On May 18, the Wall Street Journal reported that Shein, China’s leading fast fashion brand, has raised $2 billion in funding at a valuation of $66 billion.
The company’s valuation was valued at $100 billion at the time of its fundraising in April of the previous year, while the current year’s valuation is down one-third from its last funding round. Major investors in the financing round include Sequoia Capital China, U.S.-based General Atlantic, and Mubadala Investment, a sovereign wealth fund in the emirate of Abu Dhabi, UAE. In addition, a New York-based investment firm Tiger Global Management also joined as the new investor.
Last year, SHEIN was considered the third largest privately held company in the world, behind TikTok’s parent company ByteDance, and SpaceX, a space exploration company led by Elon Musk. Yet is this low valuation this year an indication of the company’s fading popularity?
For some time now, Seein has had a certain number of opponents.
One of these is criticism from sustainability advocates of the company’s mass production and mass disposal of clothing. The company has focused on how to sell trendy clothes to its key target, Generation Z, at low prices. This value system, which seems to be synonymous with the negatives of “fast fashion,” has been criticized by many older generations. It has also been criticized for its use of large amounts of environmentally hazardous synthetic fibers and its possible use of Xinjiang cotton (cotton grown in the Xinjiang Uyghur Autonomous Region), which has been pointed at as being produced under forced labor.
At the same time, many of the clothing designs produced by the company are said to include complete imitations of luxury and designer brands; resulting in multiple lawsuits from artists, brands, and designers over trademark, copyright, and intellectual property rights. So far, lawsuits have been filed by brands such as STUSSY and DR. MARTENS over trademark infringement, and artists Jennifer Stark and Maggie Stephenson have also claimed copyright infringement of their work. Most recently, Italian fashion brand GCDS’s designer Giuliano Calza criticized the company, claiming that GCDS’s shoe designs were copied.
Although SHEIN is no stranger to such flames, the current $66 billion valuation placed on the company is more than the combined market capitalization of Adidas, H&M, and Burberry. The company has grown rapidly in a short period of time over the past few years, using e-commerce, social media, and influencer marketing to create buzz among Generation Z and raise funds from VCs.
ZARA and H&M have long been the rival brands targeted by SHEIN. ZARA is currently one of the world’s largest fast fashion brands, and its parent company Inditex has a market capitalization of over $100 billion. H&M also recorded a 12% increase in sales in the first quarter of 2023.
The reason for the increase in sales for both companies is related to their vast worldwide network of stores. In 2022, Inditex’s store sales increased 23% even as the company closed hundreds of stores, the company reported. Online sales, on the other hand, were up 4%. H&M also noted the same trend in its most recent quarterly earnings report. In the first three months of 2023, in-store sales are up even though the number of stores is down 7 percent from the previous year.
Since the pandemic dawned, many customers are once again visiting physical stores, and both companies are focusing more on creating a quality in-store customer experience and building relationships with consumers. Zara has more quality products in its stores than ever before, and its popularity has not been shaken by a higher price point than SHEIN. H&M also uses its stores to promote collaborations with designers. This season, the company has launched a collaboration with Mugler, which has enhanced the credibility of its sustainability efforts.
However, if SHEIN were to have a physical store in the future, the current fast fashion hierarchy could be broken. In fact, the company’s limited-time pop-up stores in cities around the world have been flooded with thousands of customers each time.
The Wall Street Journal predicts that although SHEIN’s sales are slowing in the U.S., worldwide sales will increase by 40% this year. In January of this year, the Financial Times reported that SHEIN could have an IPO as early as this year in the U.S., the company’s largest market. Given this, the company’s low valuation may be intended to pave the way for an IPO.