What Shein needs to avoid a London IPO bust
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Videos of shoppers unveiling a “huge haul” of Shein goods can get thousands of views on TikTok. But so too can clips comparing what shoppers were promised to the disappointing products delivered.
UK fund managers are wary of the second scenario when it comes to the ecommerce group’s potential initial public offering in London. Shein’s executive chair Donald Tang has his work cut out if he wants UK institutions to buy what he is selling.
Shein filed papers with the UK’s Financial Conduct Authority confidentially this month for a potential flotation. Beijing has yet to formally greenlight an IPO outside of China, with a Hong Kong listing still also an option. In London, the paperwork might prove the easy part.
For a start, Shein needs to be much clearer about why it wants to float at all. Tang has downplayed standard reasons such as raising cash or giving early investors an exit. Instead, he has talked about the benefits of “enhanced transparency” — a phrase that raises as many questions as it answers.
Second, some fund managers have said they would struggle to buy Shein over supply chain concerns. These need to be tackled head on. Shein denies allegations about forced labour in its cotton supply chain. It argues that in 2023 it ditched a small number of suppliers in China that did not reach its standards. More frequent, independent audits will be needed to neutralise this issue in the City.
Third, there are inevitably governance concerns — about an expected small free float and Shein’s corporate structure, with its ultimate parent registered in the Cayman Islands. One useful signal from Tang could be reassurance that all shares will carry equal voting rights. Given the slim free float expected, a dual-class structure entrenching the rights of pre-IPO investors seems unhelpful and unnecessary.
The fact remains, however, that it is easy for fund managers to carp about governance when the pricing is wrong — something Deliveroo found in its disastrous 2021 IPO. Golden Goose’s aborted float shows current sensitivity to overblown aspirations.
Shein worryingly bigs itself up at retail conferences as an AI-powered tech play. But a tech-style multiple is unrealistic. Its reported target valuation of about £50bn suggests it might benchmark itself closer to Zara owner Inditex, which trades on 23 times forward earnings.
Even then, a decent discount would be required. There are regulatory risks, given some countries are trying to close tax loopholes used by Shein and others that ship lots of small packages direct to customers.
Shein insists its growth does not rely on those loopholes remaining open. Either way, for a successful London debut, Tang must bridge the gap between how Shein sells itself and what some investors believe it will deliver.
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