Donald Tang can recall exactly where he stood when he heard the first news about Shein. The former banker and his wife were dining in Hawaii at the beginning of the pandemic in 2020. Tang’s spouse complimented the waitress for her stylish facemask, and then asked where she could purchase one. Shein was the answer.
Tang’s spouse, stunned by the astronomically low prices of Shein’s site, purchased fistfuls. Meanwhile, her husband saw an enormous business opportunity.
Since that day four years ago in Hawaii, Shein has transformed from a digital retailer founded by a Chinese to a global fast fashion juggernaut which has taken over the West. Tang, 60 is Shein’s emissary in the West and executive chairman. He has the responsibility of smoothing out the path to a blockbuster listing this year.
While young women in the West are raving about Shein’s £2 t-shirts and £10 knitwear, the rapid rise of the online fashion group has been strewn with controversy. Domestic retailers have accused it of exploiting tax loopholes at an industrial scale. Independent fashion designers accuse it of trampling on their intellectual property. Environmental campaigners are also dismayed by the rise of this behemoth, which is accused of turning “fast fashion” into “instant fashion”.
As tensions rise between the United States of America and China, the company’s plan to list on the New York Stock Exchange has been thrown into doubt. Tang has been courting Jeremy Hunt and other Labour Party leaders in preparation for a possible listing on the London Stock Exchange. Shein’s value was $66 billion in May (£53 billion) and could resurrect London’s stock market.
A float would expose one of the most disruptive businesses of recent years and the entrepreneurs who run it to intense scrutiny, which has exposed many of its ecommerce competitors after their listing. Is Shein prepared for its public debut?
Tang, a Chinese-born American financier, rose to the position of vice-chairman at Bear Stearns. Sky Xu, the Chinese entrepreneur that founded Shein in 2012 when he was in his late twenties is still its CEO. He met him in 2020 through one of the investors. Molly Miao and Maggie Gu, Xu co-founders, are responsible for Shein’s supply chain, operations and merchandising. Tony Ren is in charge of Shein’s operation.
Donald Tang, the executive chairman of Shein, saw an opportunity to make money when his wife was fooled by Shein’s masks at Covid.
The pandemic gave Xu a chance to shine. Shein’s £2 t-shirts, £4 gowns and £8 jackets were a hit with teenagers who stayed at home. They posted videos on social media of them trying out their “Shein haul”. Shein complemented the word-of mouth advertising with an online ad campaign and growth exploded.
Shein redefines fast fashion. Xu’s algorithms scour social networks to identify emerging fashion trends that Shein’s 250+ designers can shape into clothing. Shein’s exclusive network of over 5,000 suppliers is then automatically notified to place orders. The system allows the fashion group see all available production capacity. It takes just one week to design a garment, list it for sale and then receive an order.
Shein’s daily “flash” deals and addition of thousands of new products to its mobile app and website keep shoppers returning. Shein has been incredibly profitable: Shein made a net profit of over $2 billion from sales of $45 Billion last year. Sensor Tower, a market intelligence company, estimates that 171 million people regularly use the app.
British fashion retailers are trying to figure out how Shein is able to produce clothing at such low costs. A senior executive from a major fast-fashion company bought his “Shein haul” to get clues. “We took apart all the clothes and found that the T-shirts and denim, as well as the basic sweatshirts were not of poor quality. The executive stated that they could not match the prices charged.
Taxes. The UK is a popular destination for large retailers to import stock in bulk and store it in UK warehouses. Shein, however, ships orders directly to customers’ homes in China. Each order is packaged individually in zip-lock bags. The goods are below the £135 threshold, at which the UK imposes import duties on clothing. Shein’s order average is around £50.
“If a business fills up a container, they can claim that they are individual consignments to avoid duty, but in reality it is a full container of goods. Richard Allen, a Retailers Against VAT Abuse Schemes campaigner, said that it was an abuse of system.
Retailers are quietly encouraging Treasury to investigate how Shein, Temu – a rapidly expanding Chinese retailer who uses the same loophole – exploit the exemption in order to undercut their prices.
