A Shein-shaped question looms large over London
With UK regulators said to have rubber-stamped its application to list in London, Shein’s long-awaited blockbuster IPO is closer than ever. But with questions over its links to forced labour continuing to dog the Chinese-founded firm, and recent turbulence from Trump’s tariffs, Ali Lyon asks, is it losing steam at just the wrong time?
On 10 January, an unnerved Liam Byrne MP sat at his computer and went hunting for answers.
Three days earlier, top brass at Shein, the Chinese-founded fast-fashion giant with long-held aspirations to list on the London Stock Exchange (LSE), had sent their special counsel for Europe out to bat against the Business and Trade Committee that Byrne chairs.
The in-house lawyer’s evidence was, in the committee’s eyes, littered with tangents and non-sequiturs. Rather than answer head on questions on the links to forced labour that have long-dogged Shein, or the status of her employer’s planned initial public offering (IPO), she routinely bridged away from the subject at hand, or requested “permission to write to the committee” once the session had ended.
The lawyer’s taciturn approach earned her an unsparing dressing down from Byrne and made international news. It had also left the Labour grandee more determined to establish how exactly Shein – a firm poised to become the largest listing in the history of London’s storied bourse – operated, and how the UK’s regulators could police it.
Three months on from this undignified episode, and Shein’s long-awaited listing is closer than ever. Earlier this month, it emerged that the Financial Conduct Authority (FCA) had approved the firm’s prospectus to list on the LSE, leaving only one regulatory hurdle between the controversial company and its record-breaking IPO: the nod of approval from the FCA’s Chinese counterpart.
And its chances were given a further boost when, in an interview this weekend, Rachel Reeves gave the contentious float her most enthusiastic endorsement yet. Asked about Shein, she told the Daily Telegraph that the LSE and FCA “had very strict standards about disclosures… but we do want to welcome new listings on the London Stock Exchange.”
But despite his Labour colleague’s enthusiasm, Byrne remains sceptical of the commerce giant’s suitability for London; largely because of what he unearthed in the wake of Shein’s frosty evidence session in January.
“The evidence that we heard from Shein was appalling and bordered on contempt of Parliament,” he tells City AM. “You had [the firm refuse to answer] some very simple, basic questions by parliamentarians to a company that does over £1bn of sales in the UK, which is seeking to sell its shares to UK pension savers. It’s just not acceptable for a company like that to behave in that way.”
Byrne had taken up Shein’s offer to exchange letters with the committee. He also wrote to the respective chief executives of the LSE and the FCA, the pair of organisations responsible for ensuring the suitability of any company with desires to list in London.
His correspondence with the two bodies, in his view, laid bare their inability properly to police unsavoury supply chain links and “underlined that the law of the land has to change and ministers have to act”.
But it was over the course of several letters with Shein that an even more compelling – and in his eyes concerning – state of play emerged.
“In the last exchange of correspondence that we had, we basically heard that the safeguards that are in place for Shein’s products sold in the United States are different to those in place for the UK,” he says.
This, Byrne says, was tantamount to Shein “operating two-tier safeguards against forced labour standards”, with the UK’s framework substantially laxer than that of its transatlantic neighbour.
A letter from Shein to the Business and Trade Committee made clear that “most of the products that we sell globally, including in the UK, are the same as the products that are available for sale in the United States”. But the hard truth, in Byrne’s eyes, was that while the US had robust controls in place to prevent clothes with potential links to forced labour from ever entering its shores, the UK did not.
The development led parliamentarians like Byrne to call on ministers to introduce new legislation – in the form of an update to the Modern Slavery Act – that would bring Britain’s standards on forced labour in line with the States and bolster the powers of the FCA and LSE. It has also accelerated calls from campaigners for the government to block the float.
Some though, such as Peel Hunt’s head of research Charles Hall, look forward to the additional scrutiny that a public listing will impose on a company like Shein, and the boost it will give London’s IPO-starved bourse.
“From a governance perspective, we believe the spotlight of public markets is manifestly better for all stakeholders than operating with limited disclosure as a private company,” he told City AM.
Others, however, fear that the watchdog’s approval amounts to a tacit endorsement of Shein’s operations and transparency standards; even though it is not the FCA’s responsibility to verify the accuracy of the information provided in the prospectus.
“We are really worried about reports that the FCA has given its approval for a UK listing for Shein,” says James Alexander, the chief executive of the UK Sustainable Investing and Finance Association (UKSIF), an industry body that counts blue-chip financial institutions like Schroders, M&G and Aviva Investors among its members.
“There are investors that are deeply concerned about the risks that come with these human rights and modern slavery allegations, and – rightly – they’re wondering why this approval’s been given, and why questions surrounding Shein have not been fully answered.”
But these ethical questions around Shein’s alleged indirect links with forced labour, and the growing political scrutiny around the laws in place place police it, are not the only headwinds that the rapidly growing online retailer faces. Its economic prospects are coming under the microscope of City watchers, too.
