The boohoo (LSE: BOO) share price has been falling lower for some time. Indeed, at 33p, it’s not far off an eight-year low. To say it’s been a truly nightmarish five years for shareholders would be an understatement. The stock is down 82.5% over that period!
But things could be about to get worse. That’s because it has been widely reported today (28 November) that fast fashion juggernaut Shein has confidentially filed paperwork to go public in the US.
I’ve seen $66bn-$90bn valuation figures bandied about. Last year, the firm reportedly generated revenue of $22.7bn, so these figures don’t seem too outlandish. It would be one of the largest initial public offerings (IPOs) in years.
More importantly, it would likely pour billions of dollars into Shein’s coffers, giving it the financial firepower to fund its ambitious global growth plans.
On the surface then, this would seem bad for boohoo. But could it actually be a blessing in disguise?
A giant rival
Shein was founded in China but is now based in Singapore. It operates a direct-to-consumer model that involves churning out thousands of new designs a day for its millions of followers on social media. It makes use of influencers, discount codes, and sales that sometimes see products sold for pennies.
The company basically took the fast fashion model pioneered by the likes of boohoo and put it on steroids. Today, Shein is the second-most downloaded shopping app in the US, according to UBS Evidence Lab data.
However, it still mainly uses third-party manufacturers in China and has repeatedly been criticised for low pay and poor working conditions.
Of course, these are exactly the sort of scandals that boohoo has faced in recent years. But to its credit, the firm has made big changes to improve its supply chain.
Additional scrutiny
If Shein goes public, its earnings, suppliers (where there have been accusations of forced labour), and environmental credentials will be scrutinised mercilessly by investors. It will likely have to invest in and improve all areas, meaning it might have to raise prices on some products to boost profits and placate Wall Street.
Going public raises money, yes, but it also brings fresh challenges and distractions. There are regulatory requirements, quarterly earnings expectations, short sellers, and daily share price volatility, to name just a few.
I remember Chinese firm Didi Global going public in the US in 2021 at a $66bn valuation. Today, it is worth 75% less than that.
So, Shein going public might not be such a nightmare for its UK competitor.
A buying opportunity?
Meanwhile, boohoo might have an edge in the US due to its new distribution centre there. This now enables an average item delivery time of three days, as well as next-day service to the New York City metro region.
In contrast, some Shein customers stateside are reportedly waiting up to two weeks or more to receive goods. It’ll be interesting to see if boohoo can take some market share there moving forward.
Also, the company is cutting costs while still reinvesting in its brands, including PrettyLittleThing, for future sales. If it can stem the losses and rekindle growth, the share price could rebound dramatically.
That said, the stock remains too risky for my liking right now.
The post Is the Shein IPO a nightmare for the boohoo share price? appeared first on The Motley Fool UK.
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Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
