Yes, you read it correctly. The fast fashion e-commerce company that few in the tech industry had even heard of two years ago is aiming to raise $1 billion at a valuation of $100 billion.
Shein’s fundraising plan was first reported by Bloomberg and we’ve reached out to the firm and its investors for comment. Given its growth, it should surprise no one though that investors are piling in to get a slice of this rising challenger of Zara and Amazon despite its skyrocketing valuation. Last June, the company told us that its valuation was at the “billion-dollar level” as of its last funding round in 2020.
Shein is in talks with General Atlantic for this new funding round, according to Bloomberg. The company counts Tiger Global, IDG and Sequoia among its existing investors.
We suggested last June that Amazon should pay attention to Shein, and the numbers from 2021 are telling. According to app analytics firm Apptopia, Shein was the second most downloaded shopping app in the US last year after Amazon. But while Shein still enjoyed great momentum, with its installs growing 68% year-over-year, Amazon saw a 2.4% decline. Worldwide, Amazon was the fourth most downloaded shopping app, overtaken by Singapore’s Shopee, Shein and India’s Meesho.
From its 14 years of existence (and hence it’s not really a “startup”), Shein has come up with a data-driven, supplier-supported formula to success. Its designers closely track social media influencers and runway shows to devise new pieces, a method that’s not too different from other fast fashion brands. What separates Shein is the responsiveness of its supply chain, a vast network of loyal and agile dingy workshops around Guangzhou, a major metropolitan in south China where most of its operations are. The company tests a great variety of cheap clothing in small batches, and if data shows that something is selling well, it quickly places more orders with these suppliers to sell even more. This demand-driven approach allows Shein to maintain low inventory costs.
Shein also manages to reduce costs by taking advantage of customs rules. In 2016, the US raised the de minimis value threshold, which allows individuals to buy import goods tax-free, from $200 to $800. The law was supposed to help small American businesses lower import tax but ended up benefiting global business-to-consumer e-commerce platforms like Shein, as a higher amount of their shipments can enter the US with no duty and faster border clearance.
Shein is not without challenges. The company is in the process of setting up a holding company in Singapore, and its founder Sky Xu is reportedly seeking Singapore citizenship, according to Reuters, to bypass China’s tightening grip over offshore listings.
Xu is certainly not the only Chinese tech CEO changing citizenship to pursue foreign IPOs. At the end of last year, Beijing proposed a deluge of regulations on overseas-listed Chinese firms, including one stipulating that a company whose main management mostly consists of Chinese nationals or executives who live in China, and its main business operating location is in China, must go through a filing process with China’s securities authority. Anecdotally, we’ve heard that some venture capital firms in China have begun offering citizenship applications as part of their post-investment service.
Lastly, Shein has been under fire for its lack of supply chain transparency and potential damage to the environment. Good On You, a site that tracks brands’ sustainability practices, gives Shein a “very poor” environmental rating.