What is behind Shein's drop in valuation?

Shein's Hong Kong IPO is testing how public investors value a global e-commerce model being reshaped by slower growth, rising fulfillment costs and tighter rules for low-value parcels, industry experts said.

At the top of the proposed HK$47.6 ($6.07) to HK$49.5 range, Shein would have a market capitalization of up to $27 billion, roughly 70 percent below its nearly $100 billion private valuation in 2022.

Pan Helin, a member of the expert committee for information and communication economy under the Ministry of Industry and Information Technology, attributed the valuation reset partly to the maturity of e-commerce, where growth has slowed and competition has intensified.

"Shein's rapid rise in 2022 coincided with overseas supply-chain disruptions and sharp price increases, while today's market conditions leave less room for the exceptional growth expectations reflected in its earlier private valuation," Pan said.

Pan added that Hong Kong investors generally apply more restrained valuations to mature internet businesses, particularly apparel e-commerce, which operates in a largely established market. Capital has also recently shifted toward artificial intelligence-related companies, further limiting the valuation premium available to traditional e-commerce platforms, he said.

Although HK-listed e-commerce and internet companies are currently trading at relatively low valuations, a Hong Kong listing could help Shein reduce the compliance risks associated with cross-border fundraising and facilitate its domestic operations, Pan noted.

"It would give Shein access to a market recognized by international investors while also bringing it closer to domestic investors, particularly as the Chinese mainland could become a more important growth market for the company in the future," he said.

Pan's comments came as overseas policy changes have added to the company's operating pressure. The United States ended duty-free de minimis treatment in May 2025 for covered goods from the Chinese mainland and Hong Kong that had previously entered in parcels valued at no more than $800. From July 1 this year, the European Union also abolished its customs-duty exemption for consignments valued at no more than 150 euros ($175) and introduced a temporary duty of 3 euros per item category.

The e-commerce giant is responding by shifting from its previous direct-to-consumer shipping model into a more flexible business-to-business-to-consumer pattern — consolidating goods in China, shipping them to Europe in bulk and completing delivery from local warehouses, said Chen Liteng, a senior analyst at the Internet Economy Institute, a domestic consultancy.

"This model subjects the goods to the EU's regular apparel import tariffs instead of a flat duty on each item category," Chen said. "Even after adding the cost of sorting, packing and local delivery, the model's total cost remains below the per-category duty incurred by direct shipment of small parcels."

The senior analyst added that the use of local warehouses could also reduce customs-related costs while allowing Shein to retain the inventory discipline of its signature "test-and-repeat" model, under which products are initially made in small batches and replenished according to demand.

The IPO comprises about 280 million Class B shares. At the midpoint, without over-allotment, net proceeds are expected to reach HK$13.1 billion. According to its prospectus, the company has earmarked 40 percent for technology capabilities, 40 percent for brand building and global expansion, 10 percent for corporate responsibility and the balance for general purposes.

lijiaying@chinadaily.com.cn