The new round of financing will be completed in two batches, when new strategic shareholders will enter the market.
Wen 丨 Zhang Qin Gong Fangyi
Editor丨Huang Junjie
The latest round of financing for China's cross-border fast fashion e-commerce SHEIN is underway, and the first batch of nearly US$2 billion in financing has been completed, bringing in two Middle Eastern sovereign funds. LatePost exclusively learned that the round of financing will also add a second batch of investors, which is expected to be completed in the coming weeks, when new strategic shareholders will enter the market.
SHEIN HAS NO PRESSING CAPITAL NEEDS AND HAS BEEN PROFITABLE FOR FOUR CONSECUTIVE YEARS, WITH A NET PROFIT OF NEARLY $1 BILLION LAST YEAR. Its revenue growth is also relatively healthy. Last year, SHEIN sales grew 46 percent to more than $29 billion, surpassing Zara's single-brand full-year sales for the first time.
This round of financing is mainly used to build infrastructure for the global market and to cope with the next competition. The new financing also allows SHEIN to bring in capital in several of the world's most important markets, including the United States, South America and the Middle East.
According to people close to the deal, the first shareholders of the settlement include Sequoia China, Transatlantic Investments, the UAE sovereign wealth fund Mubadala Investment Company, as well as Marcelo Claure, chairman of SHEIN's Latin American business, US hedge fund D1 Capital and Saudi sovereign wealth fund. Two of the Middle Eastern sovereign funds are new shareholders. Shareholders in the second tranche may include influential investment institutions in other regions.
In an interview with LatePost, Claure, chairman of SHEIN's Latin America business, said that what makes SHEIN special is that it "has a global strategy, but the execution is completely local." The investor, who has extensive experience in Brazil and Mexico, joined SHEIN at the beginning of the year and was involved in communicating with the local government. The new strategic investors in this round are also influential in their respective regions.
This year's primary market financing is not easy, SHEIN's round of financing is currently the third in the world, second only to Silicon Valley artificial intelligence giant OpenAI and Silicon Valley payment company Stripe.
This round of SHEIN is valued at $66 billion after the investment, which is a decrease from the previous round. SHEIN's last public funding round was $2 billion closed in April last year, with a post-investment valuation of $100 billion.
According to a person familiar with the transaction, the valuation change reflects an adjustment in expectations or sentiment, "At the company level, investors are seeing that SHEIN is expanding rapidly and profitability is improving." Another person close to the deal told LatePost that SHEIN will go public in the United States in the second half of the year.
SHEIN SAID IT WOULD NOT COMMENT AND HAS NO PLANS TO GO PUBLIC.
New problems, and new investors
Founded by Xu Yangtian in Nanjing, SHEIN initially sold low-priced wedding dresses overseas, and in 2012 fully transformed into cross-border fashion women's clothing, the biggest feature is that more than 1,000 new garments are added every day while still achieving low-cost and efficient cross-border transportation.
The company entered the market early to seize the dividends of the traffic depression of Facebook, Instagram, Pinterest, TikTok and other platforms. Since 2020, SHEIN has kept the market expense ratio within 10% per order.
Today's multinational business needs to consider more than just the issue of earning efficiency. As SHEIN surpassed ZARA, more regional retail competitors and regulators began to focus on the company's cross-border logistics. Entering the Latin American market, SHEIN also faces a clothing tariff rate of more than 30%. ABOUT THREE YEARS AGO, SHEIN WAS REMOVED FROM INDIA ALONG WITH DOZENS OF OTHER CHINESE INTERNET COMPANIES' MOBILE APPS.
Brazil is one of the most important new markets for SHEIN. According to a LatePost report last November, about 3% of SHEIN's annual sales come from the new market of Brazil, where the unit price is about $30. A PERSON CLOSE TO SHEIN TOLD US THAT XU YANGTIAN PERSONALLY FLEW TO BRAZIL WHEN THE LOCAL EPIDEMIC WAS AT ITS WORST.
Brazil not only has high tariffs, but also has complex tariff calculations. In recent years, the Brazilian government has upgraded the trade protection policy of taxing foreign import and export goods, the threshold of $100 has been reduced to $50, and through Brazilian postal clearance, goods worth between $50 and $3,000 must also pay import and export taxes. For the logistics involved in the e-commerce chain, there are also different turnover taxes in Brazilian states.
At the end of January, SHEIN announced that Marcelo Crowle, former COO of SoftBank, would serve as chairman of SHEIN's Latin America business, responsible for the company's Latin American strategy and shareholders. Marcelo Claure, a former deputy to Masayoshi Son, focused on the Brazilian and Mexican markets, and his family office invested about $100 million in SHEIN in his personal name.
Brazil is a federal state with more power from state governments. Clauer told LatePost that he spent a long time in office mediating with governors in different states to get favorable incentives. His previous work at mobile phone distributors Bright Star and SoftBank involved complex supply chains, management of more than 170 companies, and global teamwork were all reusable experiences at SHEIN.
