Over the last months, 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 is selling its fashion products to almost every country in the world and its sales have been rapidly increasing over the last few years. Anyone looking for a fashionable and cheap piece of clothing ends up on their website or one of their partners. All this hype is leading investors to believe in an upcoming SHEIN stock IPO. However, Chinese companies are having a hard time becoming public in the US due to stricter Chinese rules. Furthermore, SHEIN is receiving a lot of criticism for its many unethical practices. Is there more positivity or negativity surrounding this company? Let’s find out.

What Is SHEIN?

Before we begin, the available information on this company or its founder, Chris Xu, is often contradicted or very ambiguous.

Despite being recently given a record $100B valuation in April 2022, a lot of questions are still left unanswered about this business.

The Shein stock IPO is still far from being a done deal. Recently, the Chinese government hasn’t allowed any domestic companies from going 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.

When Amazon entered the Chinese market and supported many businesses on its platform, the number of Chinese manufacturers multiplied. 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 own supply chain, distributors and e-commerce platform. By 2021, it was the most popular shopping platform on 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. The company became almost as popular as Amazon.

They have customers in 195 countries and are selling billions of dollars of items yearly. Below are their estimated revenues for the last 3 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 cheaper 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. It can take as little as 3 days for a new item to be created and 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 popular 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 is constantly looking for various trends across different 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 believed 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 the Guangzhou province.

To be able to fabricate so many pieces of clothing in such a short time and for very little money, they need a workforce that is constantly working and accepting the smallest salary possible.

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. 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? It becomes more expensive to put it back on the market than to simply discard it.

Many items of clothing end up in a dump, creating even more trash than we already have. 

On many occasions, buyers receive clothes that are inadequate because they’re simply too cheap. What do you expect from $5 jeans? It becomes too much of a hassle to return the clothes, 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 they are thrown away. Consumerism at its peak.

New Items

One of the most damaging effects of SHEIN is the ways they come up with new items of clothing or accessories. Numerous times, they’ve 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 are bound to leave their exclusivity and find their way to rival hands. 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. Independent creators are seeing 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 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. Many other companies of all sizes complained about SHEIN’s business practices.

SHEIN Stock IPO

Like I said earlier, SHEIN isn’t public at the moment. There have been talks to move ahead with the IPO, but Chinese companies are having a harder time seeking investments abroad. To bypass their restrictions, some sources say founder Chris Xu was eyeing Singaporean citizenship.

It remains to be seen if it is true. SHEIN has a strong financial position, which 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 are at risk of 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 before writing this article, I wasn’t expecting it to be so negative. 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 it becomes difficult to keep track of who we buy clothes from. If SHEIN does go public, it may eventually run into trouble. 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 much better chance of succeeding in the stock market. For now, it seems Chris Xu and his partners are only motivated to make money at any expense.

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