5 Lessons Fashion Learned as Shein Raced Toward Its IPO

Shein’s drawn-out journey from fast-fashion start-up to lightning rod to, finally, its stock market debut in Hong Kong on Tuesday has been filled with geopolitical intrigue, trade nuance and much more. 

The still-to-be-written case study on the company will, at turns, focus on a savvy business willing to jump at opportunities, sustainability arguments for and against, and ridiculous valuation swings. 

Whatever happens to Shein on the open market, its disruptive business model, use of de minimis and similar rules to get tariff-free entry to the U.S. and Europe, its dramatic rise and then hunt for the right stock market home has been instructive. 

And while there are lessons there for everyone in fashion, there is also opportunity for Shein itself to learn and adapt now that its business is facing a new competitive landscape, incurring higher tariff costs on shipments to the U.S., greater scrutiny in Europe and, at last, subject to the whims of the common investor. 

“They have to counterpunch,” said Greg Portell, lead partner, global markets at Kearney. “Are they a one-trick pony that found a loophole and could execute flawlessly against that loophole? Or are they a going concern that allows them to continue to strengthen as they learn and deploy this capital that they now have [from the IPO]?”

Here, five lessons to consider as Shein’s stock is let out into the wild. 

Tackling the Biggest Expense With Speed

While consumers interact with the marketing, the website, the touch, feel and look of the goods, it’s usually the inventory that dominates businesses from a financial perspective. Inventory on hand is typically a retailer’s or brand’s biggest investment. 

So that’s the area Shein targeted. 

Instead of big bets on styles for next season or next year, the company focused on very small runs of goods and reordered as necessary from a large network of manufacturers who compete on a marketplace for orders. 

The looks then were delivered straight from the factories, taking advantage of regulations that, until last year, let shipments worth under $800 enter the U.S. duty-free and lower duties in Europe.

Shein said its unsold inventory percentage is in the low single digits and that its stock turned over every 36 days last year — lightspeed in an industry where many supply chains still take months to really start up.

“Speed is what allows them to address the inventory because they’re moving so quickly and that speed factor becomes a lot more complex when you’re globally listed, which will be interesting to see how they manage it,” Portell said. 

There’s Getting to the Top and Staying on Top

The de minimis tariff break was at least a very important ingredient in the special sauce that fueled Shein’s rise. 

The company gets credit for grabbing the tariff opportunity, but now it’s going to have to find some new tricks. 

“When you are small and off the radar, you can move quickly into those cracks of competitive advantage,” Portell said. “As soon as you become more of a beacon of a business model, the more eyes are going to be on the way you execute and that will, by definition, start to diminish your advantage. Their growth rate has slowed because now they have competition and any advantage that they could have found is now being countered.”

Shein is still the big player on the ultra-fast fashion block, with revenues up 8 percent to $41.8 billion last year. But higher fulfillment and compliance costs pushed its profits down 38.7 percent to $2.1 billion. 

Action Spurs Reaction

Shein is looking to get its stride back in a world filled with new competitors who are more than familiar with its playbook. 

“Apparel retailers tend to be cyclical,” said Jessica Ramírez, managing director of The Consumer Collective, adding that Shein’s dramatic growth has “prompted some future models.”

“We’re seeing some of these models take hold with these newer retailers, especially some of those who are focused on Gen Z,” Ramírez said, pointing to Edikted and Cider. 

 “They look like Forever 21 when it started,” she said. “But they are very quick and it’s still this cheap thrill kind of thing. It seems like, quality-wise, it’s a bit better than Shein.” 

But the company still has plenty of sustainability critics. 

Public Eye pointed out in a recent analysis that of the $1.8 billion raised in the company’s IPO, only 10 percent would go toward sustainability, with the balance being split between technology and global marketing. There are also questions about transparency in the company’s supply chain.

Value the Valuation 

At one time, Shein was seen as worth an eye-popping $100 billion. 

But its IPO has it coming to market at less than $27 billion — a comedown that reflects the trade policy changes, slower growth and Shein’s long trip to the market, having at first tried to go public in New York and then London. 

“It’s important for founders to not be greedy when they go public,” Kearney’s Portell said. “There are all sorts of lessons where founders held onto a company too long before releasing the capital. And this is another example of that. If they would’ve gone for the $100 billion valuation, yes, there might’ve been complications on how fast they could list and all that type of stuff, but they thought they could get somewhere very different than they were at the time.” 

Fashion and Politics Don’t Mix

While the truism is that all publicity is good publicity, Shein’s business model, its Chinese roots and its sheer size put it on the political radar in a way that was not helpful for its IPO aspirations. 

The offering in New York was publicly contested by lawmakers. And then the London offering was approved by regulators there, but nixed by Beijing. 

Third time appears to be the charm. 

But playing the role of political football was not helpful for the process — as the valuation attests.

The Bottom Line is a business analysis column written by Evan Clark, deputy managing editor, who has covered the fashion industry since 2000.