Shein Is on a Pre-IPO Charm Offensive

Ultra-fast-fashion giant Shein said it will invest €250 million ($271 million) in British and European designers and circularity initiatives over the next five years as it seeks to manage a regulatory crackdown targeting “fast fashion” and drum up support for a potential IPO in London.

The disruptive Singapore-based e-tailer said Tuesday that it plans to launch a €200 million circularity fund focused on textile-to-textile recycling and related innovations, inviting other businesses and financial institutions to co-invest. Shein said it will set aside another €50 million to help fashion businesses in the UK and EU join its marketplace and support its Shein X incubator programme, which connects emerging designers to the company’s supply chain, in the region.

The moves form part of the company’s efforts to address criticisms and controversies that have dogged its ambitions to go public and made it the focus of regulatory scrutiny that could stunt future growth prospects.

The company reportedly filed confidential papers with Britain’s market regulators for a London listing in June. It has declined to comment on its plans.

Founded in Nanjing, China, in 2012, Shein is now one of the world’s most popular clothing brands, a rise that has been fuelled by a pioneering and hyper-efficient test-and-learn manufacturing model that allows it to produce a dizzying assortment of new styles in small batches and sell them at rock bottom prices. Gross merchandise value, a measure of the value of sold goods on its website, reportedly reached around $45 billion in 2023. Its London IPO could be one of the largest stock offerings globally this year.

Escalating tensions between the United States and China, where most of the company’s manufacturing still takes place, disrupted previous plans to list in New York. And its fast-paced, low-cost business model has made it a regulatory lightning rod. The company has attracted a barrage of criticism over issues including its supply-chain labour practices, product safety, copyright infringement and environmental impact.

In Europe, which has been moving to protect local producers from the flow of cheaper Chinese goods and address criticism that new green rules disadvantage businesses operating in the trading bloc, the company is seen as a key target of proposed and incoming regulations that take aim at fast fashion. These include moves to address a loophole which allows foreign companies like Shein, that ship low-value parcels direct to consumers, to sidestep import duties and higher fees for fashion retailers that produce large volumes of clothes.

“Compliance and circularity are the priorities I wake up with,” Shein executive chairman Donald Tang said, adding that the company prefers to style its business as “on demand” fashion, rather than “fast fashion.”

Though the e-tailer produces many styles, each one is manufactured in small quantities that are only increased if there’s clear demand, avoiding the wasteful overproduction associated with many established mass market rivals, according to Tang. With its circularity fund, Shein said it is moving to take more responsibility for what happens to clothes at the end of their life — a trickier challenge for a company that has been blamed for fuelling overconsumption.

While the €200 million fund represents a tiny fraction of the profits in excess of $2 billion that the company reportedly generated last year, Shein said it can have a bigger impact by leveraging its size and scale to support innovators through things like offtake contracts or other commercial arrangements.

Tang said he has spent the last few weeks talking with the venture community and fund managers to “very, very enthusiastic feedback.” Still, establishing the mechanics of the fund, including putting someone in place to oversee it, is still in progress.

“The tradition and hallmark of Shein is waste reduction,” said Tang. “This is the beginning of the effort.”