Is Shein in crisis?

The Financial Times reported yesterday that Shein, the Singapore-based fast fashion giant, is facing a series of financial and operational challenges just as it prepares for the much-anticipated listing on the London Stock Exchange. According to sources cited by the newspaper, despite Shein's sales growing by 19% to reach $38 billion in 2024, profits have plummeted to $1 billion, marking a 40% decline. This apparent paradox between rising sales and falling profits is due to a combination of factors. Firstly, operating costs have increased significantly. Competition with Temu has prompted Shein to ramp up air transport to ensure fast deliveries, driving up logistics expenses. At the same time, to maintain its market share, the company has increased investments in marketing and promotions, thus reducing profit margins. The competition with Temu has not been limited to customers: the latter has also taken some of Shein's Chinese suppliers, forcing the company to bear higher production costs. To complicate matters further, at the end of 2023, Shein attempted to diversify beyond the fashion sector, a strategy that proved ineffective and hurt profitability, prompting the company to quickly return to its core business. But the extra expenses didn’t stop there.

On the geopolitical and regulatory front, pressures have increased. In the USA, President Trump has revoked the "de minimis" tariff exemption, which allowed duty-free imports of goods valued under $800 – a revocation currently suspended but which could lead to higher retail prices for U.S. consumers. Meanwhile, the imposition of an additional 10% tariff on Chinese imports is further weighing on operating costs, given Shein's heavy reliance on Chinese factories. This has led Shein to reorganize operations to cope with potential additional tariffs, incurring further logistical and legal costs. In parallel, prolonged efforts to go public have generated considerable expenses in legal consultations and compliance processes, with added uncertainty about possibly having to resubmit IPO documents. Lastly, Shein has invested substantial sums in lobbying activities to gain favor with authorities in the United States, United Kingdom, and China. Hiring high-profile political consultants, such as Trump’s former advisor Kash Patel, now the new head of the FBI (who stepped down in anticipation of his appointment), has led to further financial burdens. In its most recent funding round in 2023, the company was valued at around $66 billion, but amid declining profitability and investor caution, some stakeholders are pushing for a valuation review to about $30 billion. While halving the valuation might ease the listing process, such a figure would represent a significant scaling back of Shein's financial ambitions, with the company aiming to complete the listing in the first half of 2025 but potentially falling short.

The profit decline comes at a challenging time for Shein, whose stock market valuation is considered among the most significant in recent years but also one of the most problematic. Shein initially sought to list in New York at the end of 2023, but regulatory resistance from the U.S. Securities and Exchange Commission (SEC) forced the company to shift its focus to London. In the UK, however, after submitting confidential IPO documents last year, the introduction of new listing rules and the July 2025 deadline for the transition period risk compelling Shein to resubmit its documentation, further delaying the listing to the second half of the year. Although this is a bureaucratic formality, the need for a new submission highlights the difficulties the company is facing in completing the public offering. Any delay in the listing would not only affect Shein’s ability to raise fresh capital but could also expose the company to further regulatory changes, making a future IPO even more complex. The coming months will be crucial: the company's ability to stabilize margins, secure regulatory approvals, and regain investor confidence will be key to a successful listing that many still oppose. Strangely enough, Shein could perhaps prove to be a flash in the pan if regulations and diplomatic tensions remain unchanged. Failure to overcome these hurdles could significantly diminish both Shein’s global ambitions and its dominance in the ultra-fast fashion market.