London calling: Shein could be moving its IPO across the pond but faces challenges

• Could Shein be shifting to London?
• What could a London listing deliver for Shein?
• And what obstacles standin the way of Shein finding a new home on the London Stock Exchange?

Shein, a world leading fast-fashion brand, could be making plans to relocate its initial public offering (IPO) to London from New York. But scrutiny over its supply chain and links to China could make this a challenging move.

Founded in Nanjing, China in 2008, Shein is now headquartered in Singapore, though it continues to list in the US. The company officially became the world’s largest fashion retailer in 2022, with a valuation of $80 to $90 billion being sought in late 2023 ($10 billion less than its value in 2022, a reduction mainly down to a sector-wide decline in venture funding).

Shein of London?

Shein is known for its vast range of affordable, trendy clothing, accessories, and other fashion items, primarily working via its online platform. With its extensive selection of products and a high turnover, the e-commerce company is able to keep up with the rapid nature of altering fashion trends. Its low prices and continuous, constant introduction of new staples has gained a substantial following, particularly among younger consumers.

IPO change of location

Currently, Shein’s IPO is based in New York, but reports suggest it is in early talks to switch to London. This relocation is reportedly influenced by the suspicion that the US Securities and Exchange Commission is unlikely to grant approval for Shein’s IPO. Other possible IPO locations allegedly being discussed include Singapore and Hong Kong.

The US remains the retailer’s preferred location, but it is still working on its application to list in the country. If Shein decides to switch to another country, it will have to file a new listing application overseas with Chinese regulators.

A listing in London could present a much-needed boost to the IPO market after a torturous period over the last year. Valued at $90 billion, Shein could potentially raise $9 billion if 10% of its shares go public, just slightly behind the $9.1 billion IPO Porsche enjoyed in 2021.

Given the challenging IPO market conditions and the comparatively lower fundraising in the UK through IPOs in 2023 (approximately $1 billion, the lowest in decades), a potential London listing could introduce renewed capital and attention to the beleaguered market, attracting investor interest and helping revitalize the IPO landscape.

This move goes against the current trend of firms upping sticks and moving from the UK to pastures new in the wake of Britain’s severing of ties with continental European markets. For instance, TUI AG shareholders voted to delist from the London Stock Exchange (LSE) and move its trading to Germany. Arm Holdings Plc moved its IPO to New York from London in 2023, deepening the UK’s struggle to stop the mass business exodus. The UK government tried to intervene by lobbying for a domestic listing, but its attempts failed.

Experts believe that Shein’s discussions to list on the LSE is a short-term compromise. It’s about choosing certainty over valuation and liquidity in the immediate term. While this move could be a substantial one, especially in the realm of IPO, it’s unlikely other Chinese firms will follow suit and list in the UK, as the London market is much smaller compared to other major financial hubs, like the US and China.

Shein faces challenges

In 2023, Shein filed, albeit confidentially, to go public, but it faces various challenges to do so in the US. There is scrutiny and certain concerns surrounding Shein’s supply chain, with US lawmakers lobbying to delay the company’s public offering until it is proven that there is no forced labor in its supply chain.

Shein has faced allegations that it uses forced labor to help produce its $5 t-shirts and $10 sweaters, but the retail giant has repeatedly denied such reports, stating that it does not manufacture in Xinjiang, a region where allegations of human rights violations have been raised. Government officials and advocates have accused China of using Muslim minority groups and Uyghurs to work under poor conditions, but Beijing has (naturally) denied any abuses.

The main regulatory hurdle faced by Shein will be convincing regulators and governments that its supply chain is clean. Congresswoman and Democratic Representative Jennifer Wexton said that Shein must “prove to American consumers that its products are not sourced from forced labor.” In 2023, Wexton also led a bipartisan call for the SEC to stop Shein’s IPO, until it can verify no forced labor is used in its supply chain.

There have also been calls for the SEC to audit Shein by another group of Republican attorneys general from 16 US states.

A spokesperson for Shein said the company has a “zero-tolerance policy for forced labor” and was “eager to engage and continue to be transparent with all stakeholders, including Representative Wexton and her staff.”

Intellectual Property (IP) issues, as well as the forced labor allegations, will undoubtedly make it difficult for Shein to achieve its public status, even if the company provides additional disclosures about its operations. Tie in the growing US-China trade tension and worries of Shein’s possible connections to the Chinese Communist Party, and the company faces more questions about how much control Chinese regulators have over it.

Shein’s potential move to the LSE from New York is ultimately a response to geopolitical tensions and regulatory scrutiny in the US. By listing in London, Shein may benefit from a perceived tax loophole, as well as geopolitical shifts.

With Jeremy Hunt, the British Chancellor, reportedly encouraging this move by having discussions with Donald Tang, Shein’s chairman, we could see the relocation this year, though Shein has some serious questions to answer before this becomes a viable prospect.