Shein, one of the fastest growing online merchandise companies in Asia, rekindled regulatory concerns on Nov. 27 as it moved forward with plans to go public.

The Singapore-based company reportedly filed confidentially for its initial public offering in the U.S. The move begins a new process for the online fast-fashion retailer. Next, it will submit and edit proposed paperwork in private as it faces questions from the U.S. Securities and Exchange Commission. In the coming months, Shein could then make its filing public to pursue its IPO. That path, however, may require it to satisfy lawmakers, who have raised concerns over Shein’s labor practices.

Shein IPO and concerns over forced labor in China

“If the fast-fashion giant Shein wants to go public in the U.S., they should have to prove to American consumers that their products are not sourced from forced labor,” U.S. Representative Jennifer Wexton, a Democrat from Virginia, said in a statement released Tuesday.

The company already faces an investigation by the House Select Committee on Strategic Competition between the United States and the Chinese Communist Party. That committee is concerned about Shein’s ties to the Chinese government and compliance with the Uyghur Forced Labor Prevention Act. In addition, 16 Republican attorneys general sent a letter to SEC Chair Gary Gensler in August. They called on the agency to keep Shein from trading on U.S. exchanges until legal compliance can be verified. Specifically, they cited a ban on forced labor expressed in Section 307 of the Tariff Act of 1930.

Critics, including Wexton, have raised concerns that contract manufacturers in China’s Xinjiang region may be relying on labor from interned groups of Uyghurs and other minority groups. The Chinese government denies that practice, and Shein has publicly committed to eliminating forced labor in its supply chain.

“Shein has a zero-tolerance policy for forced labor,” a spokesperson for Shein told Digital Commerce 360 in an emailed statement. “We take visibility across our entire supply chain seriously, and we are committed to respecting human rights. To comply with U.S. law, we require our contract manufacturers to only source cotton from approved regions.”

How Shein tests cotton

Shein’s efforts have included hiring the New Zealand-based supply chain tracing firm Oritain to test cotton samples. That announcement followed a 2022 Bloomberg report linked cotton in some Shein clothing to Xinjiang. That report prompted a bipartisan letter from three U.S. senators in February, requesting details about Shein’s process for ensuring that its cotton is not sourced from the area.

“As of November 2023, only 1.7% of our cotton tested positive for unapproved cotton,” Shein’s spokesperson wrote. “According to global supply chain tracing firm Oritain, these amounts are much lower than the industry average of 14%.”

Shein maintains that samples testing positive are ultimately removed from production. Shein responded to Rep. Wexton’s comments, inviting further dialogue.

“We are eager to engage and continue to be transparent will all stakeholders, including Representative Wexton and her staff, in discussions that will help us continue to add value to the U.S. economy, support our American workers, and bring industry-wide benefits to consumers,” the spokesperson said.

Shein’s valuation and growth

Shein was last valued at $66 billion in May when it closed a $2 billion round of funding, The Wall Street Journal reported. That was down from a previous valuation of $100 billion in 2022 that followed successful results during the pandemic era.

“We estimated sales were only $4 billion in 2019 and they hit about $10 billion in U.S. dollars in 2020,” Sunny Zheng, a research analyst with Coresight Research, told Digital Commerce 360. “Shein definitely accelerated its sales growth during the pandemic.”

The company held about an 18% share in the global fast-fashion retail market in 2022, according to Zheng.

Despite the recent valuation drop, Shein has seen an overall arc of growth in online sales since it was founded in China more than a decade ago. (Shein’s website lists its launch year as 2012.) Its official headquarters has since relocated to Singapore.

As of November 2023, Shein ranked as one of the three fastest-growing online merchandise companies in Asia by web sales, according to Digital Commerce 360’s Asia Database. It’s 44.6% year-over-year growth in 2022 tied with Super Retail Group Ltd. and was surpassed only by JB Hi-Fi Ltd., which grew 53.0%, among companies being tracked.

Among the company’s four co-founders, CEO Xu Yangtian is already worth $21.5 billion, thanks to his 33% stake in the company, according to the Bloomberg Billionaires Index. The others, Miao Miao, Gu Xiaoqing and Ren Xiaoqing are each worth around $5 billion, resulting from 8% stakes, according to the same list.

When will Shein’s IPO happen?

Monday’s confidential filing could put Shein on track to go public in 2024. To get to that point, though, it will need to satisfy the SEC’s disclosure requirements.

“From a value and profitability perspective, I don’t worry too much about Shein, but there could be some transparency problems,” Zheng said. She expects sourcing, manufacturing, and financial disclosures to be the focus of questions that arise. “They need to convince the U.S. investors and securities authorities to believe that that they’re doing transparent business and doing good things.”

It has also increased its spending on federal lobbying, having spent at least $1.5 million so far in 2023, according to data tracked by OpenSecrets. Shein spent $280,000 on federal lobbying in all of 2022.

Shein’s forward-looking strategy may also be on display.

“They’re really targeting at young, female consumers,” said Zheng. “Therefore, I wonder if their current consumers become older, will Shein’s strategy change in the next 5-10 years?”

The retailer has already made inroads to expand its U.S. footprint. It announced a deal in August to acquire one-third of Sparc Group. As a result, Shein gained a stake in its fashion retail competitor Forever 21. That deal allowed Forever 21 products to be listed and sold next to Shein’s own inventory, giving U.S.-based stakeholders more interest in Shein’s fate.

“Shein has definitely been labeled as a China brand — or Chinese company,” said Zheng, “so if it wants to survive in the U.S. and on the [public] market, it needs to benefit more domestically in the U.S.” As it pushes ahead, she cited accommodating other brands on its platform or adopting alternative models such as resale as choices that might respond to those needs.

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