Ultra-fast fashion retailer Shein has confidentially filed to go public in the US this week in what is poised to be one of the biggest IPOs in recent years. All eyes in the sustainable fashion community are on how the bid will be received by both regulators and investors — those in the space say the stakes couldn’t be higher.
Shein has been the focus of increased scrutiny in the last year; lawmakers have launched inquiries into its practices (including an alleged connection to forced labour in China) and independent designers (as well as H&M) have sued the company for copyright infringement. Meanwhile, sustainability advocates fret about the influence of a business model that encourages consumers to buy more fashion than ever. All in the context of Shein being suspected of preparing for a bid to take the company public — a prediction that has now come to fruition.
“If the fast fashion giant Shein wants to go public in the US, they should have to prove to American consumers that their products are not sourced from forced labour. The Chinese government’s extensive forced labour regime, which has stripped the rights and freedoms of over a hundred thousand Uyghurs and other ethnic minorities in the Xinjiang Uyghur Autonomous Region, has infected global supply chains, including the clothes that millions of Americans purchase from Shein,” Democratic Congresswoman Jennifer Wexton said in a statement on Tuesday. “Americans’ money must not help prop up the brutal oppression of Uyghurs, and products made from forced labour have no place in the American marketplace.”
There have been several Congressional efforts to scrutinise Shein’s practices in the past year, including a bipartisan call, led by Wexton, for the US Securities and Exchange Commission (SEC) to halt Shein’s IPO until it verifies that the company does not use forced labour within its supply chain, as well as a report in June by the House Select Committee on the Chinese Communist Party accusing Shein (alongside rival Temu) of abusing a trade loophole in order to ship products duty-free. Republican attorneys general from over a dozen states also asked the SEC to audit the company.
Shein declined to comment on the upcoming IPO. A representative said, “We are eager to engage and continue to be transparent with all stakeholders, including Representative Wexton and her staff, in discussions that will help us continue to add value to the US economy, support our American workers, and bring industry-wide benefits to consumers.”
The IPO is likely to force a moment of truth: will the statements from lawmakers and calls for action by the SEC amount to much in practice? And for those focused on sustainability in the fashion industry, the reckoning will also be in how investors and consumers to a degree — both of whom have increasingly proclaimed the importance of social and environmental responsibility — react to the public offering.
“I am curious to see how investors will position themselves after claiming for years ESG was at the core of their investment considerations,” says Fanny Moizant, co-founder and president of Vestiaire Collective.
The biggest question is whether or not Shein will face significant resistance as it heads towards its listing. Public securities lawyer Megan Penick told Reuters that Shein is unlikely to see a “direct block” from the SEC but that the agency could make the “disclosure requirements so detailed, and, perhaps extreme” that going public becomes seemingly impossible. “There may be issues with the forced labour allegations and the IP issues that may make it hard for [Shein] to be able to answer the questions to the satisfaction of the SEC,” Penick said.
Susan Scafidi, founder and director of the Fashion Law Institute at Fordham Law School, says that if Shein’s IPO is successful, it could skirt further scrutiny of its practice of using de minimis shipping, which has enabled it to avoid paying tariffs on shipments to the US.
“Going public is also strategic in terms of issues like Shein’s taking advantage of US tariff loopholes,” she says. “Once Shein is no longer merely a foreign company but one with a range of investors, the calls to change the customs structure may be more muted. Similarly, legislative initiatives intended to address the ecological burden of fast fashion may seem less urgent to legislators whose wealthy constituents can share in its profits and whose fashion-conscious but price-sensitive constituents already enjoy the dopamine rush associated with inexpensive outfits. Shein may have a somewhat tarnished reputation, but its IPO plans have a very strategic sheen.”
It’s not typical for the SEC to delve into a company’s operations, but Shein could prove an exception. “Historically, the Securities and Exchange Commission’s role in reviewing filings has not involved conducting a qualitative assessment of the company and its business model. Instead, US securities law focuses on the disclosure of information that prospective or existing shareholders would find relevant (in legalese, “material”) to making informed investment decisions,” says Jeff Trexler, associate director of the Fashion Law Institute, such as whether a company’s financial statements follow generally accepted accounting practices and the description of its management team is accurate. “These aren’t the sort of big moral issues that make headlines. It’s all about making sure investors are informed.”
Therefore, statements such as Jennifer Wexton’s may have seemed irrelevant in the past or more like “wishful thinking” than a matter of real concern for the Shein IPO, Trexler adds. “But in recent years, the SEC has been moving toward using the review process to address ethical concerns. Congress has played a role in this,” he says, pointing to the 2010 Dodd-Frank Act, including a requirement for public companies to make disclosures about conflict minerals in their supply chain, and the SEC has more recently been developing a rubric for mandatory climate-related disclosures. Last year, the agency also issued a comment letter on a filing that expressly asked a company to address the issue of forced labour, Trexler notes. “How does this fit in with the traditional focus on disclosure in securities law? The wedge is materiality,” he explains. “The policy assumption is that a company’s conduct on conflict minerals, climate change, forced labour and other ethical issues could have an impact on stock price.”
There are also questions about how a Shein IPO will impact sustainability efforts in the fashion industry at a time when brands are facing more pressure than ever to reduce their impacts, address overproduction and eliminate their dependence on increased product volumes to drive growth. What does it mean for an industry that has made countless climate and waste reduction promises to see one of its already fastest-growing competitors join the stock market, where the quest for financial growth trumps virtually every other metric for measuring a company’s health?
Many advocates are concerned it’s an indication the quest for growth is as strong as ever.
For Moizant of Vestiaire Collective, which recently announced the second wave of brands it has banned from its resale platform in a fast fashion crackdown, the IPO is a reminder of how much more work there still is to do.
Kenya Wiley, policy counsel and fashion law professor at Georgetown University and Fordham Law School’s Fashion Law Institute is optimistic that the Shein move won’t distract from the industry’s focus on sustainability overall. “Government regulators, including the SEC, set the tone for transparency and compliance across industries,” she says. “When it comes to the SEC’s review of Shein’s IPO, I expect that fashion brands and retailers that are committed to supply chain sustainability and other responsible practices will continue to do the work — regardless of the IPO outcome.”
t’s too soon to know how it will play out, but the process is one that experts are following closely along the way — both because of what it will mean for Shein’s operations specifically and because of what it will reveal about the priorities of investors and regulators, as well as their ability to enforce them in practice.
“A different private company founded on principles of sustainability, social justice, or creative artistry might find the transition to being publicly traded challenging, as non-economic values can clash with shareholder demands for ever-increasing profits,” says Scafidi. “In Shein’s case, however, the company has been accused of both extreme secrecy and a range of malfeasance, so going public could force a degree of transparency — or at least the appearance of increased accountability. The long-standing rumours of an imminent IPO have given Shein an opportunity to test the waters and burnish its image via designer and influencer outreach and also to ready its defences, so the company is likely prepared to go under the regulatory microscope.”
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