Shein shares fall after stock market debut in Hong Kong

Online retailer Shein’s shares have fallen by up to ten per cent after launching its stock market debut in Hong Kong. Susannah Streeter, chief investment strategist at Wealth Club, believes that competition within the market has impacted the fast fashion giant’s success.

She said: “Shein has stumbled on the IPO catwalk, with investors spotting loose threads which risk unravelling the apparel giant’s dominance in the fast-fashion scene.

“After the long-awaited launch in Hong Kong, shares fell as much as ten per cent, sliding to HK$43.72 from an IPO price of HK$48.56. That briefly pushed the company’s valuation below $25 billion, although it had been valued at around $26.5 billion at the IPO price. That’s a far cry from the nearly $100 billion valuation it enjoyed at its pandemic-era peak in 2022. At around $26 billion, Shein is still one of the world’s most valuable fashion companies, but it is now worth roughly the same as H&M and a fraction of Inditex, the owner of Zara.

“The sheen has been rubbed off, as the formula that propelled its extraordinary rise is coming under increasing strain. Shein swung to a $99 million loss in the first quarter, from a $395 million profit a year earlier, while revenue growth has slowed. The headline loss was heavily affected by a $328 million fair-value accounting charge on convertible preferred shares, but even stripping that out, the picture is far from dazzling, with the US, its biggest market, proving particularly challenging.

“One of Shein’s biggest competitive advantages is also being eroded by changes to the rules of the game. The US has ended the de minimis exemption that allowed low-value parcels to enter without customs duties, hitting Shein and rival Temu particularly hard. Their business models have been built around shipping vast numbers of inexpensive individual packages directly to consumers, so adding costs at the border strikes at the economics underpinning the whole proposition.

“And the squeeze is spreading given that the EU has already introduced a temporary €3 customs duty on low-value parcels, while the UK is also preparing to tighten its small-parcel customs regime by removing the current £135 customs duty relief. That could gradually chip away at Shein’s huge price advantage over established high-street rivals such as H&M and Primark.

“There is also a bigger question about whether ultra-fast fashion still has the same pulling power with consumers. The resale market has expanded dramatically over the past decade, giving shoppers access to better-known and often more expensive brands at much lower prices, while concerns about the environmental and social impact of disposable clothing have also become harder for the industry to ignore.

“Shein is still a formidable force, with a huge global customer base and a data-driven model that has transformed how trends are spotted and clothes are brought to market. But the catwalk has become much more crowded, the regulatory spotlight is intensifying, and investors are increasingly wary about just how long the era of ever-cheaper, ever-faster fashion can continue.”