SHEIN has become one of the most popular fashion brands in the world. Yet, its popularity came at a price. This Chinese ultra-fast fashion e-commerce company accounts for more sales in the US than Zara and H&M combined. SHEIN sells its fashion products to almost every country, and its sales have rapidly increased over the last few years. Anyone looking for fashionable and cheap clothing ends up on their website or one of their partners. All this hype leads investors to believe in an upcoming SHEIN stock IPO. However, Chinese companies have difficulty becoming public in the US due to stricter Chinese rules.
Furthermore, SHEIN is receiving a lot of criticism for its many unethical practices. So, is there more positivity or negativity surrounding this company? Let’s find out.
Before we begin, the available information on this company or its founder, Chris Xu, is often contradictory or ambiguous.
Despite being recently given a record $100B valuation in April 2022, many questions remain unanswered about this business.
The Shein stock IPO is still far from being a done deal. Recently, the Chinese government hasn’t allowed domestic companies to go public abroad.
They can grant an exception as long as foreign ownership doesn’t exceed 30% and other conditions are met. There have been rumors that Mr. Xu would change his citizenship to avoid adhering to these laws. More on this subject later.
How SHEIN Started
SHEIN was founded in 2008 in China. Since it went through several name changes. From ZZKKO to Sheinside and now to SHEIN. Many sources say the company started by selling wedding dresses and slowly transitioned into womenswear, accessories, and occasionally menswear.
The number of Chinese manufacturers multiplied when Amazon entered the Chinese market and supported many businesses on its platform. Quickly, many knockoffs and cheap quality products appeared. This forced Amazon to crack down on many companies that gave customers issues.
In June 2019, Amazon closed its business in China. However, many companies gained experience thanks to the e-commerce giant. One of them was SHEIN.
Since they could no longer sell on the platform, they innovated by creating their supply chain, distributors, and e-commerce platform. By 2021, it was the most popular shopping platform in many app stores. It succeeded in beating Amazon at its own game. Will we see a SHEIN stock soon?
SHEIN Today
Today, SHEIN has more sales and is worth more than Zara and H&M combined. As a result, the company became almost as popular as Amazon.
They have customers in 195 countries and sell billions of items yearly. Below are their estimated revenues for the last three years.
2019: $3.15B
2020: $9.8B
2021: $15.7B
Most of us are aware of the fast fashion trend. Zara, H&M, and other companies pioneered it. It consists of predicting the next trend, creating cheap clothes quickly, and selling them.
However, SHEIN brought it to the next level with ultra-fast fashion. They offer more items at a lower price. They also ask manufacturers for smaller quantities of an item to see if it gains popularity.
If it does, more are created to meet the demand. Otherwise, they are thrown out. A new item can take as little as three days to be created and put on the market. They test thousands of items simultaneously, but how?
Social Media & Influencers
SHEIN developed many ways to attract visitors to its platforms. First, they created partnerships with many small influencers to wear their designs.
They also partnered with Khloe Kardashian to appeal to Gen-Z even more. She got heavily criticized for working with SHEIN.
Second, they spent truckloads of money on ads on social media platforms such as TikTok, Instagram, and Facebook. As we all know, everyone is always glued to their phone.
When an ad for a fashionable piece of clothing worn by our favorite influencer appears on our feed, why wouldn’t we click on it? Lastly, SHEIN constantly looks for various trends across social media platforms. When something clicks with their target audience, they replicate it and sell it through their channels. More on this later.
Unethical Practices
For those who believe some companies were involved in unethical practices with their workers and with the environment, get ready for worse. SHEIN is at the top of controversies.
Labor
SHEIN has been heavily criticized for its labor practices in China, especially in Guangzhou.
They need a workforce constantly working and accepting the smallest salary possible to fabricate many pieces of clothing quickly and for very little money.
Many sources have reported that factory workers are forced to work 75-hour weeks with a single day off monthly, which violates Chinese labor laws. Most are migrant or poor workers who need the money.
Factory workers are also incentivized to work more as they are paid per item completed. As a result, buyers of those clothes may think they are getting a great deal, while the employees are getting paid pennies for their hard work.
SHEIN Stock Returns
What happens when an item of clothing doesn’t fit and is returned to SHEIN? Putting it back on the market is more expensive than discarding it.
Many items of clothing end up in a dump, creating even more trash than we already have.
Often, buyers receive inadequate clothes because they’re too cheap. What do you expect from $5 jeans? Returning the clothes becomes too much of a hassle, and they end up in the bin anyway.
Perfect, more clothes in the trash. In other cases, they are only made to be worn once and then thrown away—consumerism at its peak.
New Items
One of the most damaging effects of SHEIN is how they come up with new items of clothing or accessories. In addition, they’ve often been cited for stealing existing designs and accessories from independent artists or social media posts.
Furthermore, since they work with so many factories, some designs will leave their exclusivity and find their way to rival hands. As a result, the same item can be found for different prices on different websites and created by various companies.
Just like Amazon, SHEIN saw huge profits during the pandemic. But, unfortunately, independent creators see their profits decreasing and their work stolen by giant corporations.
Intellectual Property Theft
The list goes, but this time against popular multi-national brands. First, Levi Strauss sued them for copying a trademark jean stitching. Next, SHEIN’s sister company, Romwe, copied Dr. Martens’s design and called it Martins.
Ralph Lauren also filed a trademark complaint against SHEIN’s parent company Zoetop Business Co for selling a similar product. In addition, many other companies of all sizes complained about SHEIN’s business practices.
SHEIN Stock IPO
As I said earlier, SHEIN isn’t public at the moment. There have been talks about moving ahead with the IPO, but Chinese companies have a harder time seeking investments abroad. Some sources say founder Chris Xu was eyeing Singaporean citizenship to bypass their restrictions.
It remains to be seen if it is true. SHEIN’s strong financial position makes it very attractive to investors. Regardless of political turmoil in the world and supply chain issues for many industries, they seem unaffected by all this negativity. Putting all the controversies aside, SHEIN is very appealing from an investment point of view.
Many Chinese companies had issues with the US stock market after their debut. Information was often hidden from the public. Hence, the SEC put in place stricter rules for them.
Many risks are getting delisted due to failure to comply with SEC regulations. After learning about all the shady business SHEIN is in, it will be interesting to see which steps are taken from both sides.
Conclusion
To conclude this section, I want to note that I wasn’t expecting it to be so negative before writing this article. However, many issues need to be addressed. It was hard to find much positivity in a sea of negativity.
SHEIN seems to have many sister companies, and tracking who we buy clothes from becomes difficult. If SHEIN does go public, it may eventually run into trouble. On the other hand, investors might like the company for its margins and revenues.
However, regulators should beware of any information that isn’t publicly disclosed. If SHEIN can turn its business around by becoming more ethical and addressing its many issues, it has a better chance of succeeding in the stock market. Unfortunately, for now, it seems Chris Xu and his partners are only motivated to make money at any expense.
If you want to learn more about profiting from the stock market, head to our free library of educational courses. We have something for everyone, including trading options for those with small accounts.
