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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.
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.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Shares fell 6 percent after deteriorating sales in the Americas overshadowed a resurgence in Chinese demand.

Burberry Americas slowdown sours China rebound. Shares fell 6 percent after deteriorating sales in the Americas overshadowed a resurgence in Chinese demand. The British megabrand is in the midst of a transformation under chief executive Jonathan Akeroyd and designer Daniel Lee.

Gucci stages cruise show in Seoul. With sparkling lights and beating drums, Italian luxury label Gucci took over a 14th-century Seoul Palace on Tuesday to showcase its cruise collection, blending Korean heritage and modern fashion.

Giorgio Armani to stage couture show during Venice Film Festival. Armani Privé, the Italian designer’s haute couture line, will present its next collection on Sept. 2 at the Venetian Arsenal.

Farfetch returns to sales growth. The online luxury retailer’s revenue rose 8 percent year-on-year in the first quarter of 2023, above analyst’s expectations.

JD Sports’ profit to top £1 billion this year. The group reported profit before tax and exceptional items for the year to Jan. 28 of £991.4 million.

US retail sales increase in a sign of steady consumer spending. US retail sales increased in April, suggesting consumer spending is holding up in the face of economic headwinds including inflation and high borrowing costs.

Boohoo profit halves as shoppers face squeeze. Boohoo said on Tuesday it made adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), its key profit measure, of £63.3 million ($79.9 million) in the year to Feb. 28, slightly ahead of analysts’ consensus forecast of £62.1 million but down from the £125.1 million made in 2021-22.

T.J. Maxx parent raises profit view as cost pressures ease. TJX Companies Inc. lifted its annual profit forecast on Wednesday, banking on easing cost pressures to cushion a pullback in consumer spending on discretionary items.

Rare Rolex Milgauss fetches record $2.5 million at auction. A rare and pristine condition Rolex Milgauss watch sold for $2.5 million, smashing records for the highest amount paid at auction for the Swiss brand’s timepiece made for scientists.

Advertisers say stricter regulations will end the era of greenwashing. Insiders welcome stricter rules in the UK and EU over the use of terms such as ‘carbon neutral’ in adverts, and claims concerned with offsetting.

Florida taps tannery, accessories brands to help tackle python population. Invasive Burmese pythons are devastating wildlife but one firm believes turning snake leather into accessories could be a win-win.

Century 21 reopens flagship store in Manhattan. Legendary off-price store Century 21 reopened its flagship location in Manhattan’s Financial District after filing for Chapter 11 bankruptcy in 2020 during the Covid-19 pandemic.

Higg Inc. rebrands as Worldly. The sustainability analytics platform’s new name distances it from a greenwashing controversy last year that engulfed the Higg Index — the suite of data tools it was originally built to host.

Lululemon takes minority stake in recycling tech company. The athleisure brand has taken a minority stake in Samsara Eco, an Australian company that uses enzymes to recycle plastics like polyester and nylon into new materials.

THE BUSINESS OF BEAUTY

Beyoncé is US Vogue's September issue cover star.

Beyoncé appears to tease hair care line on Instagram. Beyoncé posted a series of images on her Instagram account that appeared to hint at the launch of an upcoming beauty brand.

Chanel taps Timothée Chalamet as fragrance ambassador. Chanel has named actor Timothée Chalamet as an ambassador for its Bleu De Chanel fragrance. The team-up marks the 27-year-old’s first fashion or beauty partnership.

Brazil’s antitrust watchdog approves L’Oréal deal to buy Aesop. Brazil’s antitrust regulator Cade on Wednesday recommended the approval of the sale of Natura & Co’s Aesop brand to French cosmetics company L’Oréal, according to the country’s daily gazette.

PEOPLE

Angelina Jolie at the premiere of the film 'Eternals,' in Rome.

Angelina Jolie launches fashion venture. Actress and humanitarian Angelina Jolie announced the launch of Atelier Jolie, a new fashion-focused business venture on Wednesday.

CFDA/Vogue Fashion Fund names finalists. After awarding prizes to all finalists for the past two years, the initiative will revert to naming one winner and two runners-up.

16Arlington wins BFC/Vogue Designer Fashion Fund 2023. The emerging British label 16Arlington founded by Marco Capaldo and the late Federica “Kikka” Cavenati will receive a £150,000 cash prize and business mentoring.

Lagos Space Programme wins International Woolmark Prize. Lagos Space Programme, the nonbinary luxury label by Adeju Thompson, was named winner of the International Woolmark Prize on Monday.

MEDIA AND TECHNOLOGY

US president Joe Biden signed a spending bill for the coming year that included a section banning TikTok from federal government devices.

Montana’s TikTok ban: why has it happened and will it work? On Wednesday, Montana became the first US state to ban the social video app TikTok.

Vice Media files for bankruptcy. Vice Media, which owns Vice, women’s media brand Refinery29 and fashion and culture-focussed publication i-D, filed for Chapter 11 bankruptcy on Monday.

Amazon plans to add ChatGPT-Style search to its online store. Amazon Inc. plans to bring ChatGPT-style product search to its web store, rivalling efforts by Microsoft Corp. and Google to weave generative artificial intelligence into their search engines.

Compiled by Sarah Elson.

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