Drew Bernstein
As we approach 2024, one of the most anticipated initial public offerings (IPOs) in the U.S. is Shein, the fast-fashion powerhouse that has revolutionized the industry with a constant influx of affordable, trendy clothes and a strong presence on social media. Shein's confidential filing with the Securities Exchange Commission (SEC) in November 2023 for an IPO, potentially valuing the company as high as $90 billion, has sparked significant interest. This IPO is seen as a beacon of revival for American capital markets, which have experienced a lull in substantial offerings over the past two years.
Shein’s Market Position
Shein boasts several attributes that mark it as a blue-chip candidate for a new listing:
- It enjoys a fervent following among young female consumers.
- The brand is recognized as an innovator in the fast-fashion industry, disrupting models established by H&M and Zara.
- Shein operates globally, with sales in over 150 countries and its headquarters in Singapore.
- The company has reportedly been profitable for multiple years, with profits doubling to over $2 billion in 2023.
Under normal circumstances, such a capitalist success story would be welcomed by U.S. exchanges and attract careful consideration from institutional investors. However, U.S. Senator Marco Rubio has called on the SEC to block Shein's IPO unless the company provides "enhanced disclosures" regarding its operations in China. Rubio argues that Shein's origins in China and its reliance on Chinese suppliers present significant risks to U.S. investors.
SEC’s Role in IPOs
Banning Shein's IPO sends a troubling signal about America’s dedication to disclosure-based capital markets and its aspirations to be the hub for the world’s most innovative companies. The SEC’s role is to ensure that all relevant information, particularly investment risks, is fully disclosed to investors through the prospectus. This process has made U.S. markets the gold standard. Critics of Shein accuse the company of various malpractices, but Shein argues that it has made strides in addressing these issues and feels unfairly targeted. As a publicly listed U.S. company, Shein would be subject to rigorous disclosure and liability standards, unlike if it were listed in London, Singapore, or Hong Kong.
Intellectual Property and Environmental Concerns
Shein’s business model involves rapidly producing new designs in response to consumer demand signals, including social media engagement. This approach has led to accusations of design infringement, with nearly 100 copyright lawsuits filed by brands like Ralph Lauren and H&M. Shein claims to actively prevent infringement and has launched Shein-X to support emerging designers. As a U.S.-listed company, Shein would be more accountable for intellectual property violations.
The fast-fashion industry, including Shein, has faced criticism for contributing to global warming by producing disposable clothing. Shein claims that its demand-based production model reduces environmental impact by minimizing excess inventory. The company has set goals to reduce its carbon footprint by 25% and to transition 50% of its clothing to sustainable materials by 2030. As a public company, Shein would be required to report on its progress toward these goals, subjecting it to scrutiny from environmentally conscious shareholders and rating agencies.
Chinese Government Influence
Critics like Senator Rubio argue that Shein’s ties to China pose a significant risk, despite Shein earning no revenue in China and being headquartered in Singapore with an international management team. Shein’s reliance on Chinese suppliers and its decision to seek clearance from China’s CSRC for an overseas listing have raised concerns. However, many U.S. companies, such as Apple, also leverage China’s supply chain. Shein's actions could be seen as prudent measures to protect investors and prevent issues like those faced by Didi Chuxing after its NYSE IPO.
Advantages of U.S. Listing
Listing in the U.S. would provide greater transparency and accountability for Shein, benefiting critics concerned about the company's practices. Shein’s founder and CEO, Yangtian “Sky” Xu, has remained largely out of the public eye, which is unusual for the CEO of such a disruptive company. To succeed with a U.S. IPO, Xu might need to take a more active role in shaping Shein's public image.
In conclusion, banning Shein's IPO would undermine the principles of disclosure-based capital markets that the U.S. prides itself on. Allowing Shein to list in the U.S. would subject the company to rigorous scrutiny and hold it accountable for its actions, benefiting investors and the broader market.
