The potential listing of Shein is a test of London’s allure
At its peak in 2005 the London Stock Exchange (LSE) attracted nearly one in five companies that went public globally. In 2023 that share was around 1% (see chart 1). To arrest this alarming decline the City’s regulators are loosening listing rules. And to show that it can still be a venue for blockbuster debuts, the LSE is chasing what would be its biggest-ever initial public offering (IPO)—for Shein, a fast-fashion giant and one of the most valuable startups in the world.
There’s a lot on the line. The LSE needs fast-growing companies to list there, but also wants to avoid being seen as a dumping-ground for contentious firms. By becoming a public company, Shein means to subject itself to more intensive levels of scrutiny. Each would hope to burnish the other’s reputation. The risk is that the shine comes off them both. “It’s a fertile environment for something bad to happen,” says one analyst.
The new rules, unveiled by the Financial Conduct Authority (FCA), Britain’s financial watchdog, on July 11th, will come into force this month. Among other things, they relax restrictions on dual-class shares, a standard feature of tech IPOs in New York that offers founders more powerful voting rights. They also drop the requirement for previous shareholder votes on making acquisitions or disposals.
The FCA concedes that its reforms involve greater risk. Market debutants will no longer be required to present a three-year financial record to be eligible for a listing, for instance. “It puts more onus on investors to know what they are buying, rather than assuming a listing guarantees quality,” says Mark Hiley, founder of The Analyst, an independent research firm. But regulators hope the changes will attract fast-growing tech startups of the sort that have turned their backs on London.
A Shein IPO, which could value the company at £51bn ($66bn; see chart 2), would certainly create a splash, and not just among pension-fund managers. “Younger generations invest in crypto and place bets on a game of football,” says Martin Graham, a former director of markets at the London Stock Exchange Group, the LSE’s parent company. The presence of the world’s most-searched-for fashion retailer—the sort of high-tech company in short supply on an exchange filled with miners, tobacco companies and banks—could help draw more people to stocks.
It would also help raise London’s profile among firms—and one group in particular. Shein was founded in China in 2012, although it moved its headquarters to Singapore in 2021. A listing would open the floodgates for a growing number of Chinese firms hoping to float their offshore assets in the City, according to John Xu, a Hong Kong-based lawyer at Linklaters, a law firm. Chinese entrepreneurs who once flocked to Wall Street are now deterred by strained relations between Beijing and America (Shein itself has toyed with the idea of listing in New York). Hong Kong has lost some of its allure as the Chinese economy has slowed down.
But courting Shein comes with hazards. Campaigners balk at the environmental impact of fast fashion, which relies on selling high volumes of low-cost clothing. Between July and December 2021 Shein added up to 10,000 items to its app every day, according to research by Rest of World, a non-profit publication. The company has pledged to cut carbon emissions across its supply chain by a quarter by 2030.
Shein also invites scrutiny for its links to China. The firm is keen to play down its connections to its home country: it has no customers in China and likes to refer to itself as a global company. But it nonetheless struggles to shake off questions about its precise relationship with China; it has yet to receive approval from Chinese authorities to list in London, for example. Laws that require firms to co-operate with state intelligence agencies provoke scepticism of all Chinese companies. Sporadic crackdowns on tech firms by regulators in Beijing have wiped out trillions of dollars in market value, spooking investors.
The fact that Shein sources the bulk of its materials from China raises other, more specific concerns. The firm has already solicited the help of Oritain, a forensic-technology firm, to tackle concerns that it gets clothing from China’s Xinjiang region, where the government violates the rights of Uyghurs, a Muslim minority. Oritain carried out 2,762 tests of Shein samples between August 2022 and November 2023. The probe found that 1.7% tested positive for cotton from “unapproved regions”, compared with an average of 6% for Oritain’s other retail clients.
Package deals
Tighter import rules could also threaten the firm’s profits. Lawmakers round the world are looking to close “de minimis” tax loopholes, which allow retailers like Shein to avoid hefty customs duties by shipping small packages directly to consumers rather than via warehouses. In 2022 Gap, a retailer, paid $700m in tariffs on bulk shipments to America—equivalent to just under half of Shein’s net profit last year. “De minimis rules and tariffs in different regions are not foundational to our success,” responds Donald Tang, the firm’s chairman. Shein is opening distribution centres in America, Europe and elsewhere; it is adding suppliers in Turkey and Brazil.
All these concerns about Shein will stoke investor worries about declining governance standards on the London stockmarket. But they also help to make the argument for why an IPO should go ahead. Shein claims to want the scrutiny of public markets in order to remove some of the opacity that surrounds it. “I want to make it crystal clear that the foundational element of our success is our unique business model,” says Mr Tang. The real test for the LSE will not just be persuading Shein to list its shares in London, but putting it properly under the microscope. ■
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