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What Shein’s Lower Valuation Means for the Future of Fast Fashion

The fast fashion retailer’s down round this week reflects new pressures from rivals and regulators. But the e-commerce giant is reportedly aiming for another year of explosive growth on its way to a potential IPO.
Shein raised $2 billion at a $66 billion valuation, down one-third from its last funding round. (Getty Images)

This week, Shein, the Chinese fast-fashion phenomenon that has rapidly emerged as a dominant force in the space, raised $2 billion at a $66 billion valuation, down one-third from its last funding round, according to The Wall Street Journal.

Shein’s many detractors, from rival retailers to China hawks in Washington to sustainability advocates and independent designers who claim their creations were ripped off, have been waiting for a moment like this. (Italian designer Giuliano Calza is the latest to join their ranks, calling out Shein this week for copying a shoe design for his brand, GCDS.)

The company isn’t invincible. Earlier this month, a bipartisan group of US lawmakers called on the Securities and Exchange Commission to require Shein to independently verify that it is complying with a ban on goods manufactured in China’s Xinjiang region ahead of any IPO. Shein said in a statement to BoF it has no suppliers in Xinjiang.

For now at least, the threats to Shein are mostly theoretical.

Even at its reduced valuation, Shein is still one of the world’s biggest fashion companies; $66 billion is more than the market capitalisations of Adidas, H&M and Burberry — combined. Among fast-fashion retailers, only Zara-owner Inditex is bigger.

And though Shein’s sales growth has slowed in the US, it’s projecting global revenue to rise 40 percent this year, according to the Journal report. The newspaper also cited investors who said the lower valuation may be paving the way for an initial public offering.

The sorry state of some of Shein’s rivals was also on full display this month. British e-commerce retailer Boohoo Group reported Tuesday that its profits had halved in the year ending on Feb. 28, on total sales of £1.77 billion ($2.2 billion) — an 11 percent dip from the year prior. At Asos, sales fell 8 percent to £1.84 billion ($2.3 billion) in the six months ending on Feb. 28, while its adjusted earnings before interest and tax, plummeted from £26.2 million to a loss of £69.4 million. A.k.a. Brands, which owns Princess Polly and other lines, earlier this month said first-quarter sales dropped 19 percent. Its market capitalisation is under $50 million, compared with $1.4 billion at its September 2021 IPO.

What’s become clear is that Shein has successfully captured the slice of the market occupied by the last wave of online fast-fashion brands. Five years ago, Boohoo, Asos and others were seen as the faster, leaner challengers ready to take on Zara and H&M. Shein is even speedier at bringing viral trends to market and offers a far wider assortment of products. It’s using its billions of dollars in venture capital funding to get even faster, such as by building distribution centres in the US and Europe.

Rival online retailers are struggling to respond. But Shein hasn’t had the same disruptive effect on the category’s giants. Inditex saw a 17.5 percent uptick in sales in 2022, while H&M posted a 12 percent increase in the first quarter of 2023. (Inditex has not yet published first-quarter sales figures.)

Zara and H&M have weathered Shein’s rise thanks in part to their vast store networks. In 2022, Inditex’ in-store sales increased 23 percent, the company reported, even as it closed hundreds of locations. Online sales, meanwhile, grew by 4 percent. H&M noted the same trend in its most recent quarterly earnings report: sales in stores increased in the first three months of 2023 even though it also had 7 percent fewer locations than the year before.

Post-pandemic, stores are once again a vital part of brand building and the customer experience. Physical retail provides an opportunity to build trust with consumers by showcasing a higher quality of product, allowing Zara to charge higher prices than Shein. H&M uses its stores to promote designer collaborations, most recently Mugler, and burnish its sustainability credentials.

H&M and Inditex can’t ignore the threat posed by Shein. But the Chinese retailer’s lower valuation is a sign that its investors have tempered their expectations a bit, at least for now. Last year’s $100 billion figure at the time was higher than even Inditex’s market cap. It reflected total domination of the fast-fashion market. Its current $66 billion valuation is appropriate for a company that has earned its place in the category’s top ranks, a status that the likes of Boohoo, Asos and Fashion Nova never quite achieved.

Could Shein someday open stores of its own, though? If it did, Zara and H&M would have reason to worry. Their rival has already held a series of wildly popular pop-ups around the world, including a recent one in Paris that drew thousands of shoppers and long queues outside the store in Le Marais.



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Compiled by Sarah Elson.

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