Online fast-fashion retailer Shein wrapped up subscriptions for its Hong Kong initial public offering (IPO) on Thursday, drawing roughly 4.66 times in margin financing according to broker margin financing data — a far cry from the frenzy that has greeted Hong Kong’s recent listings.

It contrasts sharply with robotics firm Mech-Mind, which was oversubscribed 3842 times in margin financing in the same subscription window and will debut on Sept 1, the same day as Shein.

Based on the maximum offer price of HK$49.50 ($6.3) per share and total outstanding shares post-offering, the deal targets an implied market valuation of $26.7 billion — about 72.8 percent below its peak valuation of $98.2 billion in a 2022 funding round.

Shein’s valuation drop is not an isolated case. Analysts point out that mainland Chinese cross-border e-commerce platforms have faced widespread valuation compression, driven by a fundamental shift in market benchmarks for the sector.

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"The drop in Shein's valuation is not an isolated event," said Mavis Hui Ming-wai, director of Equity Research at DBS Bank, adding that "it's the market repricing Shein from a hyper-growth tech platform to a lower-margin global retailer."

Shein is renowned for its proprietary operating model — Large-Scale Automated Test and Reorder. By capping initial production at just 100 to 200 units per item, the platform dynamically scales up or cuts production based on real-time sell-through data. This agile model allows Shein to consistently keep its inventory turnover under 40 days.

However, Shein, which rapidly captured overseas markets by leveraging ultra-low prices and direct cross-border shipping, now faces intensifying cost pressures as the United States and European Union progressively scrap de minimis duty exemptions for small parcels.

"The withdrawal of the de minimis exemption since May 2025 has erased Shein's core structural advantage and had an adverse impact on its US sales," said Hui. "Following this, the impact in the EU was similar to, or even exceeded, the hit in the US."

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According to Shein, the US withdrawal of de minimis duty exemptions for Chinese imports, coupled with the increase in US tariffs, has had an adverse impact on its US sales and overall net revenue growth. Net revenue from the US market fell 14.3 percent year-over-year in the first quarter of 2026. Europe and North America together account for roughly 60 percent of its global sales.

Ongoing instability in the Middle East fueled logistics delays and drove up freight costs. According to its IPO prospectus, Shein's fulfillment expenses rose 12.8 percent year-on-year in Q1 2026, accounting for 47.7 percent of its total net revenue.

Meanwhile, customer acquisition costs continued to rise. Marketing expenses surged 31.4 percent over the same period to consume 15.8 percent of net revenue, while the average order frequency per annual active customer moved from 4 times in Q1 2025 to 3.9 times in Q1 2026.

Shein’s Q1 2026 operating income dropped 25.9 percent year-on-year to $258 million, alongside a net loss of $99 million. Net revenue growth rate for the quarter slowed to 1.1 percent, down sharply from 8 percent in 2025 and 20.7 percent in 2024.

READ MORE: Lower de minimis tariff provides break to US customers of Temu, Shein

"Fierce competition from PDD-owned Temu has also dampened investor expectations for its future growth and compressed its valuation," said Shen Meng, director of Beijing-based boutique investment bank Chanson & Co.

He pointed out that the e-commerce sector has transitioned from a "new economy" during the mobile internet boom into a "traditional industry" within that very same era.

"As cross-border advantages are eroded by non-market factors, valuations of the e-commerce industry may face further downward pressure if Shein’s 'small profits but quick turnover, low gross margins plus high turnover' model fails to win over investors," he said.

Unlike PDD, also known as Temu, Shein lacks a solid anchor in China's domestic market, and unlike Alibaba, it has no adjacent growth drivers such as cloud computing or artificial intelligence, said Shen. "AI represents one viable pathway to revitalize its growth profile," he added.

The company's use of proceeds appears designed to close that gap. The company plans to allocate approximately 40 percent of the net IPO proceeds to tech infrastructure, while another 40 percent to global expansion and brand awareness.

These reservations have not deterred long-time backers. Even at a 72.8 percent discount to its peak valuation, Shein retained a roster of heavyweight cornerstone investors including Boyu Capital, Tiger Global, Tencent Holdings, and General Atlantic.

Contact the writer at akirawang@chinadailyhk.com