S Poddar
Shein, the internet fast-fashion behemoth, recorded its net profit slide by as much as 40% in 2024, posing a new challenge before its much-awaited listing on the London Stock Exchange. The net earnings of the company dropped to around $1 billion, sources familiar with the situation told the Financial Times.
Even as the profit fell, Shein’s total sales grew by 19% to $38 billion in the year. But these are still far below the company’s initial projections. In-house estimates had predicted $4.8 billion in net profit and $45 billion in revenue for 2024, a goal now seeming ever more distant.
This slump is well-timed for Shein, which has been gearing up to list on the London Stock Exchange through an initial public offering (IPO). Reuters reported a few days ago that the firm is planning to cut its targeted valuation by nearly 25% to around $50 billion. Bloomberg, on the other hand, has hinted that Shein could be forced to cut its valuation even more, perhaps down to as little as $30 billion.
The decline in Shein’s profitability is problematic for investor optimism, particularly amid the growing threat of competition facing the fast-fashion sector. Despite Shein ruling online retailing with its bare-bones price points and whirlwind trend cycles, regulatory overhang and the changing market realities have presented the company with some challenges that have the potential to derail its expansion path.
Another key driver of Shein’s IPO schedule is the changing regulatory landscape in the United States. The Financial Times recently indicated that the London listing could be delayed until the second half of the year as a result of possible policy shifts in Washington. Former U.S. President Donald Trump has moved to repeal a tax break that Shein presently enjoys, a development that could undermine its profitability and result in increased prices for American consumers.
This potential tax policy change is even more worrisome considering the dependence of Shein on the U.S. market, wherein it has found a strong following due to its affordability and massive product offerings. Any hike in costs would take the sheen off consumer demand, further affecting the financial prognosis of the company.
Shein has not yet made any public response to these reports, and investors and market analysts have been left guessing how the firm is going to overcome these increasing challenges. The doubt around its valuation and profitability may affect whether Shein is able to secure investors when its IPO does eventually happen.
Over the past decade, Shein has emerged as a fashion leader in e-commerce, using an analytics-driven system to forecast trends and quickly produce new designs. Its model of direct-to-consumer sales and flexible supply chains has enabled it to fight back aggressively against well-established brands. But whether such a model is sustainable has become increasingly uncertain in recent times, especially with regulators and consumers paying more attention to environmental and labor issues.
As Shein continues to register growth in revenue, the sharp dip in profitability is an indicator that sustaining its high-growth expansion strategy may not be as easy as previously envisioned. Should the company have to change its pricing model due to external forces like taxation or supply chain volatility, it would be challenged in maintaining its prime customer base, which primarily focuses on affordability.
The next few months will be a defining period for Shein as it decides what to do next in the IPO process and seeks to calm investors. Whether the firm can recover from this decline in profits and ride out the vagaries of an unpredictable world market is hard to say.
