Take a look at the "Shein haul" to see how the internet has altered the way people purchase clothes. Customers of the retail app of the same name are shaking out a large box of affordable goods and sorting through its contents. For fashionistas, the element of surprise is perhaps a thrilling experience. The uncertainty is less appealing for investors who are attempting to determine whether Shein is worth roughly $50 billion or possibly quadruple that amount.
The Singapore-based business is somewhat of a surprise in and of itself. Thanks to its cheap prices, quick design and delivery, and astute use of influencers, it emerged from practically nowhere to take a sizable chunk of the "fast fashion" market. The majority of Shein's clients are in the US, although most of its suppliers are in China. Already, it's worldwide sales, which, according to persons with knowledge of it, exceeded $30 billion in the previous year, are almost matching the $39 billion earned by Inditex, the owner of Zara and an established leader in fast fashion.
Shein offers a variety of items for sale, including jewelry shaped like fried chicken and sub-$40 tuxedos. However, its own stock is not currently available for purchase. That might change if the US Securities and Exchange Commission and the agency's Chinese counterpart approve an IPO in New York. Singapore and London are potential backups. In either case, now is an excellent time for potential investors to assess the company.
Shein appears to be an internet merchant at first glance. However, that is misleading, as the business actually deals in data. In a behavioral analytic move akin to the algorithm driving the short-video app TikTok, it collects data on how users navigate and what toggles their switches. Approximately 5,000 manufacturers are then given access to this data, enabling them to produce goods in small batches that are offered on Shein's platform. It doesn't have to deal with mass production, a chain of physical stores, or mountains of unsold clothing like a typical retailer does.
Shein doesn't provide a lot of financial details regarding its operations. But if the business can maintain its present rate of revenue growth — roughly 40% — its top line might grow significantly. According to estimates from Euromonitor International, sales of apparel and footwear are expected to reach over $1.3 trillion worldwide outside of China in 2025. Revenue would exceed $60 billion if the company could get 5% of that market, which is approximately equal to the amount held by sneaker juggernaut Nike in the United States.
Shein is currently concentrating on fashion. However, its "supply chain as a service" concept, which is based on providing manufacturers with real-time data on consumer preferences, might be applicable to other products. eMarketer estimates that this year's worldwide e-commerce sales outside of China will reach around $3.4 trillion. If Shein could just get 5% of that, its top line could be closer to $200 billion. At a net profit margin of 10%, which is positioned between Inditex and Amazon.com, Shein's annual revenue would be approximately $20 billion. The company's valuation would be $200 billion if it were to multiply by ten without much ambition.
What Shein will be like in a few years is a crucial concern for IPO investors. Answering that is nearly impossible for new and rapidly expanding businesses. Amazon, formerly a retailer, now manages movie theaters and computing cloud services. Investing billions of dollars, Facebook's parent company Meta Platforms is creating the so-called Metaverse — a notion that would have been alien to investors in its 2012 IPO stock.
Amazon and Meta have persisted in rewarding their investors. Alibaba presents a more sobering story. With a $160 billion value when it went public in New York in 2014, China's leading e-commerce company valued at $160 billion aspires to become the largest data-sharing platform globally. Its market worth quadrupled, then dropped to $200 billion as a result of overstretching, diversification into physical retail, intense rivalry, and political frictions.
The business that Jack Ma built is not at all like Shein. Chinese consumers make up the majority of its clientele, but Shein customers are found everywhere. Ma pursued attention, whereas Sky Xu, the founder of Shein, kept a modest profile. However, becoming data-driven middlemen between billions of customers and numerous small suppliers is a shared objective for both. Alibaba used its data to provide sophisticated logistical hubs and financial services. Shein might also evolve in unanticipated ways.
Its lack of inventory and physical assets is maybe the company's biggest advantage for now. Once-slim businesses can gain weight with time. In the last ten years, Alibaba's total assets have multiplied by roughly thirty times, while Amazon's have increased tenfold. Although Shein is still relatively new, it has already acquired some strategically odd brands, such as the struggling UK brand Missguided and a portion of the American shop Forever 21. A bigger turn into bricks and mortar would lessen Shein's attraction.
Those are the kinds of issues that Chairman Donald Tang and Xu will have to deal with if an IPO advances from the drawing board to the manufacturing floor. It's been proven by numerous fallen tech stars that the quicker a company rises to prominence, the more difficult it may be to predict its future. Therefore, Shein's task is to maintain the fast fashion industry's agility without compromising the classic aesthetic that appeals to investors: it must be predictable and profitable at the same time.