Shein in trouble in the US: Fashion giant fears huge fines

The online fashion giant Shein is under investigation by the US Federal Trade Commission (FTC) and could face particularly heavy financial penalties. The company disclosed the investigation in official documents filed with the Hong Kong Stock Exchange in preparation for its planned IPO there. According to the company's report, the results of the investigation could require it to make extremely significant payments, which would negatively affect its financial position and future business results.

Complications on the way to an IPO

A spokesperson for the US Federal Trade Commission confirmed this week that the agency is conducting a consumer protection investigation against Shein. The company itself did not specify the exact reasons for the opening of the investigation and did not immediately respond to requests for comment on the matter. The investigation comes at a particularly sensitive time for the fashion giant, which is trying to advance its public offering after a series of previous regulatory hurdles in Western countries.

Shein, which was founded in China, was forced to move its IPO efforts to Hong Kong after its attempts to list in New York and London encountered significant difficulties. The main obstacle was the requirement to disclose risks in its supply chain. The Chinese regulator refused to approve a prospectus that mentioned the use of forced labor of the Uyghur minority as a risk to the company's operations, which prevented the listing in the West.

An unexpected shift to losses

These regulatory troubles come alongside a deterioration in the company's financial results, which had been valued at approximately $100 billion in a 2022 funding round. Shein revealed that it had shifted to a quarterly loss, partly due to a slowdown in sales in the US. The slowdown was recorded after the US government eliminated the duty-free exemption for small packages sent from abroad, a move that hurt its lean business model.

Now, Shein is forced to deal simultaneously with a consumer investigation in the US, a slowdown in sales, and a shift to losses. The company, which previously managed to attract huge interest from investors thanks to its unique operating model, will have to find a quick way to resolve these crises in order to successfully complete the IPO in Hong Kong and maintain its position in the global market.