Shein IPO Buzz Shines Spotlight on Business Model

As Shein inches closer to the white-hot center of Wall Street, the spotlight is shining all the more on its distributive business model — and the competitive threat ultra-fast fashion poses to the budget-minded retail world.

Sources have been buzzing for a month that Shein was preparing to confidently file for an initial public offering with the Securities and Exchange Commission, and news reports in Asia and the U.S. said the company has finally submitted its registration statement for review.

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A confidential filing gives Shein some time to work out any kinks in the offering with the SEC. The company and the banks it’s said to be working with — Goldman Sachs, J.P. Morgan and Morgan Stanley — all declined to comment.

An IPO would give Shein a much higher profile and heavyweight stock status as its last fundraising round was said to set its valuation at $66 billion.

“We’re talking about a valuation like OpenAI or some tech valuation,” said consultant Brian Ehrig, a partner in Kearney’s consumer practice. “When was the last time anyone was this excited about an IPO in fashion?”

Ehrig said Shein is on pace to be the size of H&M and Zara combined by 2025, having used its quick turn, low-cost supply chain to attract some 75 million active shoppers.

“They introduce product at a rate of 10-times that of Zara,” he said, noting the Shein rolls out about 6,000 looks daily, although there’s some nuance there on just how those looks are counted. “It’s an insane number. And they do it at a crazy low price.

“I feel like for the last few years, fashion’s really been talking most about luxury, but the value price point is always where it’s at in fashion,” he said. “Shein is hitting that value price point. I think it’s the way that they do it that makes it an exciting story. While they’re introducing a lot of products, they don’t put tons of inventory out there. It’s more of a just-in-time production model — that has been considered the holy grail of retail.”

It’s not clear exactly who Shein is taking share from, but the company is surely a competitive factor for not just Zara and H&M, but also Amazon, Walmart, Target and any other brand selling budget fashions.

While larger players like Amazon and Walmart have broader strategies to buoy them, the smaller more traditional fashion players might have to react to Shein or the broader forces in the market.

“Companies are going to have to figure out how to break the traditional model that is in place for fashion retail and it’s not going to be easy for them to do it,” Ehrig said. “We’re really talking about a total reset of how the industry thinks about creating product.”

Jessica Ramírez, senior research analyst at Jane Hali & Associates, also pointed to Shein’s sourcing capabilities as a key differentiator.

“It’s more of a logistics story in a way, just how quickly they can turn things around,” Ramírez said.

It’s also a story that illustrates the tension between the age-old impulse in fashion to move as much product as possible and the newer set of priorities that come with corporate purpose programs and environmental, social and governance concerns.

“It feels like it’s back to the days of wearing something once and tossing it out, where I think Zara and H&M have tried to pull away from that,” Ramírez said. “Novelty is a good word for Shein overall, there’s just so many things that have that one-time use.”

Shein has taken lengths to present itself as a good corporate citizen, although it has had to work to convince skeptics, for instance, that it doesn’t use goods made with forced labor in China’s Xinjiang region. The company has said that it has “zero tolerance for forced labor” as well as “no manufacturing facilities in the Xinjiang region.”

But just as Shein might change some of the habits of fashion at large, Wall Street and pressure from investors could change Shein.

An IPO on Wall Street would put new regulatory restraints on the company, which is already showing plenty of signs of evolution as it continues on its growth tear.

Shein signed a long-term agreement this fall that has it designing, manufacturing and distributing Forever 21 apparel and accessories. The company also bought one third of SPARC Group, the joint venture between Authentic Brands Group and Simon Property Group that operates Forever 21 in the U.S.

“The Forever 21 deal, that is them trying to tap into stores,” Ramírez siad. “I do think stores are important today. If you have stores, you’re able to connect more.”

And if Shein is able to pull off an IPO, it would likely have more money to keep connecting with shoppers — through retail and around the world in the more than 150 countries it already operates in.

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