Shein shares fell 10% after the fast-fashion company began trading on the Hong Kong stock market for the first time.
Shein shares fell as much as 10% after the fast-fashion company began trading on the Hong Kong Stock Exchange, highlighting investor concerns over regulation, trade policies and the challenges facing its low-cost global retail model.
Shein made its long-awaited debut on the Hong Kong stock market on Tuesday, but the listing was met with immediate selling pressure as shares dropped as much as 10% during early trading.
The Singapore-based fast-fashion company priced its shares at HK$48.56, or about US$6.19, before the stock fell during its first session. Shares later recovered some of their losses but still ended the day at HK$46.62, around 4% below the offer price.
The decline has sharply reduced Shein’s valuation from the nearly US$100 billion level it reached in 2022. The company is now valued at less than US$25 billion, according to the figures cited in the report.
Shein’s Chief Financial Officer Leigh Gui marked the beginning of trading at the Hong Kong exchange, saying the company wanted to allow global consumers to enjoy its fashion offering.
The listing had been closely watched after Shein spent several years exploring different options for going public. The company had originally considered a US listing but faced regulatory scrutiny, particularly over allegations concerning labour practices and its supply chain.
Shein Raises More Than $13 Billion.
The Hong Kong flotation raised more than US$13 billion, making it one of the market’s most closely watched listings.
However, the weak first-day performance reflects the challenges investors see in Shein’s business model. The company has built its global presence by offering inexpensive clothing and rapidly introducing new designs, while relying heavily on manufacturing and supply networks in China.
That model is increasingly being affected by changes in trade and tax policies across major markets.
Shein had previously been valued at almost US$100 billion in 2022, making it one of the world’s most valuable private startups at the time. Its valuation has since fallen substantially as investors have become more cautious about the fast-fashion sector and the regulatory environment surrounding the company.
Jason Hsu, Founder and Chief Investment Officer of global investment firm Rayliant, said Shein’s position in the fashion market had changed considerably compared with several years ago.
The company, he noted, was once seen as a particularly distinctive Chinese fashion business with strong recognition among US consumers and the potential to pursue a major US listing.
Regulatory Pressure Tests Shein’s Business Model
Shein’s IPO journey has been complicated by scrutiny of its supply chain and business practices.
The company had considered a US listing, but concerns raised by regulators and lawmakers included allegations of forced labour involving suppliers. Shein has rejected such allegations and said it has strengthened its supplier compliance procedures through regular audits.
The company has said that violations involving forced or child labour can result in the immediate termination of supplier relationships.
Shein also explored a potential listing in London, with reports at the time suggesting a valuation of around £50 billion. That plan also faced questions from UK lawmakers and investors regarding the company’s supply chain and operating structure.
The company ultimately chose Hong Kong as the location for its public market debut.
Changes to Import Rules Add Pressure
Another challenge comes from changes to the rules governing low-value imports.
Shein’s business has benefited from shipping large numbers of relatively inexpensive individual packages directly to consumers. In several markets, low-value shipments have historically benefited from exemptions or simplified customs treatment.
The United States has moved to remove its “de minimis” duty-free exemption for small packages, putting additional pressure on companies that depend heavily on direct-to-consumer international shipments.
Shein reported a US$99 million loss during the first three months of the year, compared with a profit of US$395 million in the same period a year earlier, after the US policy change affected its business.
The European Union is also moving to tighten the treatment of small parcels arriving from outside the bloc. A €3 duty on small packages is being introduced, with further changes planned as European authorities seek to address the rapid growth of low-value cross-border shipments.
The UK has also indicated plans to phase out its existing treatment of such imports.
For Shein, these changes could increase the cost of delivering products to consumers and put pressure on the pricing advantage that has been central to its growth.
Shein Still Generates Billions in Revenue
Despite the challenges, Shein remains one of the world’s largest fashion businesses.
The company generates annual revenue of around US$38 billion and sells products across markets worldwide. Founded by entrepreneur Chris Xu in 2008, Shein operates much of its supply chain from China while maintaining its corporate base in Singapore.
Its growth has been driven by a technology-heavy approach to fashion retail, rapid product launches and a large network of suppliers capable of responding quickly to changes in consumer demand.
That model helped Shein become one of the world’s most prominent fast-fashion brands, particularly among younger online shoppers.
The question for investors is whether the company can maintain that growth while dealing with higher costs, stricter regulation and increasing competition.
Competition From Temu and Other Platforms
Shein is no longer operating in a market with few direct competitors.
Temu, owned by Chinese e-commerce group PDD Holdings, has expanded rapidly in international markets with a similarly low-price model. Other online fashion platforms and established retailers are also competing for consumers who have become accustomed to inexpensive products and frequent online promotions.
PDD recently reported revenue of US$16.7 billion, below analysts’ expectations of about US$17.3 billion, highlighting the wider pressure facing companies that depend on cross-border e-commerce and highly price-sensitive consumers.
Hsu said Shein now needs to find ways to distinguish itself as the global fashion market becomes more crowded.
The company was once viewed as a particularly unique player because it combined low prices, rapid production and strong consumer recognition. That advantage is becoming harder to maintain as competitors adopt similar strategies.
Shein’s Global Partnerships
Shein has also been expanding its network of strategic partnerships as it looks to diversify its operations and strengthen its global presence.
In India, the company has partnered with Reliance Retail as part of its efforts to build manufacturing and distribution capabilities in the country. The partnership provides Shein with a route to expand its presence in India’s apparel market while diversifying aspects of its supply chain.
The company also works with Authentic Brands Group, including through arrangements involving the Forever 21 brand and global online distribution.
Other partnerships include NTX Group, which provides textile technology, and Anker Innovations, which sells consumer electronics through Shein’s global marketplace.
These partnerships reflect Shein’s broader effort to expand beyond its traditional model of producing in China and shipping directly to customers around the world.
A Different Market From the One Shein Entered
Shein’s public debut comes at a very different point in the global economy from when the company first began exploring an IPO.
Trade tensions have increased, regulators are paying closer attention to cross-border e-commerce, and governments are reviewing tax arrangements that have benefited low-value international shipments.
At the same time, geopolitical tensions have affected logistics, consumer demand and operating costs in several markets.
For Shein, the challenge is therefore no longer simply about attracting customers with low prices and quickly changing fashion trends. The company must also demonstrate that its model can remain profitable as the regulatory and economic environment becomes more demanding.
The first-day decline in Hong Kong does not by itself determine Shein’s long-term prospects. The company still has enormous revenue, global consumer recognition and a large international customer base.
But its debut sends a clear signal to investors: the fast-fashion giant’s next phase will be judged not only by how quickly it can grow but also by how effectively it can adapt to a world where the rules underpinning its low-cost global model are changing.
Chris Xu, CEO of Shein (Credit: Shein)
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Source: Business Connect