Since the firm’s appearance in front of the Business and Trade Committee, the US President has upended the free flowing global trade system on which Shein’s finely tuned operations rely.
All imports from China to the United States – Shein’s largest market by a significant margin – are, for now, subject to an eye-watering tariff of 145 per cent before they ever make it to any American consumer.
For high-tech or scarce imports like sophisticated chips or rare minerals, demand might be sufficiently inelastic as to mean some businesses stump up for the added cost. But for a fast-fashion firm whose success is contingent on keeping prices down, the levies make imports to the world’s largest economy all but impossible.
“Shein is unbelievably good at what it does,” says Wayne Brown, a consumer equity analyst at Panmure Liberum. “But the implications from a tariff perspective… mean that it becomes highly uneconomic to be sending packages to the US.”
Shein declined to comment on the financial and practical implications of the Trump administration’s tariff, but, according Globaldata estimates, its exports to the US accounted for over 28 per cent of sales in 2023.
There is a second trade development compounding the fast-fashion behemoth’s struggles in its largest market. Among his deluge of tariff announcements, the US’s capricious President also brought an end to a customs loophole on which Shein and Chinese marketplace Temu had long capitalised. Known as the ‘de minimis’ rule, the arcane convention exempts packages under a certain value from import duties.
Most online retailers import vast quantities of clothing in one batch before processing and delivering orders in their destination market. This process can be expensive, with clothing often taxed at rates of up to 18 per cent at the border.
Shein, on the other hand, has opted to ship individual items to consumers from China, meaning they avoided these duties on mass shipments thereby legally undercutting most domestic suppliers.
Trump’s decision to abolish that carve out means the same taxes now apply to Shein’s exports as the lion’s share of its competitors.
“Nobody’s going to go buy a dress, that was $10, and now it’s $10 plus 145 per cent tariffs, plus for tax that they weren’t paying before,” says Brown. “The US is basically worth zero to Shein now.”
Shein attributes its success at keeping prices down to the on-demand business model and dynamic supply chain that upended retail practices, not the windfall it has had from de minimis exemptions.
A spokeswoman said the model “reduces inefficiency, takes out wastage of material and lowers our unsold inventory”. Panmure’s Brown branded it “10 out of 10”.
But on top of Shein’s industry-leading algorithms keeping prices down for UK consumers, British retailers are worried about another downward force on Shein’s already-discounted clothes that has started to affect the UK market. Namely that America’s draconian approach to Chinese imports will mean stock intended for the US will be diverted to the UK and elsewhere.
Last week, Helen Dickinson, the chief executive of the British Retail Consortium, wrote in the trade magazine Retail Week, that store owners were already “seeing increasing volumes of products entering the UK market that may not be compliant with… customs requirements.”
Her warnings were echoed by the bosses of Currys and Sainsbury’s, both of whom have called for the government to follow in Trump’s footsteps and outlaw the UK’s de minimis exemptions.
“The FCA is, in effect, allowing a company to IPO that’s not just got a tax benefit over local employers or British people, but this company is dumping goods potentially in the country,” says Brown.
“That should scupper the IPO.”
Taken together, these suboptimal developments have led Brown and the UKSIF’s Alexander to question how many of the kind of institutional investors that prop up London’s bourse will want a slice of Shein at IPO.
Even before Trump’s so-called Liberation Day, questions swirled around the valuation it would fetch. A 2023 funding round valued Shein at north of $66bn (£50bn). But in February, Bloomberg News reported the firm’s private equity backers had been pushing its top brass to bring that down to $30bn, in order to push through an exit and entice enough investor demand.
“Our members are absolutely concerned,” says Alexander. “These are substantial structural issues, and they make it a less appealing prospect.”
None of this, however, changes the fact that the firm remains closer than ever to the IPO it has been eyeing up up ever since the New York Stock Exchange effectively rejected filing in summer of last year.
City AM understands that the China Securities Regulatory Commission (CSRC) tends to take about three months to vet companies’ credentials to list abroad; a timeline which, given Shein is not involved in a geopolitically sensitive industry, it is unlikely to extend.
All of which has plunged Byrne, and other colleagues keen to push through their policy change, into a frantic a race against time.
“I think MPs are going to be really unhappy if the Shein listing takes place before, before the Modern Slavery Act is updated,” he says, arguing that improvements are needed that bolster the powers of the FCA and tighten up the “two-tier” import standards.
There is early evidence to suggest the government is on side. Last month, Michael Shanks, a junior minister in the energy department, promised MPs that the government would bring forward legislation updating the Act.
But whether the UK’s unwieldy state will enact those changes in time for Shein’s arrival on London markets is another question entirely.
In the meantime, all Byrne can do is turn to the type of official letter writing that first unearthed the disparity in UK and US standards and our watchdogs’ relative impotence.
His most recent missive? A fiercely penned request for an update from the Trade Remedies Authority on its powers. He had heard concerning reports that, amid the onset of Donald Trump’s trade war, the UK was becoming a dumping ground for cheap goods; specifically those from discounted retailers, with shipments coming from China.