A stock market listing for Shein has been talked about for so long that the round number of £50bn has become attached to this Chinese-founded fast-fashion retailer as a plausible valuation. It’s probably time to ask: are you sure about that number?
The figure isn’t plucked out of thin air, it should be said. Shein raised money from private equity backers last year at a valuation of $66bn, which is roughly £50bn. But, since the company also raised a few dollars at a $100bn valuation the previous year, it has merely demonstrated the standard truth that valuations set in thin private markets can be volatile and are not to be relied upon. Translating a sketchy private number into a hard valuation on a serious public market is a different game.
Then consider what has happened since those fundraisings. For starters, Shein has failed to get itself listed in the US, seemingly because of opposition from US lawmakers. London is now the likely destination – initial papers have been filed with the Financial Conduct Authority – but the label of being a New York reject, you would think, would knock a few quid off the price.
Now comes something potentially far more serious. The EU is drawing up plans to impose custom duties on cheap goods imported from China and seems to have Shein – plus the likes of fellow marketplaces Temu and AliExpress – in mind.
The threshold for the levy in the EU is €150 (£127) and was probably set at that level because of the administrative hassle of chasing small sums. But, given the explosive growth in such sub-€150 parcels, there is a fair argument that the retail market is now being distorted and it has become worthwhile for the authorities to pursue duties on packets now deemed “de minimis”. Why should Chinese-based retailers, dispatching orders in small packets to get under the duty threshold, while also enjoying subsidised postage costs in China, enjoy such an advantage?
The same argument is running in the UK, where the threshold is £135. Simon Roberts, chief executive of Sainsbury’s, this week called for loopholes to be closed for “some of the businesses that aren’t paying tax in the right way, so it’s a level playing field for everybody”. Absolutely right: the rules need a fundamental rethink.
An open question is how far Shein’s business model would be damaged if custom duties had to be paid. Donald Tang, Shein’s executive chair, has argued in the past that the firm embraces reform in the name of “fair competition around the world” and has claimed tax breaks are “not foundational to our success.” Outside investors, one suspects, would want to see detailed evidence to support the latter claim. The core pitch to consumers is that the clothes are dirt-cheap; the customs duty advantage does not feel irrelevant.
In the meantime, the guessing-game on valuation must proceed on the basis of little detailed information. The Singapore-domiciled Shein drones on about how it uses AI to predict demand, how it ships to 150 countries and how it keeps waste to a minimum, but it is less forthcoming about financial performance.
The FT reported that it had seen a financing document showing $2bn (£1.6bn) in profits for 2023 and roughly $45bn (£35bn) in gross merchandise value, but audited numbers are what count in a listing document and for valuation purposes. Even before one considers the controversy around alleged labour malpractices, some scepticism is required around the £50bn valuation. Shein is big, but it has barely started to explain its business meaningfully.
