Shares of fast-fashion online retail giant Shein saw a decline on their first day of trading on the Hong Kong stock exchange, following a prolonged delay in the company's public listing plans. Shein raised approximately $1.7 billion through its initial public offering, with shares priced at HK$48.56 ($6.19) each, marking one of the largest new share sales in Hong Kong this year.
Despite the significant capital raised, Shein's stock fell below HK$44 in early trading before narrowing its losses, trading about 5% lower by midday. The company's business model, which relies on ultra-fast, affordable fashion shipped from China, faces headwinds from the end of U.S. and EU “de minimis” tariff exemptions. These changes have increased duties on low-value parcels from China, impacting Shein's product costs. Additionally, higher logistics expenses, partly attributed to global conflicts, are further squeezing the company's profitability and its ability to maintain low prices.
"Tariff costs have forced Shein to raise prices, cutting into its main advantage," said Jacob Cooke, CEO of WPIC Marketing + Technologies. The financial performance reflects these pressures, with Shein recording a $99 million loss in the first quarter of the current year, a stark contrast to the $395 million profit reported in the same period a year prior.
Shifting Listing Location and Operational Roots
Shein had previously considered listing its shares in New York and London before settling on Hong Kong. The company relocated its headquarters from China to Singapore around 2021. However, increasing scrutiny from Beijing, as well as from regulators in the U.S. and Europe, ultimately led Shein to embrace its Chinese roots and proceed with a Hong Kong listing. Launched in China in 2012, a significant portion of Shein's operations were based in the southern province of Guangdong before the corporate headquarters moved.
"Guangdong is Shein’s roots, and the starting point of our journey," its founder Sky Xu stated in February. William Ma of GROW Investment Group noted that a pivot back to China highlights the advantages Shein derives from the specialized supply chain system in Guangdong, which supports its model of small-batch, rapid-response manufacturing.
Facing Regulatory and Market Challenges
The company has encountered other obstacles in its global expansion, particularly in Europe. In February, the European Union initiated a probe into Shein, focusing on allegations of illegal product practices. Furthermore, Shein's acquisition of San Francisco-based eco-friendly clothing retailer Everlane in May was met with skepticism from some analysts regarding its strategic fit.
At the time of its Hong Kong listing, Shein's market valuation was approximately $27 billion, a significant decrease from its peak valuation in previous years. "Shein has probably missed its golden listing window due to the shift of momentum toward AI and tariffs, which can affect valuations and profitability," commented Gary Ng, a senior economist for Asia Pacific at Natixis.
Despite these challenges, Shein's listing offers a welcome development for Hong Kong, as the territory works to maintain its standing as a global financial hub amidst a challenging economic period. Hong Kong's stock exchange has seen a robust year for initial public offerings, raising over $40 billion, with a backlog of companies seeking to list, according to Lorraine Tan at Morningstar.