The Middle East is another growth market for SHEIN, with local sales accounting for 13% of SHEIN's total sales last year, surpassing the U.S. unit price. As a UAE sovereign wealth fund, Mubadala has close ties to the UAE royal family, and the chairman of the board is the UAE Deputy Prime Minister, and the board includes government officials such as the Minister of Energy and Infrastructure.
Do platform model in Brazil and build self-operated business in Turkey
In addition to inflationary pressures, high inventories and geopolitical pressures in the post-pandemic era, another important challenge faced by SHEIN last year was the launch of TEMU by Pinduoduo, a cross-border e-commerce platform focusing on low-priced goods and all categories.
TEMU conducted in-depth research on SHEIN's model in the early stage, and established the platform's strong control over commodities in its own habitual way. And in practice, it gradually evolves into a more suitable form for itself. Although SHEIN was not copied, TEMU mastered how to take the first step in the face of a completely unfamiliar market, that is, the platform's strong control of goods.
Less than 10 months after its launch, TEMU has entered the United States, Canada, Australia, New Zealand, the United Kingdom, France, Germany, Spain and other countries. In the United States, tens of millions of people already open TEMU every day, a scale that has caught up with SHEIN, which has been operating in the United States for more than a decade. An industry source close to TEMU told us, "TEMU is accelerating into new markets. ”
Both companies have their own strengths. SHEIN promotes the extremely efficient "small order quick reaction" in the garment industry, working closely with garment factories in China to place their own orders; TEMU's pure platform model and supply chain based on Pinduoduo main station make it have full price advantages in light and small items such as daily groceries. A person close to the two companies said that the overlap between the two companies' users is currently in the low single digits.
As far as we know, SHEIN was already piloting the platform model in Brazil last March to allow merchants to open stores and sell. 13 months later, SHEIN launched its marketplace in Brazil under the name Marketplace, and now it is also available in the United States, with Mexico the next site and more markets to follow.
In a video interview with us this week, Crowre, chairman of SHEIN Latin America, declined to disclose any specific operating figures, but said that the number of local sellers in Brazil exceeded expectations and the team was very pleased with the initial results. He said his priority now is to make sure the supply chain is functioning properly because it involves Chinese factories, Brazilian buyers, Brazilian sellers.
SHEIN plans to invest R$750 million (US$149 million) in Brazil over the next few years, work with 2,000 Brazilian manufacturers, create 100,000 jobs over the next three years, and generate 85% of Brazilian sales by local manufacturers and merchants by the end of 2026. At the same time, SHEIN's supply chain layout in Guangzhou is also further expanding, and this year it also announced an investment of 3.5 billion yuan to build a smart logistics park.
"I think every government is happy to bring manufacturing to the local area." Claure told LatePost. He said his role at SHEIN is to interact with the management teams in China and Singapore, as well as the local market management teams, to ensure efficient execution of strategies.
While piloting the third-party platform model, SHEIN is also trying to move its offices, production locations and distribution centers closer to consumers to better understand consumer needs, improve fulfillment efficiency, and enable consumers in different markets to receive packages from nearby warehouses faster.
A PERSON CLOSE TO SHEIN SAID THAT SHEIN HAS BEEN AT SEA LONG ENOUGH, SUFFERED ENOUGH LOSSES WHEN IT WAS NOT KNOWN TO THE PUBLIC, NEVER BELIEVED IN "ONE TRICK TO EAT THE WORLD", AND WAS WILLING TO TRY DIFFERENT METHODS IN DIFFERENT REGIONS AND ADJUST QUICKLY.
In 2022, SHEIN accelerated its search for local manufacturers in Turkey to recreate the "small order fast reflex" supply chain network in South China, and SHEIN's domestic suppliers set up a factory in Istanbul, where the factory is now in production. Turkey, one of the world's largest consumers of cotton, has both H&M and Zara opened factories in Turkey. LatePost understands that 20% of SHEIN's EU sales are expected to come from the Turkish plant by the end of 2023.
SHEIN has also opened three distribution centers in Poland, Italy and the United Arab Emirates, while SHEIN has also built three large distribution centers in the United States, including the distribution center in Waitstown, Indiana, USA, which will reduce customer receipt time from two weeks to three or four days when the three distribution centers are fully operational.
In May, SHEIN launched its Europe, Middle East and Africa (EMEA) headquarters in the heart of Dublin, Ireland, which is not only SHEIN's strategic IT hub for EMEA, but also the heart of SHEIN's operations in the region. Meanwhile, SHEIN plans to host about 30 pop-up stores in the EMEA region in 2023, including ongoing pop-up shops in Paris, Madrid, and Barcelona.
In this increasingly complex environment, SHEIN has connected investors with different backgrounds in different regions, and has begun to experiment with different business models and supply chain systems than before.