London’s stockmarket is trying to recover from a painful and prolonged drought of IPOs, caused not just by a lack of UK and foreign companies succeeding in floating, but by some homegrown champions deliberately turning their backs on London.
Arm Holdings, the chip designer based in Cambridge and one of the UK's most promising technology companies, gave the highest profile snub when it chose to list on Nasdaq last year.
London may be down but it is not out. Market participants are striving to woo listing candidates, and a particularly tempting prize has heaved into view: Shein, the aggressively competitive fast fashion leader.
The originally Chinese, now Singapore-headquartered online retailer, which sells more than 250,000 products at a time and commands a 28% market share in the US, is looking to do an IPO, with a reported target size of around $6bn.
New York was its first choice, but it is reported to have received a frosty reception from the US Securities and Exchange Commission, worried about its connection with China and its environmental, social, and governance (ESG) profile.
Some US Congress members have argued there are “credible accusations” of forced and child labour practices in Shein's supply chain, moving them to “write with serious concerns” to the SEC, pleading with it to suspend discussions of a listing until Shein can prove its supply chain is free of forced labour.
The company’s business model involves selling ultra-cheap, so it strives to minimise costs and accelerate production. It has been criticised for cutting environmental corners, relying on exploitative labour practices and arbitraging taxes.
Shein scored a mere seven out of 100 on Fashion Revolution’s Fashion Transparency Index 2023, reported Jing Daily, a publication covering the luxury goods market in China.
To put that in context, shoemaker Dr Martens scored 35 and retailer Marks & Spencer 38; the leader was Italian retailer OVS on 83. But Bloomingdale's, Macy's, Sports Direct and Skechers languished with Shein on 7 and other companies scored as low as 0.
Shein declined to comment on GlobalCapital's story about its listing last week.
In November 2022, a Greenpeace Germany report criticised Shein for being founded on “hazardous chemicals and environmental destruction”.
In December 2022, Shein admitted to some poor working conditions in a press release, following a critical documentary film. Shein said working hours at certain factories were indeed “higher than local regulations permit”.
“While the audit did reveal an issue with working hours, this has been raised with both manufacturers and we have significantly scaled back our orders from them until they take effective action,” said Adam Whinston, Shein's global head of ESG, in the statement.
A $6bn listing would on the face of it be a huge boost for London as an IPO venue, just as there is a general revival of listings in Europe.
If Shein can achieve a strong valuation and aftermarket performance, that in itself would be a great advertisement for London to other companies.
The fact that Jeremy Hunt, the UK's chancellor of the exchequer, recently met Shein's chairman suggests London is playing hard for the business.
But the fact that London’s IPO market is fragile and needs to get back on its feet means that this is precisely the time to be careful about which companies bring IPOs.
Accepting Shein as a listing candidate poses substantial risks. If it does float on the LSE, and any environmental, social or governance malpractice surfaces in future, London's authorities will not be able to say they hadn't been warned.
On the contrary, London will look very much the fool compared with New York, where politicians and the SEC appear for now to have deterred a deal.
The message to Shein and its advisers should be clear: London is open for business, but not at the cost of ethical principles and good, transparent governance of the companies listed there.
London's reputation as a premium exchange for well-governed companies is as timeless a style as Savile Row tailoring. It should not be sacrificed for a quick fast fashion thrill, however glamorous.