What chaos around de minimis means for Shein ahead of its IPO
Fast-fashion giant Shein caught a break on Friday when the U.S. decided (at least temporarily) not to eliminate a trade provision the company has used to keep costs low. But the e-commerce site, which moved its headquarters from China to Singapore in 2022, is still in tricky territory as it gears up to possibly go public in London this year.
On Feb. 1, U.S. President Donald Trump moved to scrap de minimis, a rule allowing packages worth less than $800 to enter the country duty-free. Six days later, he agreed to wait until “adequate systems are in place” for the Commerce Department “to fully and expediently process and collect tariff revenue,” according to a new executive action. At the same time, other countries and companies are calling to eliminate tax loopholes that have been critical to the success of companies like Shein. Mexico restricted duty-free apparel imports in January, and the heads of the apparel brands Superdry and Monsoon Accessorize are asking the U.K. to take action in similar ways.
All of this spells trouble for Shein, which is preparing for an IPO in London. On Feb. 7, Reuters reported that Shein was prepared to slash its valuation to $50 billion — exactly half of its $100 billion valuation in 2022 — amid uncertainty around de minimis. (Shein still needs final approval from regulators in the U.K. as well as in China to move forward on its public market debut.) While Shein says its business model doesn’t rely on de minimis, the measure has no doubt saved the company costs, and removing the rule threatens to upend Shein’s profitability. It could also lead Shein to raise prices, analysts have said. Modern Retail reached out to Shein for comment but did not receive an answer by press time.
Shein is known for ultra-cheap products products ranging from $3 crop tops to $10 dresses, but in recent years, it’s expanded its assortment beyond fashion. Shein’s app and site now sell categories such as appliances, smart products and DIY products. Its marketplace has also become a hub for gray-market luxury products like red Comme Des Garcons Converse high-tops and flared black Juicy Couture trousers.
Shein’s revenue in the first half of 2024 totaled $18 billion, per The Information. At the same time, Shein’s profits declined more than 70% from the first half of 2023 to the first half of 2024 as it came under scrutiny from regulators. Shein’s financial performance alone could raise questions for potential investors, but uncertainty around de minimis adds another complication.
“With an IPO, investors like certainty, because they base their valuations on past performance and forecast future performance,” Neil Saunders, managing director at GlobalData Retail, told Modern Retail. “The problem with the current environment is there are a lot of unknowns. There are rapid changes occurring to policies and processes that could directly affect Shein’s business and its trading, and investors will be nervous about that.”
Saunders thinks it would be sensible for Shein to put its IPO “on ice,” at least until there’s more clarity on the macroeconomic landscape. But if Shein does move forward with its IPO, it may be in a better position if it diversifies away from the de minimis model and looks elsewhere for growth, sources told Modern Retail. This could include building out its existing third-party marketplace, expanding into other key markets, or inking strategic acquisitions and partnerships.
Shein launched a third-party marketplace in the U.S. and Brazil in 2023. The service has been slow to take off among large U.S-based partners, although companies such as Skechers and The Children’s Place now exist on the platform. Some merchants who also sell on Amazon or TikTok Shop also have a presence. As of 2023, sellers needed to have annual sales of $2 million on Amazon to sell on Shein, The Wall Street Journal reported.
The U.S. is Shein’s largest market, accounting for one-third of the company’s sales. But many of Shein’s sellers are not in the U.S., meaning that if they sell to U.S. customers, their wares are subject to tariffs. One way that Shein could get around this would be to bring on more U.S. sellers to sell to U.S. buyers, pointed out Sky Canaves, principal analyst for eMarketer. This is something that Temu, which is based in China, has also been doing, Canaves said. “They’re getting more sellers who have inventory in U.S. warehouses,” she explained. “That’s an approach Shein is also trying to take.”
Another option for Shein would be to decrease its reliance on the U.S. The company says it now serves customers in more than 150 countries, including Ireland and Australia. Shein launched a design incubator in Japan in 2023, and it held a pop-up in South Korea last summer. A week ago, Shein relaunched in India five years after the government banned dozens of other Chinese apps, including TikTok. The Indian firm Reliance Retail signed a licensing agreement with Shein to sell products on the platform, according to the BBC.
Shein is often compared to Temu, another low-cost e-commerce company with roots in China that also benefits from de minimis. Temu has tried to expand its business beyond the “direct-from-China” model of shipping small packages through air cargo by building out domestic manufacturing in the U.S., Modern Retail previously reported. However, Canaves believes that Shein is in a better place, operations-wise, than Temu is, because of Shein’s vertically-integrated supply chain.
“Shein has worked directly with a core set of manufacturers in China for such a long time and developed its own platform for production, not just selling goods,” Canaves said. Shein now runs factories in Turkey and Poland, as well as its main hub in China. At the same time, Shein has more than 3,000 suppliers in China, and “that’s hard to replicate,” Canaves said. “There really isn’t anything on a similar scale available elsewhere in the world.”
Even with all these contingency plans, there are still no guarantees for Shein, GlobalData Retail’s Saunders stressed. America isn’t even a month into the Trump presidency, and more changes are bound to be on the horizon, both in the U.S. and abroad.
“We’re going to see a lot more frenetic activity,” Saunders said. “We’re going to see a lot more movement on the trade policies and tariffs. A lot of this is playing out in real time.”