After undertaking an odyssey of its own on its way to market, Chinese fast-fashion giant Shein failed to shine in its long-awaited Hong Kong IPO. The shares closed flat at HK$48.50, after sliding as much as 10% intraday, valuing the business at $26.3 billion.
Shein fails to shine
That valuation is a long way short of the peak of nearly $100 billion assigned to the company in 2022. Investors who participated in the D round of financing at the time have lost around 75% after today’s float.
Shein is famous for selling low-cost clothing, undercutting Western brands. After failing to list in New York and London, the firm finally chose Hong Kong. However, the shares failed to enjoy a traditional first-day pop which suggests investors didn’t consider them cheap.
Chief finance officer Leigh Gui said the company would ‘continue to innovate, optimise and cooperate with our supply chain partners for mutual benefit and win-win results’. However, investors remain concerned over the potential headwinds of tariffs and trade restrictions.
Headwinds increasing
The French government has begun imposing penalties on products sold by Shein and rival Temu. Under a law passed in June aimed at ultra-fast fashion firms, charges can be up to 50% of the selling price.
Also, the US and the EU have ended their ‘de minimus’ duty exception on small e-commerce items. Analysts estimates the number of active daily users in Europe has fallen 45% since the small-parcel exemption was scrapped.
Investors hoping for a quick windfall from the Shein IPO will be sorely disappointed. However, those who backed the company in the D capital raise will be even more disappointed.
Much of the firm’s appeal, as with rival Temu, has been based on price rather than the brand. On top of the EU raising costs, France has introduced its own surcharges which it argues are to protect the environment from over-production. That is a neat way of avoiding claims of a trade war, and we wouldn’t be surprised if other countries followed suit.
With luck, European fashion retailers will be able to recoup some of their lost market share, although it will take time. Also, if they no longer have to slash prices to compete, margins should improve.
