Sunday, April 16, 2023
HomeTechShein gives investors lofty revenue projections as it prepares for IPO

Shein gives investors lofty revenue projections as it prepares for IPO

Online fashion group Shein projects its revenue will more than double to nearly $60bn by 2025, as the Chinese company seeks to convince investors that it is on course for a blockbuster initial public offering this year.

In a “management presentation” recently shown to investors and seen by the Financial Times, Shein said it was targeting annual revenue of $58.5bn in 2025, up from $22.7bn last year. That would exceed the existing combined annual sales of retail giants H&M and Zara.

The company also projects that gross merchandise value — the total value of merchandise sold on its platform — will grow to $80.6bn in 2025, a 174 per cent increase from last year.

The lofty targets come as the company plans to launch one of the largest-ever listings of Chinese companies in the US this year, after becoming the shopping destination of choice for Generation Z consumers in the west.

Two investors confirmed the content of the presentation, which reveals that Shein must significantly alter sales patterns to hit its revenue goals, in particular by gaining more repeat customers and beginning to sell more diverse and expensive clothing lines.

Analysts warn this will be a challenge for Shein, which now has its headquarters in Singapore, as its target audience are younger shoppers who have previously shown little brand loyalty.

Column chart of Revenue ($bn) showing Shein has set goal of more than doubling revenue by 2025

The targets are being suggested at a time when global investors are reassessing the high valuations of tech start-ups during a broader market downturn.

Shein said that “as a private company, we do not comment on market speculation”.

The FT reported last month that Shein, led by founder and chief executive Xu Yangtian, was in talks to raise $3bn at a vastly reduced valuation of $64bn. It was valued at just over $100bn in its latest funding round in April 2022, making it the world’s third most valuable private company at the time.

The recent management presentation provides the latest snapshot of Shein’s current finances. According to the document, it achieved a profit for four consecutive years, reaching $700mn in 2022. However, this represents a decline from $1.1bn in 2021, as high air freight costs and rising production costs ate into its bottom line.

Column chart of Gross merchandise value ($bn) showing Shein gross merchandise value projected to grow to $80bn

The company also projects that its profit will grow to $7.5bn in 2025, by targeting higher-spending consumers with new premium product lines while seeking to reduce its warehouse and delivery costs.

“Shein has had a phenomenal growth story so far, and the fact it’s been done profitably has been impressive,” said one investor briefed on the presentation who declined to be named.

To achieve its sales targets, Shein wants to convert new customers into repeat buyers. In 2022, about 60 per cent of its total 142mn customers shopped on the platform for the first time, according to the management presentation. By 2025, the company is aiming to convert most of its shoppers into loyal customers, projecting that 60 per cent of an estimated 261mn shoppers will have shopped with them before.

Analysts warn that the enthusiasm of young women for Shein may be waning. The proportion of US Gen Z women — or those born between 1997 and 2013 — considering a purchase from Shein fell from a peak of 54 per cent in May 2022 to 39 per cent in September, according to research by Morning Consult Brand Intelligence.

“Shein’s popularity with Gen Z is a double-edged sword,” said Claire Tassin, retail and ecommerce analyst at Morning Consult. “Gen Z is more open to new apparel brands than any other generation, which means it’s easier to win their attention, but harder to retain their loyalty.”

Shein has also told investors that it will launch a global marketplace where it sells third-party products on its website and app, putting it in competition with established online marketplaces Asos and Amazon.

News that Shein plans to launch an online marketplace was first reported by the Wall Street Journal.

Shein’s explosive growth has spawned a series of imitators, which could undermine its growth trajectory. In September Chinese ecommerce group Pinduoduo launched Temu, a marketplace selling cheap clothes to Gen Z women in the US. Pinduoduo splashed out on US influencers to promote the brand and ran TV adverts during February’s Super Bowl.

“The same factors that made Shein popular with Gen Z will also make it easier for the next trending brand to grab their attention,” said Tassin.

- Advertisment -

Most Popular

Recent Comments