When it launched in 2008, Shein was an online wedding dress business. Today, it is the world’s most-Googled fashion brand, its popularity even outstripping the likes of Nike and Zara.
Its agile, data-driven business model – which can spot new trends and changing tastes using AI, as well as determine public demand – means the Chinese ultra-fast fashion retailer is able to design and ship clothes to its mostly Gen Z customer base in as little as three days, far quicker than high-street retailers. Annual revenues are now estimated to be in the region of $40bn.
Which is why reports that Shein may be about to launch an initial public offering in Hong Kong – rather than the UK, as had widely been anticipated – could potentially be a huge blow for the City.
The London Stock Exchange has already suffered a mass exodus thanks to Wall Street in recent months, and only raised a pitiful £160m for four companies in the first half of the year. If you’ll forgive the shopping pun, it needs to bag itself a big one.
Shein’s Hong Kong filing, leaked this week to the Financial Times, has been interpreted by some as a means to speed up London, and to encourage any roadblocks to a City listing to be removed: namely, controversies about Shein’s clothes, the sourcing of their textiles, the conditions faced by their workers, and the environmental impact of their “throwaway” business model.
The FT reports that the wording approved by the Financial Conduct Authority (FCA) has fallen foul of the China Securities Regulatory Commission, which has become increasingly sensitive about how companies describe the risks of operating businesses in the country.
When a high-profile float looms, journalists like me love a “risks” section, because companies have to be honest and admit to everything and anything that may cause them problems down the line, however unlikely.
So it’s time for a quick Shein refresher. A large chunk of the group’s supply chain is based in China, where the currently privately-owned group was founded (although it is now based in Singapore). Much of the criticism faced by the business has focused on its cotton, and whether it is produced in the Xinjiang region. Allegations of forced labour among members of the minority Uyghur population have become an issue of global concern.
At a hearing of the business and trade committee in January, Yinan Zhu, the general counsel for Shein’s European arm, said she was “not qualified” to answer questions about the company’s supply chain.
Last year, a BBC report discovered that Shein had found two cases of child labour in its supply chain. Public Eye, a Swiss advocacy group, also raised concerns about 75-hour working weeks, in violation of Chinese labour laws and the company’s own code of conduct.
Cheap clobber comes at a high price – we know this. The labour practices in the garment industry as a whole have long been controversial.
Remember the Rana Plaza disaster? For a time, working conditions became front and centre after the collapse of the eight-storey Bangladeshi building, which hosted several clothes factories, resulted in more than 1,000 deaths. But, soon after, the news cycle predictably moved on and the demand for cheap clothing outweighed the demand for ethical practices once more.
In some respects, what Shein says about risks is academic. There has been enough written, discussed and debated about its operations in public forums that a disclosure in the risks section of a prospectus is almost irrelevant. Moreover, the big institutional fund managers who back floats don’t need their hands holding.
Of course, a lot of funds simply track the market. Investors like them because they’re cheap – that includes a lot of company pensions. If Shein does come to London, it might find its way into your savings, even if you refuse to wear the clothes on principle.
London has long liked to pat itself on the back for its “gold standard” rules on corporate governance and its blue-chip regulation. The trouble is, a tower standing in splendid isolation will eventually crumble if it isn’t maintained.
Wall Street might have shunned Shein, but can London’s moribund market really afford to turn its back on a £50bn float?
The Financial Conduct Authority might not have much to regulate if it continues to rack up losses – and that’s a problem, because the City is a big part of the British economy and contributes a lot of tax. It is time for FCA head Nikhil Rathi to make a decision.
