Why fast fashion giant Shein faces an uphill battle to regain its mojo

DURING the height of the Covid-19 pandemic six years ago, a little-known online retailer called Shein struck gold.

Its intensive social media campaign promoting ultra-cheap clothes, including US$5 floral halternecks and US$10 pajamas, coincided with people stuck at home and spending more time on their screens.

Shein’s campaign tapped into a sudden and voracious appetite for online shopping and, in 2020, sales more than tripled, propelling it into the ranks of the world’s biggest fast fashion players.

Shein will begin trading on the Hong Kong stock exchange on Tuesday (Sep 1), but its debut comes at a difficult time for the company.

Its profitability has deteriorated and revenue growth has slowed over the past year, as tighter global regulation, intense competition and the fading of the Covid-era e-commerce frenzy weigh on its expansion.

Shein posted a loss of US$99 million in the first three months of 2026, compared with a US$395 million profit over the same period in 2025.

It raised HK$13.6 billion (US$1.7 billion) in its IPO, valuing it at US$26.3 billion – well below its peak valuation.

What is Shein?

Shein is a fast-fashion giant that sells low-priced, trend-led clothing primarily online. Its biggest consumer base is young, Gen Z women in major markets such as the US and Europe. 

The company was founded in Nanjing, China, in 2012 by little-known entrepreneur Sky Xu and a group of colleagues who had worked together at a company that provided search engine marketing services to exporters.

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Several years after it was founded, Shein moved its sourcing hub south to Guangzhou, which is at the heart of the country’s garment industry.

Despite its roots in China and heavy reliance on the country’s manufacturers, Shein’s shopping website and app are unavailable to shoppers in mainland China.

In 2022, Shein reached a valuation of about US$100 billion, making it the world’s third-most valuable startup at the time, behind ByteDance and SpaceX.

By then, Shein was exploring a US listing and had begun taking steps to distance its corporate identity from China, including shifting its headquarters from Nanjing to Singapore.

Later in 2022, Chinese-American investment banker Donald Tang joined the company and went on to become the public face of the company.

What was behind Shein’s meteoric rise?

Much of Shein’s success comes down to its ability to spot and replicate emerging fashion trends quickly, appealing to customers globally who want the latest styles fast and at low prices.

It is a similar approach to the one that has helped drive Zara’s success, except that Shein has pushed it to an extreme, using technology and China’s vast garment manufacturing network to shorten product turnaround times.

Shein’s suppliers are able to complete the design and production of a garment within 10 days, faster than Zara’s famous three-week turnaround and significantly quicker than the three-to-six month lead times typically required by most other apparel makers. 

Shein achieves this in part through proprietary technology that collects app data on its customers’ browsing and buying activity that is then shared with suppliers.

The information helps to guide business decisions about which styles of clothes are popular and how much to produce.

The technology recommends the type of materials that can be used for particular garments and identifies where they can be easily sourced. It also gives suppliers access to a large database of designs for inspiration.

Shein was also a major beneficiary of a US trade exemption known as de minimis, which allowed imports worth less than US$800 to enter the US without being charged duties.

The exemption gave Shein an edge with US customers – one of its most important markets – because it allowed the company to keep prices very low, even as Washington imposed higher tariffs on Chinese imports.

The Trump administration ended the exemption for shipments from China and Hong Kong in May 2025.

Who are Shein’s biggest competitors?

Although it operates a very different business model from traditional fashion retailers such as Hennes & Mauritz-owned H&M and Zara, which rely heavily on extensive store networks, Shein sees them as direct competitors. 

Shein’s 2025 net revenue of US$41.8 billion was well above the US$23 billion generated by H&M in the financial year ended in November, and just shy of the US$45.5 billion reported by Inditex, the parent company of Zara and several other fashion brands, in its latest financial year.  

But it is in e-commerce that Shein faces its most direct competition – and Temu has emerged as an immediate threat.

The PDD-owned Chinese e-commerce marketplace, which launched in the US in 2022, also entices shoppers with ultra-cheap products, but operates primarily as a marketplace for third-party sellers, giving it a much broader product range spanning apparel, tools and electronics.

