Shein shares fall on HK trading debut

Shein's shares fell around 10 percent during its Hong Kong debut on Tuesday, marking the culmination of a multi-year quest to go public. Priced at HK$48.56, the stock opened at the level agreed upon in the initial public offering, which raised US$1.7 billion. By the close, Shein's shares tumbled to HK$43.8. Upon its IPO debut, the company was valued at US$26.5 billion, a stark contrast to its 2022 peak of nearly US$100 billion.

Demand for Shein's shares during its IPO was subdued compared to other high-profile offerings that year. The retail segment saw a subscription rate of 5.63 times, whereas the international portion drew in investors at a rate of 2.59 times, according to a company filing with the stock exchange. Dickie Wong, executive director of research at uSMART Securities in Hong Kong, expressed skepticism about the IPO, noting that revenue isn't growing and much of the raised capital is being returned to earlier investors.

The grey market even saw its value fall below the offering price, and the cornerstone lock-up agreement appears ineffective. These factors collectively suggest that Shein's IPO may not have been a success story. Known for selling cheap clothing items ranging from US$5 to US$10, Shein has faced challenges due to tariff and duty changes in the US and Europe, which threaten its core business model.

The US ended the de minimis duty exemption for e-commerce shipments under US$800, while the European Union recently imposed fees on low-value packages. Shein's net income dropped 39 percent last year, and it posted a loss in the first quarter. The company anticipates a slight decline in first-half operating profit margin due to increased customs duties, tariffs, fees, and logistics costs in Europe and the Middle East.

While Shein hopes to expand beyond its ultra-cheap fast fashion model by tapping into new markets and offering marketplace and supply chain services to more brands, lower spending power in developing markets and high delivery costs may limit the impact of these efforts. The IPO has enabled Shein to compensate early investors who invested at much higher valuations, with the company agreeing to make cash payments totaling about US$3.5 billion and share adjustments to some preferred shareholders.