Cost cutting is making its way across the tech sector and startup valuations may not be far behind.
Chinese fast-fashion retailer Shein is looking to raise up to $3 billion in another round of financing. The big question seems to center on what its new valuation might be in a world where funding from venture capital and private equity may not be so easy to get.
According to Pitchfork, Shein raised $1 billion in a Later Stage VC (Series F) in October. A Financial Times report said the company could close on a new round over the next several months with existing investors Abu Dhabi sovereign wealth fund Mubadala, venture capital firm Sequoia China and private equity firm General Atlantic leading the investment group. It also said that their last investment in 2022 valued Shein above $100 billion in April, but that the new valuation could be closer to $64 billion following an October drop that pegged the company at $70 billion to $85 billion.
“Shein denies the accuracy of some the information reported,” a spokeswoman for the Christian Siriano collaborator said. A spokesman for General Atlantic declined to comment. Executives at Mubadala and Sequoia China could not immediately be reached for comment.
The Chinese fast-fashion firm was on track early last year to publicly list on the New York Stock Exchange later in 2022. Those plans were temporarily shelved in February when Russia’s Ukraine invasion unleashed chaos in the financial markets. Sources said the IPO plan is still on Shein’s agenda. Plan B was the financing round led by Mubadala, Sequoia China and General Atlantic. Sources said that the IPO market could be iffy this year, depending on market conditions, but there’s a chance that if the window opens up that Shein could proceed with IPO plans.
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Shein, headquartered in Singapore, was founded in 2008 and is a global B2C fashion e-commerce platform. That makes its primary business in internet retail, a sector that has come under pressure among some of its fast-fashion competitors.
Asos Plc last year implemented a four-pronged strategic initiative to update its business model and get better control of its inventory, as well as streamline and control costs. It also has been in credit talks with lenders, pulled back on staffing and last month was said to be discussing with lenders the possibility of bringing in a restructuring expert.
Asos competitor Boohoo also is facing its share of difficulties, much of it due to a spike in customer returns, rising shipping costs and delivery delays impacting consumer demand. The returns-rate problem is one that Boohoo shares with Asos, H&M and Zara. Several firms now charge a fee for online returns sent back via a third party. While retailers such as H&M and Zara that have stores will accept an online return without charging a fee, that option isn’t available for retailers whose primary operation is online—a factor that erodes margins.
While Shein’s roots are in e-tail, the company has since opened its first permanent physical space in Tokyo in November. Shein has also hosted popup shops in places such as San Francisco, London, Sydney, and San Antonio, Texas, to give customers a chance to check out and try on its offerings before migrating onto its app. It’s set to open five popups in Brazil early this year.
Still, retail is a tough sector to be in amid higher inflationary pressures on the consumer and the possibility of a global recession. That’s typically when investors often think twice about investing in fashion. Online apparel retailers are technology firms that happen to sell fashion goods. And the tech sector is one that is showing signs of a slowdown, which can weigh on valuations.
Some believe that the fallout from the collapse of crypto exchange FTX has some investors rethinking their investment criteria and portfolio holdings. Even Amazon cut 18,000 jobs. Other tech behemoths have also announced layoffs, with Microsoft on Wednesday eliminating 10,000 jobs and Google on Friday cutting 12,000.