Shein's US IPO is Dead, Experts Say

The Shein logo is seen on a smartphone, while the Chinese online retailer's website is opened on a laptop.

Monika Skolimowska | Alliance in pictures | Getty Images

China-founded e-commerce company Shein's hopes of going public in the United States are dwindling by the day, experts say, as growing tensions between Beijing and the United States disrupt business and the trade.

The company, last valued at $66 billion, filed confidentially for a U.S. IPO in November. Since then, the company has faced resistance as it attempted to join the American retail sphere, including through numerous rejected attempts to become a member of the National Retail Federation, the largest trade association in the sector, CNBC previously reported.

The e-commerce newcomer has filed to go public while becoming a household name in the United States by offering low prices and the ability to quickly release new styles. The company is poised to capture significant market share from U.S. retailers including Gap, TJX Companies and Macy's, according to UBS data from last year, and continues to compete with Target, Walmart and Amazon.

But as political resistance to its U.S. IPO grows, Shein appears to be shifting gears, as it reportedly prepares to confidentially file a $50 billion offering in London in the coming weeks. The company would probably have preferred to list in the United States because the offering could bring a higher valuation than in the United Kingdom, said Angelo Bochanis, an IPO analyst at Renaissance Capital, which provides pre-IPO research. stock market and ETFs focused on IPOs.

But the road hasn't been easy, as federal and state officials have called on the Securities and Exchange Commission to review, and even block, the U.S. IPO.

“Scrutinizing high-profile companies with roots in China is hot politically right now in the United States,” Bochanis said.

An IPO in London could, in theory, be easier than a U.S. offering, according to Bochanis. With the British Parliament dissolved and the London Stock Exchange “desperate for big wins” as it suffers an IPO drought, Shein could sidestep some of the hurdles it might have otherwise faced, a- he declared.

If Shein's London IPO is successful, it is unlikely to continue its offering in the United States, said Jay Ritter, a finance professor at the University of Florida who studies IPOs.

Not all China-linked companies are caught up in the growing political tensions. Chinese electric vehicle company Zeekr went public in the United States last month. It became one of the first high-profile Chinese companies to do so in the United States, even as the Biden administration has increasingly cracked down on Chinese-made electric vehicles.

Ties with China and data privacy

Shein is “one of the few” China-linked companies that has gained high awareness among U.S. consumers, Bochanis said.

The scale of the potential offering and the lengthy, high-profile process that accompanies it have helped make Shein an attractive target for politicians from both parties who want to get tough on Beijing-linked companies.

Shein was founded in China and has since moved its headquarters to Singapore. But much of the company's supply chain is still based in the country.

In December, the House Energy and Commerce Committee sent a letter to Shein seeking information about the company's user data collection and its dealings with the Chinese government, calling it a link potential with Beijing of “serious risk for electronic commerce, consumer safety and the lives of the population”. data privacy and security.

The panel sent a similar letter to TikTok, the popular social media platform owned by China-based parent company ByteDance.

The Chinese Communist Party can, under the law, ask any Chinese company to share information about its customers, according to Susan Ariel Aaronson, a professor at George Washington University. Although Shein is headquartered overseas, its manufacturing ties in China and reports that it has sought permission from Beijing to go public in the United States have raised concerns among U.S. officials about the data it she could share with the Chinese government.

That relationship helped spark a proposed U.S. ban on TikTok. Legislation passed by Congress last month aims to force the platform to sell its U.S. assets by January 19 or cease all activity in the country.

ByteDance and several creators on the platform filed lawsuits to block the bill.

Although Shein does not have access to the scale of data that a social media giant like TikTok has, the proposed ban has raised more doubts about an IPO for the company in the United States.

“[Congress] “just showed us that if a particular Chinese company is perceived to pose a threat, they can come together and pass a law, and that is much stronger than a decree or presidential decree,” said Antonia Tzinova, national security lawyer in the Netherlands. & Knight.

Shein Shipping Issues

Political scrutiny beyond data privacy may prove more difficult for Shein to overcome.

The retailer has long been criticized for its alleged use of forced labor in its supply chain and poor working conditions for its employees.

In 2021, the United States passed the Uyghur Forced Labor Prevention Act, which prohibits companies that manufacture products in China's Xinjiang region, known for its Uyghur detention camps, from selling to the United States. Although U.S. government agencies say Shein's supply chain has ties to the Xinjiang region, the company does not manufacture its own products and instead uses China-based micro-manufacturers who make the materials more difficult to follow.

Shein has repeatedly denied allegations of forced labor, saying it implemented a system to support compliance with U.S. law within the company.

The company has also been criticized for exploiting loopholes in US customs law.

Because the company does not import its products in bulk for sale from a U.S. warehouse and instead ships them on an order-by-order basis, it is exempt from some of the heaviest U.S. import taxes. Competitors have criticized this practice as giving Shein an unfair competitive advantage.

Gabrielle Fonrouge of CNBC and Reuters contributed to this report.

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