and violation of labour laws
Shein is under investigation by a US House panel over concern that Uyghur forced labour is being used throughout its supply chain and has gone unnoticed because of the de minimis provision, which refers to the fact that products under a specific value are exempt from taxes and customs duties and to a rule regarding the determination of the country of origin of a product. Members of the Uyghur ethnic group in China have provided evidence of torture, forced labour and genocide, pushing authorities to ban the import of cotton and other products made in Xinjiang in 2021.
In June 2023, the panel ruled that most products shipped by Shein to the US are less likely to face the same level of customs scrutiny than other retailers. The committee has yet to reach a verdict regarding the use of forced labour in Shein’s supply chain.
Inevitably, the controversies surrounding the company’s supply chain practices will hinder its debut in the US IPO. Shein’s choice to relocate its headquarters to Singapore and grow its operations outside of China several years ago has helped pave the way for its IPO. However, the US IPO for Shein will face obstacles until it can address at least some of these challenges.