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SHEIN Plans to Go Public in the US, Will Move Supply Chain to India

According to people familiar with the matter, SHEIN has secretly submitted IPO registration documents to the SEC (US Securities and Exchange Commission), and may seek to officially list before the end of 2023. According to the current valuation of US$66 billion (about 470 billion yuan), Xiyin will become the largest IPO project of a Chinese company in the United States after Didi.

Regarding the market rumors, Xiyin first responded to the media that “the news is not true”, and then “denied these rumors” by email, while the US Securities and Exchange Commission refused to comment.

In fact, this is at least the third listing plan that Xiyin has announced, and Xiyin categorically denies it each time.

The news worthy of attention beyond the rumors is that Xiyin, which has been criticized, is trying to transfer the supply chain to India.

According to reports, Xiyin has reached an agreement with Reliance Industries, India’s largest conglomerate. Reliance Retail, the retail subsidiary of Reliance Industries, will help Xiyin establish a supply chain linked to the Indian apparel industry for global exports. .

Xiyin confirmed the cooperation to the media, and the Indian government has also approved the agreement – which means that Xiyin will officially return to the Indian market after a lapse of three years.

While denying the listing news, while leaving India, there are many hidden stories behind Xiyin’s operation.

01

Xi Yin wants to go ashore

As the world’s top five unicorns with hundreds of billions of dollars, Xiyin has always been mysterious and low-key.

Before the rumors of the listing, Xiyin had reported plans to prepare for the listing as early as 2021 and 2022.

In May 2021, when Xiyin announced its listing plan for the first time, it had just completed its E-round financing of hundreds of millions of dollars, and its valuation had reached 15 billion U.S. dollars. Prior to this, in 2020, Xiyin’s revenue was close to 10 billion US dollars (about 65.3 billion yuan), the eighth consecutive year of revenue growth of more than 100%.

At that time, Xiyin responded that there is no plan for an IPO in the short term, and no financing has been conducted recently.

Come 2022, the listing rumors become clearer. In January, Reuters reported that Xiyin had hired Bank of America, Goldman Sachs, and JPMorgan Chase to take charge of the IPO work, and even transferred the holding entity to Singapore. In November, “Forbes” said Xiyin hired the world’s top investment banker and former Bear Stearns (Bear Stearns) investment banker Donald Tang (Donald Tang) as its executive vice chairman in order to promote overseas listing.

Xiyin denied these claims one by one.

This time, Xiyin’s listing plan has simply reached the stage of “submitting the form” . As far as Hornbeast is concerned, it is only a matter of time before it goes public.

Xiyin, which once relied on the “small order and quick return” model, turned out to be in the face of revaluation, and has an urgent need to go public.

Three years ago, Inditex Group, the parent company of Zara, proposed the largest store closure plan in history, but Xiyin’s server iterated several versions within a week due to the skyrocketing orders, and Xiyin’s HR delivered domestically in Foshan within a week The warehouse recruited more than 3,600 people. Thousands of employees were overloaded, so that Xiyin was forced to announce that it would suspend receiving new orders.

Thanks to this, Xiyin reported financing of at least US$1 billion last year, with a valuation of US$100 billion; however, only one year later, Xiyin raised another US$2 billion, and its valuation has dropped by one-third. About $66 billion.

The previous dividends are no longer there, and Xiyin is facing the siege and interception of recovering offline fast-moving consumer brands and cross-border e-commerce companies that also come from China.

In March this year, Temu landed in the UK, which is the fifth market Temu has entered after the US, Canada, New Zealand, and Australia. And this is only Temu’s first year.

In addition to Pinduoduo, JD.com’s JOYBUY also restarted operations last year, announcing that it was renamed JD.com Global Trade, but its positioning was changed from the original B2C platform to a cross-border B2B service platform.

After Ali spent US$1 billion controlling Lazada, an e-commerce platform in Southeast Asia, it launched AllyLikes, an independent fast fashion website for a few countries in North America and Europe. Its core market and business model are almost the same as Xiyin.

