This week the Wall Street Journal reported that fast fashion company Shein had confidentially filed to go public in the U.S. This is the first step of what I fully expect to be one of the most contentious IPOs of the downturn.
It’s already a tough time to go public in the U.S., with most companies opting against it at the moment. But it will be especially difficult for Shein. While the retailer may have drawn the favor of investors due to its enormous revenue figures, Shein has made plenty of enemies within Washington, D.C., largely due to press reports about problematic labor practices within its supply chain. It's a clear example of how contentious U.S. and China business relations have become.
Shein has been under investigation this year by a new House Committee that was set up earlier this year to protect both U.S. military interests and prevent human labor abuses. The Committee, which is chaired by Republican Wisconsin Representative Mike Gallagher, investigated Shein and other retailers this summer over potential use of forced labor within its supply chain in Xinjiang, China, and published an interim report that accused Shein of evading U.S. tariffs.
“Shein’s public claims that they take ‘visibility across our entire supply chain seriously’ is not supported by the materials produced to the committee in its bipartisan investigation,” Chairman Gallagher told Fortune in an emailed statement regarding Shein’s potential IPO. “We are continuing to carefully examine Shein’s regulatory and compliance programs, and I would encourage investors and banks underwriting this reported IPO to do the same.”
It’s not just the Committee that has been critical of the startup. In August, attorneys general from 16 states sent a letter to SEC, urging Chair Gary Gensler not to allow Shein to go public unless it can guarantee the company is adhering to U.S. law. Earlier this year, in June, Senator Marco Rubio sent out a letter to other members of the Senate accusing the company of using slave labor in its supply chain, citing a Bloomberg investigation from last year.
A Shein spokeswoman did not respond to Fortune’s request for comment in time for publication. In a previous statement to Fortune, Shein said that its policy “is to comply with the trade laws of the countries in which we operate” and that it has “zero tolerance for forced labor and no contract manufacturers in the Xinjiang region.”
Shein has made efforts to distance itself from forced labor allegations, including sending a group of influencers on an all-expense paid trip to its factories in an effort to debunk some of the claims (that turned into a whole scandal). The company has also tried to distance itself from China itself, moving its headquarters to Singapore in 2019.
But mounting pressure from U.S. officials may cause public investors to question whether they believe them. Combine that with today’s IPO market, and Shein may be in for a bumpy ride.
See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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