Fashion Giant Shein Raises $2 Billion but Lowers Valuation by a Third
Online retailer faces geopolitical headwinds and rising competition
HONG KONG—Shein, the online fashion company that won over millions of American shoppers during the pandemic, raised $2 billion in its latest fundraising round that values the company at $66 billion, about a third less than a year earlier, according to people close to the company.
The online-only retailer, which was founded in China and is now based in Singapore, cut its valuation after tech-company share prices have come down. The company also faces intensifying pressure from U.S. lawmakers on its labor and environmental practices.
Shein generated $23 billion in revenue last year, the people said, closing in on European rivals H&M Hennes & Mauritz and Zara owner Inditex, and its net profit was $800 million. Shein has set a target to grow its revenue by 40% this year, the people said.
Before the latest fundraising which closed last week, Shein was last valued at $100 billion a year ago, catapulting its worth to be more than the combined market capitalization of H&M and Inditex. At the time, tech companies were flush with cash and investors have been betting on cashing in eventually when Shein goes public.
The shares of technology companies have come under heavy selling pressure amid a slowdown in the sector that has led to layoffs, canceled projects and a new focus on cost-cutting. Some of these stocks have started to bounce back this year as investors have shifted focus to the U.S. banking turmoil, but tech-company valuations are still well below their levels at the start of 2022.
The latest round was co-led by Sequoia Capital, General Atlantic and the U.A.E. sovereign-wealth fund Mubadala. Both Sequoia and General Atlantic invested in previous funding rounds. Investors in the last round were allotted more shares in the company to maintain the size of their stakes, the people added.
Some existing investors told The Wall Street Journal that the lower valuation leaves headroom for the company to boost its market value should an IPO come to fruition. Such a stock sale would face challenges as scrutiny of the company intensifies.
Storm clouds have also been gathering in recent months as businesses with Chinese ownership are facing push back in the U.S. as geopolitical tensions between Washington and Beijing escalate. Shein, along with its latest rival Temu, owned by Chinese e-commerce company PDD, has been the target of a drumbeat of criticisms from U.S. lawmakers. And the Biden administration is demanding that TikTok’s Chinese owners sell their stakes in the video-sharing app or face a possible U.S. ban of the app on security concerns.
Earlier this month, the House China Committee sent letters to Shein and Temu, as well as Nike and Adidas, asking whether their products comply with the Uyghur Forced Labor Prevention Act, which bans cotton from China’s Xinjiang Region in the U.S. market. Separately, a bipartisan letter signed by more than 20 lawmakers to the Securities and Exchange Commission asked the regulator to order a supply-chain audit before Shein is allowed an IPO on American stock exchanges.
Shein said that it has no suppliers in Xinjiang and that its suppliers must adhere to a strict code of conduct aligned with the International Labor Organization’s core conventions.
“We have zero tolerance for forced labor,” the company said. Shein declined to comment on its IPO plans.
The company said on its website that its manufacturers are only allowed to source cotton from the U.S., India, Brazil, Australia and other approved regions, such as Bangladesh, Tanzania and Pakistan, adding that cotton from the U.S., India, Brazil and Australia make up about 95% of all cotton sourced for Shein-branded products.
uring the fundraising, Shein hired London-based consulting firm ERM to conduct an independent review and due diligence of its environmental, social and governance performance to address investor concerns, according to people familiar with the matter.
“Every single disrupter that has changed an industry has been faced with this type of backlash,” Marcelo Claure, Shein’s Latin America chairman, said. Such lobbying is expected “when you are changing many billions and billions of dollars that went to traditional retail,” he said.
Claure is a former SoftBank Group executive who joined Shein in January while also investing $100 million in the company from his family office.
Shein had a meteoric rise during the Covid-19 pandemic with its seemingly endless array of cheap, trendy clothes made mostly in Chinese factories and sold through an easy-to-use mobile app, with no bricks-and-mortar stores. It sells overseas, but not in China.
Founded in 2008 in the eastern Chinese city of Nanjing, Shein’s clothes—from $20 cocktail dresses to $5 T-shirts—have won the hearts of many young consumers in the U.S., Europe and other markets.
The company has said it can make its apparel at affordable prices because it uses algorithms to predict customer demand, produces in small quantities, and therefore is able to sell most of what it has made. Shein’s “on-demand production model” helps it reduce inventory turnover to about 40 days, less than half the time at bricks-and-mortar retailers such as H&M and Inditex, with fewer markdowns and less waste, according to a recent report by Boston Consulting Group on fashion-industry supply chains.
The company said last month it was investing $70 million over the course of the next five years to help its manufacturers upgrade their facilities and their workers’ conditions.
Shein is diversifying its supply chain to countries including Brazil and Turkey. It has said it is investing $150 million to train 2,000 local manufacturers in Brazil in the next three years, making the country an export hub for Latin America.
In response to criticisms that the company’s cheap, less durable clothing has fueled overconsumption, Shein launched a recycling program, “Shein Exchange,” last year in the U.S. The program has 1 million registered users. By comparison, it has more than 20 million monthly active users in the U.S., according to data from market-insights firm Sensor Tower.
Shein is facing challenges from Temu, which caught attention with its Super Bowl ads in February. Temu, launched in the U.S. in September, overtook Shein in November by mobile-app downloads just two months later, and recently topped Shein’s monthly active user numbers in the country, Sensor Tower data shows.