In other words, Xiyin is no longer “the only one” in the eyes of investors. There are many replaceable investment targets in the market, and their scarcity has been greatly reduced. It is indeed reasonable that the valuation has shrunk by more than 30%.

At the same time, the United States is pursuing Xiyin’s tariff issue.

In June this year, there was news that the United States was preparing to cancel the tariff exemptions for cross-border e-commerce companies, including Xiyin. According to a newly released report, more than 30 percent of Xiyin’s orders come in small-value packages—according to existing laws, packages shipped to individual consumers are exempt from customs duties if the value is less than $800.

Once the tariff exemption is cancelled, Xiyin’s low prices and supply chain advantages will be directly impacted.

02

“De-Sinicization” of supply chain in exchange for operating rights

Xiyin’s success has fully benefited from the advantages of China’s supply chain. Now it is necessary to be equipped with a valuation of tens of billions or even hundreds of billions, and it is difficult to achieve success only with China’s supply chain.

In recent years, production costs in the Pearl River Delta have soared. At the same time, local governments have begun to guide the transfer of low-value-added manufacturing industries from the perspective of industrial upgrading. After the outbreak of the epidemic last year, the problem of urban villages has attracted attention, which has further accelerated the transfer of Guangzhou’s garment industry chain, resulting in backlogs. Xiyin, which relies on the Guangzhou garment industry chain, will experience fluctuations in performance.

Xiyin has considered alternatives. The “Guangzhou 2020 Key Project Plan” once announced Xiyin’s Bay Area Supply Chain Headquarters Project. The specific location of the project is Zhongxin Town, Zengcheng District, Guangzhou City. The total investment is 15 billion yuan, and the total supply The land is about 3,000 mu, and the total construction area is about 3.3 million square meters.

For an industry like the apparel industry that is extremely dependent on cash flow, dispersing the pressure on the supply chain is indeed a good way to ease performance fluctuations and increase valuations.

Based on this, Xiyin is trying to “de-Sinicize”, even exchanging management rights for supply chain resources.

The Indian company Reliance Industries, which announced the cooperation this time, is the largest private company in India, and its chairman, Mukesh Ambani, is the richest man in India and once the richest man in Asia. Established in 2006, Reliance Retail, the retail arm of Reliance Industries, has about 11,000 stores and is one of the largest retail channels in India.

According to the content of the agreement, this cooperation is a transaction where everyone gets what they need: Reliance Retail will fully own Xiyin’s Indian business, including an independent online platform, user data, etc. Xiyin is only for technical and knowledge cooperation At the same time, Reliance Retail will help Xiyin build a supply chain with more than 25,000 small and medium-sized local merchants, and Reliance Retail will provide these merchants with production support and training to produce products under the Xiyin brand.

Just a few days ago, Xiyin’s first factory in Brazil was officially opened, and it will start producing clothing this month. According to “LatePost”, SHEIN plans to invest 750 million reais (about 1.064 billion yuan) in Brazil in the next few years, and has 2,000 cooperative factories.

In the summer of 2022, Xiyin began to establish a supply chain and manufacture goods in Turkey. By the end of this year, 20 percent of Shein’s EU sales could come from its Turkish factories.

According to Leonard Lin, global public affairs director of Xiyin, in an interview, there are currently about 1,000 manufacturers producing Xiyin brand products in Turkey and Brazil. Lin Zhiming expressed that he hopes that by 2026, 85% of the sales in the Brazilian market will come from local producers and businessmen.

He also mentioned that Xiyin has “strengthened the entire localization strategy on a global scale” and “we will be ready to expand diversification and cooperate with manufacturing suppliers in other countries.”

Earlier, there were media reports that in order to avoid the legal risks of listing overseas, Xiyin has moved its headquarters to Singapore, and the controlling entity has been changed to a Singapore company. Xi Yin’s company profile page on LinkedIn, a workplace social platform, also shows that Singapore is its headquarters.

