Home Money Shein is disrupting fashion world – will it have same effect on stock market?

Shein is disrupting fashion world – will it have same effect on stock market?

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Ambition: Shein needs Beijing's blessing for its plans

Ambition: Shein needs Beijing's blessing for its plans

Ambition: Shein needs Beijing’s blessing for its plans

Attention is focused on the world of fast fashion as Chancellor Jeremy Hunt campaigns to persuade Shein to list its shares in the UK.

The $60 billion Chinese online giant, founded in 2008 to supply wedding dresses to budget-conscious American brides, is today the biggest disruptor in cheap, bulky clothing.

It is even hot on the heels of the mighty Amazon. Excitement is already growing for what could be one of the biggest IPOs ever in London, spurred by the belief that a decision to go public here, rather than in the United States, would “happen with a bang,” as It is expressed by a figure from the City. The arrival of the funky Shein (pronounced She-in) could change the perception that our stock markets are a scruffy backwater. However, there are obstacles along the way.

Although it is now based in Singapore, Shein still needs Beijing’s blessing for its plans.

Furthermore, it may not have abandoned its previous ambition to go public in New York, hoping to overcome objections, some of which arise from the US-China trade war.

On both sides of the Atlantic, there is intense scrutiny of Shein’s sustainability strategy, detailed in the evoluSHEIN roadmap document. Controversy over fast fashion’s working practices and environmental impact will mean some UK investors will shy away from Shein. Others will wonder if you pay enough taxes.

The company, which ships from China, is not subject to UK import duties charged on parcels worth £135 or more.

But many investors are already wondering whether Shein shares could generate a profitable “loot.”

For the uninitiated, a ‘swag’ is the term for a package of ‘suits’ or fast fashion clothing, shown off by the shopper in a Tik Tok video.

S HEIN’s deliveries take about eight days, but its Gen Z fan base seems optimistic. This week you could buy a dress for £4.24 at Missguided, the British company Shein bought last year from Mike Ashley’s Frasers Group.

Such rock-bottom prices have ensured the rise of Shein under its secretive founder Sky Xu. Sales rose from $1.3 billion in 2018 to $22.7 billion in 2022, accelerated by the pandemic shift to online shopping.

A figure of $60 billion is projected by 2025, which explains why Shein has caused disarray at Asos and Boohoo, the UK’s leading fast fashion brands.

Asos shares, which reached a high of 5,772p in 2021, have fallen to 343.4p. Boohoo shares are at 33.05p, down from the price of 50p at its IPO in 2014.

These glamorous stocks are among the most shorted, suggesting pessimism about the outlook.

But both could be caught up in the hype if Shein comes to London. Frasers owns 22 per cent of Asos and 26 per cent of Boohoo, so it’s clear dealmaker Ashley senses an opportunity.

The Shein effect is also felt at Inditex and H&M, the first and second largest fashion retailers in the world. Inditex, the Spanish owner of Zara, Pull & Bear and other brands, is expanding its Lefties discount chain, which operates in Spain and Portugal.

It is also opening larger Zara stores to evoke a luxury impression that makes trend seekers feel more relaxed about higher prices. This strategy helped the group record record sales and a 23 percent increase in profits, as announced this week. Meanwhile, the Swedish giant H&M is fighting back by accelerating the introduction of new lines in stores.

Empire Building: The Secret Founder of Shein, Sky Xu

Empire Building: The Secret Founder of Shein, Sky Xu

Empire Building: The Secret Founder of Shein, Sky Xu

Research by consulting firm McKinsey shows that the average cost for H&M and Zara of an item in stock is $26 and $34.2 respectively. On Shein it costs $14.

But potential investors should note that its domain is not secured. Temu, an offshoot of Chinese e-commerce titan Pinduoduo, is already a rival, although it was not created until 2022.

Swetha Ramachandran, fund manager of the Artemis Leading Consumer Brands fund, says: ‘Before investing in Shein, I would need to better understand how the company intends to sustain its competitive advantage. How can it continue producing at rock-bottom prices? Shein relies heavily on Chinese factories. But wages have been rising as workers seek a better standard of living.

Ramachandran also points out another issue. “Shein appeals to an 18-25 age group, but long-term success in retail depends on broadening its appeal and taking members of its clientele with it as they grow.”

He cites Next as an example of “a best-in-class retailer” that offers not only online convenience but also welcoming stores.

She said: ‘People like being in shops. They like the social aspect.’

Shein’s social media presence may be prodigious, but it can’t compete on this front.

The UK market needs the shine that Shein could bring. The hype surrounding the IPO should raise the profile of unloved stocks in big companies. But the opposite could happen if advisors do not investigate Shein’s credentials. You may not be a close follower of fast trends or any other type of fashion. But this is definitely something to watch.

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