How EU fees threaten Shein's $50bn Hong Kong IPO ambitions - Business Day

Story audio is generated using AI By Agency Staff London/Hong Kong — Shein’s ambitions for a valuation of up to $50bn in its long-awaited Hong Kong initial public offering (IPO) are likely to face a tough test from investors, as new fees on e-commerce parcels in Europe weigh on sales growth and profits. The fast-fashion retailer is seeking a valuation of $40bn-$50bn in its upcoming IPO in Hong Kong. That’s a far cry from the $100bn valuation that media reported it was given in a funding round in 2022, when it first started pursuing a New York listing. Shein earned global revenue of more than $40bn last year and made almost $2bn in net profit, said two sources with knowledge of the matter, who declined to be named or to give granular numbers as the results are confidential. In 2024, Shein made $37bn in revenue and $1.29bn in profit, according to its latest results filing in Singapore. Read: Takealot leads and China dominates SA’s e-commerce But the EU’s imposition from this month of a €3 fee on low-value e-commerce imports, to curb what the EU calls unfair competition from China, is likely to dent Shein’s growth this year. CEO Sky Xu will have to convince investors this is a temporary blip with growth picking up again in 2027, one of the sources said. Most of Shein’s products are made in China, and Europe accounts for a third of the company’s revenue, according to Euromonitor. “If its valuation is $40bn, that’s still a bit expensive. But if it’s closer to $30bn, maybe it looks more attractive,” said Eddie Tam, chief investment officer at Hong Kong’s Central Asset Investments, adding that the European fees will have a big impact. “The problem is that the company is already on a downward trajectory. E-commerce competition is extremely intense, in China and overseas,” Tam said. Shein — whose final pre-IPO hearing before the Hong Kong stock exchange listing committee was due to be held on Thursday — has already begun testing the waters with investors before a public filing expected by month-end. It targets a listing in September. Shein did not immediately respond to a request for comment on Thursday. Having previously entered the EU duty-free, e-commerce parcels worth less than €150 are now subject to €3 fees, applied per customs code, meaning a parcel of five different items could be charged €15 in duties. “If you’re used to buying €3 T-shirts on Shein, those are now double the price, which is quite significant, even if they’re still cheaper than local alternatives,” said Juozas Kaziukenas, an e-commerce industry analyst. “It’s killing the conversion rates they previously had, and thus they reduced marketing spend,” Kaziukenas said. Shein has been preparing for the change by expanding warehouse space in Wroclaw, Poland, and shipping top-selling products to the EU in bulk. But, like rival Temu, it has slashed advertising spending in Europe in reaction to the fees, according to an analysis by Smarter Ecommerce based on Google advertiser auction data, as it waits to see how consumers react to higher prices. That contrasts with May last year, when both platforms increased marketing spending in Europe in an effort to offset weaker growth in the US after the Trump administration ended its own “de minimis” duty-free policy. While Shein was able to pass higher costs on to consumers in the US, that is more difficult in Europe where shoppers are more price-sensitive. Investor concerns about Shein’s IPO valuation show how much has changed since Temu-owner PDD Holdings made its public debut on the US Nasdaq in 2018. Pinduoduo, as it was known at the time, raised $1.63bn in its IPO, valuing it at $23.8bn. The shares soared 40% on their first day of trading, taking the company’s valuation to $33bn, even though it was loss-making at the time and its revenue was a fraction of Shein’s today. Since then, Chinese e-commerce has become much more political, with companies like Temu and Shein seen as undercutting the retail sector — a big employer — in the US and Europe, and drawing the ire of politicians and regulators. Reuters