Yes, you read it correctly. The fast fashion e-commerce company that few in the tech industry had heard of two years ago is aiming to raise $1 billion at a $100 billion valuation.
Shein’s fundraising plan was first reported by Bloomberg and we have reached out to the company and its investors for comment. Given its growth, it should come as no surprise that investors are piling in to get a share of this rising challenger from Zara and Amazon despite its soaring valuation. Last June, the company told us that its valuation was at the “billion-dollar level” in 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 2021 numbers are telling. According to an app analytics company Apptopia, Shein was the second most downloaded shopping app in the United States last year after Amazon. But while Shein was still enjoying great momentum, with a 68% increase in installs year over year, Amazon saw a 2.4% decline. Globally, Amazon was the fourth most downloaded shopping app, overtaken by Singapore’s Shopee, India’s Shein and Meesho.
In its 14-year history (and therefore not really a “startup”), Shein has developed a data-driven, vendor-backed formula for success. Its designers closely follow social media influencers and runways to design new pieces, a method not too different from other fast fashion brands. What sets Shein apart is the responsiveness of its supply chain, an extensive network of loyal and nimble workshops around Guangzhou, a major metropolis in southern China where most of its operations are located. The company tests a wide variety of inexpensive clothing in small batches, and if the data shows something is selling well, it quickly places more orders with those vendors to sell even more. This demand-driven approach allows Shein to keep inventory costs low.
Shein also manages to cut costs by taking advantage of customs rules. In 2016, the United States raised the threshold of the de minimis value, which allows individuals to purchase duty-free import goods, from $200 to $800. The law was meant to help small US businesses reduce import taxes, but ended up benefiting global business-to-consumer e-commerce platforms like Shein because more of their shipments can enter the US. duty-free and faster customs clearance.
Shein is not without its challenges. The company is in the process of setting up a holding company in Singapore, and its founder Sky Xu is reportedly applying for Singaporean citizenship, according to Reutersto circumvent China’s tightening grip on offshore listings.
Xu is certainly not the only Chinese tech CEO to change nationality to pursue IPOs overseas. At the end of last year, Beijing proposed a deluge of regulations on Chinese companies listed overseas, including one stipulating that a company whose main management is mainly composed of Chinese nationals or executives living in China, and whose main place of business is in China, must go through a filing procedure with the Chinese securities authority. Anecdotally, we have heard that some venture capitalists in China have started offering citizenship applications as part of their post-investment service.
Finally, Shein has been criticized for its lack of supply chain transparency and potential environmental damage. Good On You, a site that tracks brands’ sustainability practices, gives Shein a “very poor” environmental note.