Shein might have taken the fast-fashion world by storm, but this year’s global market sell-off has left an impression on the Chinese e-tailer.
Once valued at a reported $100 billion in April, more than the market caps of global competitors Inditex and H&M combined, Shein may have shed as much as one-third of that sum. A recent Financial Times report now pegs Shein’s valuation at $65 billion to $85 billion.
Shein did not immediately respond to Sourcing Journal’s request for comment.
Plummeting valuations have been pronounced for high-growth tech companies this year, both public and private. “Buy now, pay later” company Klarna plunged 85 percent from $45.6 billion a year ago to just $6.7 billion in July, while payments giant and Afterpay owner Stripe saw its valuation drop 28 percent between March 2021 and July 2022 from $95 billion to $74 billion.
The drop in tech valuations is due in part to slowing consumer confidence and growing expectations of a U.S. recession, which have been further exacerbated by the Federal Reserve raising interest rates to combat inflation. But on the whole, no industry has entirely evaded these issues, particularly apparel, where constraints across the supply chain have resulted in a glut of inventory that companies want to offload for pennies on the dollar.
“They have been badly hit, just like pretty much every other e-commerce company around the globe,” an unnamed source who allegedly turned down investing in Shein told FT. “I don’t think there is something fundamentally wrong with the business…it was probably overvalued earlier this year.”
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One source in the report said $200 million worth of Shein shares had been sold at a $70 billion valuation, while another said that another $100 million in shares were sold in recent months that valued the company at $65 billion.
Unlike high-growth stocks from Zoom to DocuSign that skyrocketed during renewed relevance amid the Covid-19 pandemic, before cratering to pre-pandemic levels, Shein’s growth story remains unchanged. The fast-fashion company was valued at a mere $15 billion after a Series E round in 2020.
TikTok’s top-mentioned brand reeled in approximately $15.7 billion in revenue in 2021, and has been a massive hit among Gen Z due to its ability to churn out new SKUs at a torrid pace.
According to the FT report, Shein’s shrinking valuation comes as venture capital and private equity funds are trying to liquidate capital following the downturn across major global equity markets. Founded in 2008 by Chris Xu, the company has received investments from Sequoia Capital China, Tiger Global Management and IDG Capital.
At least on the surface, Shein itself doesn’t appear to be slowing down despite the valuation hit. The e-commerce retailer is already expanding its recently opened Indiana distribution hub from 1 million to 1.5 million square feet and has plans for additional facilities in California’s Inland Empire and the northeast.
The distribution center handles merchandise sorting, redistribution and returns processing for Shein. The facility is expected to employ more than 1,000 in its first year of operations and more than 1,415 by the end of 2025.
In September, Shein’s U.S. president George Chiao told the Wall Street Journal that the company expects to have “well over several thousand employees in the U.S. by 2025.” That would include office workers in its U.S. headquarters in Los Angeles, along with a Washington D.C. office.
The FT report indicated that Shein was appealing to investors because of its perceived immunity from Beijing’s regulatory pressure. According to the report, since Shein’s customer base is primarily outside of China, the company would not face the same scrutiny over data and consumer protection issues as e-commerce players Alibaba and JD.com, which sell primarily to local consumers.
Shein does business in more than 150 markets globally, with current standard shipping ranging between nine and 11 business days, according to the company’s website.
While the fast-fashion brand’s valuation is in limbo for now, it remains to be seen if the company’s rapid growth has been impacted by falling demand for Chinese products. According to data from China’s State Council Information Office (SCIO), annual growth in the country’s exports slowed during August to 8.6 percent—a near 8-percent decrease from the growth seen in July.
If anything, Shein instead may have to shore up its own internal business practices if it anticipates going public in the U.S., a move it backburnered earlier this year in lieu of private financing.
Amid allegations of dangerous conditions at its factories, which Swiss human rights watchdog Public Eye expanded on last year, one independent researcher revealed details to Sourcing Journal in September about the company’s alleged penchant for penalizing employees one- or two-hours pay for mistakes.
Additionally, the researcher indicated that warehouse workers usually get between four and six days off each month, which would violate Chinese regulations that limit workweeks to 44 hours and overtime to 36 hours per month.