Theo Paphitis is the owner of Ryman and Robert Dyas, two high-street chains. The government has been sleeping at the wheel.
Shein’s spokeswoman explained that its low prices are due to the efficiency and speed of its “test-and-repeat” model. It orders about 200 products initially and then ramps them up quickly if sales are good.
Shein says it takes all complaints seriously and does not intend on infringing the intellectual property of designers.
Shein sources clothing from around 12,000 factories in China to support its rapid growth – sales on the platform have almost doubled in three years. Marks & Spencer, for comparison, sources its clothes from around 800 factories.
Experts question how Shein ensures its vast network suppliers do not exploit their workers or cut corners to produce clothing at such low prices. The minimum wage in China is usually higher than that of other major markets, such as Bangladesh or Vietnam.
According to Leon Reed of Verisio, the chief executive and founder of supply chain auditor Verisio, “double booking” – the underreporting by employees of their hours worked – is rampant in Chinese factories. It is expensive and difficult for companies to keep up with this.
Shein says it pays suppliers competitive rates so that they can pay a fair wage to their employees. Sources close to Shein said the company audited factories that supplied more than 90% of its clothing by value each year and cut ties last year with 28 suppliers who violated its code.
Shein’s low-priced products are questioned, as they may be at the cost of exploitation of workers at its suppliers.
Xu is not a native English speaker, despite becoming a billionaire by selling cheap clothing to Westerners. He’s now 40 and hasn’t been able to learn the language. His venture capitalists, which include investors from the west such as Tiger Global Sequoia General Atlantic and General Atlantic have been aiming for a New York floating for many years.
Xu is believed to own a third or more of the company and intends to keep his shares even after a float.
Xu moved Shein in 2022 to Singapore, in an apparent effort to dilute Shein’s Chinese heritage before American politicians and regulators. It doesn’t seem to have worked.
Shein has faced considerable opposition since she filed papers in New York to list. Marco Rubio, a Republican Senator, called for the Securities and Exchange Commission to stop Shein from listing in New York until it admitted its dependency on America’s duty-free imports and acknowledged selling clothing made of cotton from Xinjiang Province, China. Nearly 90% of cotton used by China’s textile industry comes from the region where Uighur Muslims allegedly are forced to work.
Shein has said that it has a policy of “zero tolerance” for forced labour, and requires contract producers to only source cotton from approved regions.
The US Congress passed legislation last month that prohibits app stores from selling TikTok until its Chinese owner ByteDance sells the platform. Donald Trump has proposed 60 percent tariffs on Chinese imports if he is re-elected president in November.
Shein was forced to seek calmer waters in London by these extraordinary circumstances. Tang met with the chancellor in February to discuss the potential of a flotation. Shein could become one of the ten largest companies in the benchmark FTSE 100 if it lists here.
London’s stock market, which is losing companies and has been struggling to attract listings, desperately needs a boost. Anglo American is one of the largest listed companies in London. Its rival BHP made a bid for it last month. Last year, London was unable to attract the British tech giant Arm which moved its IPO to New York for a better valuation. Flutter, a betting group, and CRH, a building materials supplier are two companies that plan to move their London listings to New York.
Tang, who owns an undisclosed amount of shares in Shein is attracted by London’s clear separation between regulation and politics. Shein has been urged to list in Hong Kong and Singapore by the exchanges, but the company prefers the West.
Attracting global investors will be key to securing an attractive valuation. British investment funds may be cautious, as they have cut back on their purchases of equities after seeing many consumer companies fail to deliver the hype.
There is also the question as to how fund managers can justify investing in shares of fast fashion, which is the second most polluting sector of the world. Shein claims that the company’s business model reduces waste by manufacturing clothes in response demand.
Shein’s eagerness to make money on a winning company is evident in its decision to launch a London listing with the help of Goldman Sachs and JP Morgan. Some observers question whether Shein is also frightened by the stiff competition of its rival Temu which has quickly copied aspects of Shein’s tax-lite models, as well as regulatory crackdowns against fast fashion.
Simon Irwin, Tanyard Advisory, said that there is a serious danger of growth starting to decline over the next two years. “Shein cannot delay its float much longer.”