Xiyin did not deny the news at the time, but only responded that it had operation centers in major markets including China, Singapore and the United States.

03

India has too many pits

For Xiyin, from the perspective of manufacturing, India is undoubtedly the best “substitute” for China.

As one of the largest cotton producing countries in the world, India’s cotton planting area accounts for about 36% of the world’s total, and its output accounts for about 23.5% of the world’s total, almost on par with China.

India’s garment and textile industry has 45 million industrial workers – they are younger and “cheaper”. At present, the median age in India is 28 years old, and one-fifth of the world’s population under the age of 25 lives in India, accounting for more than 40% of the Indian population. For comparison, the median age in China is 38.5 years.

In terms of labor costs, India’s average minimum wage in 2021 will be US$95 (national data, the state will vary greatly), which is far lower than Southeast Asian markets such as Vietnam (US$160), Thailand (US$220) and Malaysia (US$258).

Moreover, for a fast fashion category like Xiyin, the sewing skills of the workers are relatively low. Although the production skills and efficiency of the local workers in India are not comparable to the mature workers in the Pearl River Delta, it is a good deal in terms of comprehensive labor costs. .

At the same time, the Indian textile industry is in a period of turmoil, and Xiyin’s intervention at this time is quite a bargain.

Since the second half of last year, affected by the slowdown of the global economy and the decline in global trade, India’s textile and garment industry is facing a severe blow.

According to data from the Ministry of Industry and Commerce of India, in the first half of 2022, India exported textile and clothing goods worth US$22.33 billion, but in the second half of the year, exports fell to US$16.21 billion, a drop of 27.40%.

In May this year, garment exporters in Tirupur and Noida even decided to close their production departments for 10-15 days a month to reduce operating costs amid a shortage of overseas orders. In Noida, about 80% of the equipment has a month’s order on hand, while in Tirupur, the order has dropped by 40-50% from last year. Exporters in Tirupur said global brands have not placed any big orders for this year’s Christmas season.

But from the perspective of an Internet APP, India may be a disaster-level existence.

Xiyin, as one of the 224 Chinese apps that have been removed from the shelves since 2020, no matter how “de-Sinicized” it is, it still cannot escape the influence of reality.

Last month, the Indian regulatory authorities issued a formal notice to Xiaomi, announcing that it had frozen 4.8 billion yuan of funds due to suspected violations of the “Foreign Exchange Control Law.”

India’s “Economic Times” immediately reported that India’s Ministry of Electronics and Information Technology (MeitY) will require Chinese mobile phone manufacturers such as Xiaomi, OPPO, Realme and Vivo to appoint Indians as CEOs, COOs, CFOs and CTOs and other positions, appoint Indian companies to carry out OEM production, cooperate with Indian companies to produce parts locally, and expand the export of local distributors.

It was almost a “nationalization” announcement.

At the same time, there are many problems in India’s supply chain. In May this year, shortly after Apple CEO Tim Cook visited India, Wistron, an important Apple supplier that has been operating in India for more than 15 years, announced its withdrawal from the Indian market. According to market analysts, the main reason may be that Wistron manufactures iPhones in India. profits are too low.

Although Xiyin exchanged management rights for supply chain resources, the immaturity of the overall market environment made the business full of uncertainties.

Zhang Xiaorong, president of Deepin Technology Research Institute, said in an interview with the media, “The Indian market is a magical market. At first glance, India has abundant labor force and low cost, but the market environment is immature and the industrial supporting system is not perfect. Trouble, makes many companies daunting.”

The chief analyst of Wit Display believes, “For example, the local infrastructure environment in India is not perfect. There are floods in the local area, and the drainage system or infrastructure is not good enough, which may easily cause the factory to fail to produce normally. Due to cultural differences, personnel management is also a big problem. The problem is that the local area does not accept long-term overtime work. The business environment is not as friendly as in China.”

From this point of view, Xiyin, who was in a hurry and rushed to the doctor, continued to look for the next opportunity to go ashore.

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