Shein struggles to move IPO forward amid broader growth challenges

The news: Shein is on the defensive as it tries to push its UK IPO past the finish line and minimize the impact of tariffs on its business.

• The retailer is trying—so far unsuccessfully—to alleviate UK lawmakers’ concerns about possible forced labor in its supply chain.
• At the same time, CEO Donald Tang downplayed the potential disruption tariffs would bring to Shein’s ultra-low-cost business model so long as they’re “applied equally,” he told CNBC at Davos.

Stumbling blocks: Allegations of forced labor are holding up Shein’s IPO prospects as lawmakers probe whether the retailer uses cotton from Xinjiang in goods sold in the UK.

Attempts by Shein to give parliamentary investigators the run-around resulted in a sharp rebuke. Labour MP Liam Byrne—chair of the Business and Trade Committee— said he was “horrified” by the retailer’s lack of transparency.

The company’s attempts to clarify the situation have only muddied the waters.

• Shein does not use cotton sourced from the Xinjiang region in products sold in the US, in compliance with the country’s Uyghur Forced Labor Protection Act, the company’s general counsel for EMEA, Yinan Zhu, said.
• But Shein also does not prohibit Chinese cotton for products sold in markets that lack such stringent regulations, although manufacturers are required to source cotton only from approved regions such as Australia, Brazil, India, and the US.

Existential challenges: Besides the threat to its IPO, Shein’s business model also faces multiple challenges.

• The Trump administration has signaled its willingness to proceed with Biden’s de minimis crackdown, which would raise prices for Shein’s ultra-cheap China imports.
• Proposed tariffs would only compound the problem, although Tang noted that Shein’s price advantage would remain as long as China isn’t slapped with higher tariffs than other regions.

Our take: Shein’s IPO is losing its sheen. As if the regulatory heat wasn’t enough, the one-two punch of a global de minimis crackdown and tariffs will affect the retailer’s ability to attract customers with ultra-low prices—minimizing its appeal to shoppers.

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