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Does Shein’s model pose a real threat to Zara? Experts question it

Date: February 25, 2024 Time: 12:14:53

It’s official now. Shein takes its first steps to disembark on Wall Street. The Chinese textile giant has formalized the procedures to debut on the New York Stock Exchange through a confidential application. One of the unlisted companies most desired by investors seeks to gain a foothold in the financial markets with a market capitalization that could reach 90 billion dollars (just over 82 billion euros at the current exchange rate), although in a financing round . Last May it was valued at $66 billion.

Although this debut would make it one of the most valuable Chinese companies in the New York park and the sector as a whole, it would fall below the record of 119,398 million that Inditex set this Friday. Since Shein began to forge its global expansion, all eyes have pointed to the empire founded by Amancio Ortega due to the possibility that this colossus that only sells ‘online’ would overtake Zara.

Under an ‘ultra fast-fashion’ model, which further shortens the time between collections and lower prices, its entry onto the board of large textile companies suggests that it will be one of Zara’s great rivals. However, this idea loses strength for analysts. Among the reasons, Xavier Brun, director of variable income at Trea AM, defends that the low cost of Shein products gives more competition to small businesses than to Inditex’s flagship.

“The fashion sector is characterized by its high level of fragmentation, in which Inditex has less than 3% market share internationally,” he asserts. To this factor we must add the strength of the business model based in Arteixo, characterized by its constant adaptation, which is why according to Brun, its hybrid format is “very difficult to replicate” compared to the only ‘online’ one with temporary stores. “Inditex has the muscle to compete calmly,” he adds. Despite this, we must not ignore that in Spain, the local market of the Galician firm, Shein is already the third most popular brand in sales, behind Zara and H&M, according to a study carried out by IESE. However, it occupies the first position when comparing only Internet sales.

From a stock market perspective, analysts even believe that this exit could benefit the Spanish company. Taking into account profits of 800 million last year (the latest available), XTB calculates a PER, which measures how many times a company’s net profit is reflected in the share price, of 75 times if it debuts at 60,000 million . of dollars and 112 times if the end comes to 90,000 million. “It is true that we do not take growth into account, but it would still seem expensive to us. A high valuation could make the market believe in the valuation of the Spanish company and make it trade at a higher multiple,” they point out. The estimated ratio for the Spanish firm this year is around 21.7 times.

With the date for the ringing of the bell still to be specified, Shein will make its debut in the markets at a time of great uncertainty and with the precedent of Arm and Birkenstock, whose launches were not as promising as expected, although it has already been confirmed. They have recovered from the falls during November. While waiting for central banks to provide clues about whether the cycle of interest rate hikes has ended and the economic storm clouds materialize or finally transform into a soft landing, Brun highlights that growing companies usually have a strong stock market trajectory. positive in these circumstances.

A few months ago Shein presented to investors a three-year plan in which it aspired to register revenues close to 60,000 million dollars in 2025 compared to the 23,000 million recorded during the last year and register profits of 7,500 million, cash ten times The one accounted for last year. To put it in context, the figure almost doubles that recorded by the Inditex group in 2022 when it had a record turnover of 32,569 million euros. Founded in 2008 as a company that sells wedding dresses, it is currently present in 150 countries with the United States, Brazil and Europe as its most powerful regions, while its presence in China, its penetration is paradoxically smaller.

Nor can we ignore the appearance of his compatriot Temu, who stands as a rival to be taken into consideration. This e-commerce platform has recorded an attributable net profit of 36,746 million yuan (about 4,700 million euros) in the first nine months of the year, with a rise of more than 66% motivated by the increase in its turnover. PDD Holdings, its parent company, is listed on the Nasdaq with a market value that exceeds 192 billion after soaring 18% last Tuesday following the publication of its quarterly balance sheet.

Given the doubt as to whether in the future it could be forced to raise prices to maintain its growth rate and satisfy investors, one of the most imminent challenges it has to face is the one linked to the issues associated with ESG for Do not condition your financing in the future. An aspect in which Brun highlights that he will have to “make an effort”, especially in relation to governance, which “is where Chinese firms falter the most.” “The investor is going to demand certain criteria, forcing them to promote some changes in their business model, despite the fact that in the United States sustainability criteria are more lax than in Europe,” he emphasizes.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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