Within a year, Temu had surpassed Shein on measures such as web visits, app downloads and sales in major markets, and has since continued to widen the gap.

The fierce competition with Temu prompted Shein to launch its own marketplace model, expanding beyond fashion into categories such as home, pet products and consumer electronics sold by third-party merchants.

The intensifying competition has come as Shein’s growth has slowed. Profit fell to US$2.06 billion in 2025 from US$3.37 billion a year earlier, while net revenue grew 8 per cent – below its target and sharply slower than the 21 per cent increase in 2024. 

E-commerce giant Amazon.com has also moved into the market of ultra-cheap clothing to take on Shein and Temu. In late 2024, it launched Amazon Haul, which offers clothing and other products for under US$20, shipped directly to consumers from Chinese warehouses.

What other challenges does Shein face?

Since its valuation soared in 2022, Shein has faced growing scrutiny in Western markets over its environmental impact and labour practices.

That same year, Bloomberg-commissioned laboratory tests found garments shipped to the US by Shein were made with cotton from China’s Xinjiang region, where the US government has alleged widespread use of forced labour.

Shein has said it is committed to respecting human rights, adhering to local laws and has “zero tolerance toward forced labour”.

Shein has also come under scrutiny over its handling of customer data.

In 2025, French regulators fined the company roughly 150 million euros (US$175 million) for violating rules governing online data tracking, including by placing advertising cookies on users’ devices without their consent.

The company also faces a range of legal and regulatory hurdles in the US. Texas Attorney General Ken Paxton sued Shein in February, alleging that it unlawfully sold toxic products to consumers and exposed Americans’ personal data to the Chinese government.

The company strongly disagrees with the allegations and is contesting the lawsuit.

The changes to US customs rules have also threatened one of the major advantages of Shein’s business model.

When the US removed the de minimis exemption in 2025, Shein said it hurt its US sales and overall growth in net revenues took a hit.

The European Union has since moved in a similar direction. In July, it abolished its own de minimis exemption and introduced a 3 euros duty on items worth 150 euros or less, a move aimed at slowing the surge in cheap merchandise from outside the EU.

The change adds further uncertainty to Shein’s future growth. 

Shein’s push beyond fashion has also caused a major headache for the company. In late 2025, it came under scrutiny for selling childlike sex dolls and weapons on its third-party marketplace, prompting investigations in France and leaving it at risk of hefty penalties from the EU.

The controversy coincided with strong political pushback to the opening of its first physical store in Paris. 

In its wake, Shein decided to scale back its marketplace expansion involving Chinese third-party sellers to better control such risks.

It has instead turned to acquisitions of Western brands as a key driver of growth, according to people familiar with the matter.

In addition to owning the UK fashion brand Missguided, Shein earlier in 2025 acquired Everlane, a US clothing retailer known for its focus on sustainability and ethical manufacturing. That purchase, however, is now subject to a national security review by US authorities.

What is behind Shein’s public listing?

Shein has spent years trying to go public. It initially pursued a New York listing, but efforts stalled after pushback from US lawmakers over its supply chain and ties to China.

The company then sought a London listing, but failed to receive the required regulatory approval from Beijing.

It subsequently turned to Hong Kong, where, after a lengthy process, Chinese regulators approved the listing in July. However, the price investors were willing to pay for Shein proved drastically lower than at its pandemic-era peak. 

That steep drop reflects growing investor caution about Shein’s growth prospects. Nevertheless, a listing will still give Shein fresh capital to try to reignite growth.

The company says it plans to invest in technology – including artificial intelligence – to improve its supply chain, as well as in marketing to boost brand awareness and attract more customers.

It also intends to spend more on reducing its environmental impact, including efforts to minimise waste and ramp up its decarbonisation efforts. 

Shen Bin, a professor and fashion supply chain expert at Shanghai’s Donghua University, says Shein will continue to grow, but investors should not expect the hyper-growth seen in its earlier years.

“The key question is no longer simply whether Shein can increase revenue, but whether it can achieve higher-quality growth – stronger customer retention, lower acquisition costs, better margins, more diversified revenues, and lower regulatory risk,” he said. BLOOMBERG