Fast-fashion behemoth Shein is preparing for an IPO. Here’s an inside look at the challenges it could face.

Shein founder Sky Xu, also known by Yangtian Xu or his English name, Chris, launched the company in China in 2008 as ZZKKO, an e-commerce site selling wedding dresses. Now, by its own estimates, the brand draws in customers from over 150 countries for clothing, shoes, and jewelry, each designed to respond to fleeting trends.

Reuters reported the company notched around $30 billion a year in revenue in 2023 — though the CEO of brand management firm Authentic Brands Group, which partners with Shein, claimed revenue is much higher.

The now Singapore-headquartered business has raised $3.66 billion in total investment, per PitchBook, including from top-tier players like HongShan, previously Sequoia China. Its peak valuation, reported to be $100 billion by The Wall Street Journal, was shaved down by a third in its most recent funding round in May 2023, which put its worth at $66 billion.

Despite its consumer popularity, Shein has been criticized by labor and environmental activists for exploiting workers, plagiarizing designers, selling garments containing hazardous chemicals, and contributing to the climate crisis.

Public companies have far more stringent reporting requirements than private companies. Ahead of any initial public offering, the company that has played its cards close to its chest will soon have to show its hand.

Still, despite the controversies and a hot competitor, investors are eager to pile into the primed-for-growth company, one analyst told BI.

A spokeswoman for Shein declined to comment.

Gearing up to go public

The basic details about Shein’s hotly-anticipated IPO are still unknown: when, where, and for how much it could float.

The company filed confidentially to go public in the US, CNBC reported in November. But in February, Bloomberg said it could list in London, Hong Kong, or Singapore following worries from US politicians about Shein’s transparency around its operations in China.

Shein could move its headquarters to the US to appease lawmakers. However, the US government has deemed other companies that have done this to be Chinese businesses, David Swartz, a Morningstar analyst who covers apparel companies, told BI.

Estimates have pegged Shein’s IPO valuation at around $90 billion, Bloomberg reported last year. Swartz said investors are ready to pile into the young company with “extremely high growth.”

Investors won’t know Shein’s real numbers until the later stages of the IPO process. But numbers that have been reported so far — none of which have been confirmed by the company — indicate that its estimated $90 billion valuation would be three times its sales revenue in 2023.

“That’s aggressive for an apparel company under most circumstances, but we have seen Lululemon trading at six times sales. It shows that it is possible,” Swartz said. Lululemon has $10 billion in annual sales—a third of Shein’s reported sales.

The retail giant faces its fair share of controversies

Shein has been dogged by stories questioning the company’s environmental impact.

According to a report from Zurich Insurance Group, the fashion industry is responsible for more than 10% of greenhouse gas emissions. In the UK, Britons throw away over 70 clothing items a year from the average wardrobe, according to a 2022 survey.

Shein has faced widespread criticism of its environmental footprint, thanks partly to its average item price of $14, which critics say encourages a throwaway culture. The company creates up to 10,000 new items a day and just 6% of products are stocked for more than 90 days, according to a 2022 Guardian article.

The rise of #SheinHauls and the “bracketing” trend have added scrutiny on what happens when customers return items. Many fast fashion returns end up in landfills.

New York startup Queen of Raw works with Shein to source materials from other companies’ deadstock — goods that were otherwise destined for landfill or incineration, said cofounder and CEO Stephanie Benedetto. Queen of Raw’s software platform matches waste material supply and demand at discount rates.

Benedetto said their deadstock material is close to Shein’s local production chain in China. “We can add more locations as they grow their supply chain, but we’re as closely available as where the production mill is.”

Shein doesn’t currently sell its own deadstock or returns via Queen of Raw, nor does the company publicly disclose its returns process.

In 2022, Shein said it had committed $15 million to improve environmental, sustainable, and governance standards across 300 of its partners over the next four years, including appointing an ESG lead in 2021, per documents obtained by BI as part of Freedom of Information requests.

To gauge what happens to some Shein items once they’re returned, BI reporters in the UK put two AirTag trackers on Shein garments and sent them back. The reporters attached one AirTag to a polyester jacket and another to polyester cargo pants, then mailed them in the same package from suburban London at the end of January.

The BI reporters then attempted to track the route of the returned items.

Both items were initially transported on a similar route, according to the AirTags’ path. The items arrived at a depot near Canary Wharf and then were shipped to a warehouse outside of Coventry Airport. They then appeared in Walsall, 120 miles from their first destination. The trousers were then transported to a location in Northern Ireland, which appeared to be a residential address. The AirTag last updated this location in May 2024.

The jacket was last recorded back in south England, at what appears to be a residential address in Kent. The AirTag last updated this location in February 2024. It is unknown if these locations are the endpoint in Shein’s returns process, or whether the items have been resold or discarded.

Previous reporting from Rest of World, which traced some of Shein’s returns in the US in 2022, found that the items were also returned to locations that appeared to be residential addresses. It is unclear whether these items were resold to consumers, or if they last ended up near these locations before the trackers could pick up their next destination.

In 2022, Shein launched a peer-to-peer resale marketplace in the US to “prolong the life” of garments, per its 2022 sustainability and impact report, which is no longer online.

Shein’s opaque supply chain has become a key roadblock in its IPO ambitions in the US. Washington lawmakers are clamoring for more transparency about where the consumer giant’s supply of cotton comes from, per recent reports. Per US law, imports from Xinjiang are banned, but Shein has not disclosed if or how much of its cotton production traces back to the region.

Shein’s sustainability credentials are information potential investors and financial regulators will want to know.

“There are investment managers that can’t buy oil or tobacco stocks, for example,” Morningstar’s Swartz said. “That is potentially a problem for Shein that could affect its valuation, eliminating some possible investors.”

Swartz said that Shein could land in hot water if its existing controversies become a bigger problem and pose a financial risk to the company.

Competitors are gaining traction

As Shein gears up for a public listing, investors will also consider how rival e-commerce platform Temu is gaining momentum. According to Bloomberg, spending on Dublin-based Temu surpassed Shein in June 2023.

Temu has a different business model, selling a broader array of goods as a middleman between Chinese production and consumers. Shein is more directly involved in production and focuses on clothes, but Temu’s popularity “could affect the valuation,” Swartz said.

Geopolitical tensions could also arise if Shein aims to list in the US. Despite confidentially filing to IPO with the SEC, The Wall Street Journal reported in January that the agency was delayed in responding to Shein’s filing. The outlet added that Washington sources said the agency was reluctant to take a politically charged case. In May 2024, The Financial Times reported that Shein was shifting its focus to the London Stock Exchange as a backup plan.

Shein has faced scrutiny from the House Select Committee on the Chinese Communist Party for its ties to China. In a November statement following the news of Shein’s IPO, chairman Mike Gallagher urged investors and banks underwriting the move to “carefully examine Shein’s regulatory and compliance programs.” The committee is still investigating the company.

“That won’t stop Shein. But it could affect the valuation because there could be some investment banks and investors that will stay away from it because they’re not sure what will happen with regulation,” Swartz said.

While Swartz pointed out that apparel IPOs have been sparse in the last few years, notable cases such as Allbirds “have been a disaster.” The sneaker company’s sales declined 15% last year, and the stock slumped 97% since its public debut.

Shein, on the other hand, “is going to be in a class of itself” if it manages to list at or close to its desired valuation. It’s seen unparalleled hype from investors because it’s “a young company with extremely high growth,” Swartz told BI.

“People will pay big multiples for that,” he said. “You can’t compare it with the likes of Nike or Adidas, because they don’t have that same growth potential.”