Shein has reported a quarterly net loss as the fast-fashion e-commerce giant prepares for its long-awaited initial public offering in Hong Kong.

The Singapore-headquartered retailer recorded a net loss of $99 million during the first quarter of 2026, compared with a net profit of $395 million during the same period a year earlier. The figures were disclosed in Shein’s draft prospectus filed with the Hong Kong Stock Exchange.

The result represents a significant reversal for one of the world’s largest online fashion platforms. However, the headline loss was not caused entirely by weaker retail performance. It included a substantial non-cash accounting charge related to the changing value of shares held by existing investors.

Even after accounting for that one-off effect, Shein’s filing points to a broader challenge: its historically powerful cross-border e-commerce model is becoming more expensive to operate.

Higher import duties, slower sales growth, tighter regulatory oversight and increasing fulfilment costs are placing pressure on the company just as it attempts to convince investors that it deserves a valuation of between $40 billion and $50 billion.

Shein reports a $99 million quarterly loss

Shein’s first-quarter loss was partly driven by a $328 million fair-value charge connected to its convertible redeemable preferred shares.

These shares were issued to investors before the company’s proposed listing and can later be converted into ordinary shares. Changes in their estimated value must be recognised in Shein’s financial accounts, creating a non-cash expense.

This distinction is important. Shein did not lose $99 million purely because selling clothes became unprofitable. Nevertheless, the company’s underlying operating figures also weakened.

Shein’s operating margin fell from 3.9% in the first quarter of 2025 to 2.9% in the first quarter of 2026. Revenue growth also slowed considerably, while sales in its largest national market declined.

The results suggest that the accounting charge magnified the quarterly loss, but did not create the company’s wider commercial problems.

US revenue falls after the end of de minimis treatment

The United States has traditionally been Shein’s most important market. Its success there was supported by the de minimis import exemption, which allowed packages valued below $800 to enter the country without standard customs duties.

That model enabled Shein to send large numbers of relatively inexpensive orders directly from Chinese warehouses to individual American customers.

The removal of favourable de minimis treatment for Chinese-origin parcels in May 2025 changed the economics of this system.

According to Shein’s prospectus, products originating in China and shipped to the US through its retail or marketplace operations can now face tax rates ranging from 10% to 87.5%, depending on the product and applicable tariff treatment.

Shein said the regulatory change had adversely affected US sales, increased expenses and slowed the company’s overall growth.

US revenue declined by 14.3% year on year, falling from $2.38 billion in the first quarter of 2025 to $2.04 billion in the first quarter of 2026.

The United States accounted for 22.5% of Shein’s quarterly revenue, compared with 29.4% of its annual revenue in 2023.

Shein considers raising US prices

Shein has acknowledged that it may need to pass some of its additional import costs on to consumers.

The company said it was pursuing several measures in response to the higher duties, including increasing prices in the US market.

That response carries a significant commercial risk.

Shein’s proposition has been built around extremely low prices, a vast product catalogue and a highly responsive supply chain capable of identifying and producing emerging fashion trends quickly.

Price increases could protect margins, but they may also weaken the company’s competitive advantage. Consumers comparing Shein with Amazon, Temu, established fashion retailers or domestic marketplace sellers may become less willing to tolerate longer cross-border delivery times when the price difference becomes smaller.

The company must therefore decide how much of the additional cost it can absorb without damaging profitability and how much it can pass on without reducing conversion rates.

Europe could become Shein’s next major pressure point

The United States is not the only market making low-value e-commerce imports more expensive.

The European Union introduced a €3 customs duty on low-value e-commerce items in July 2026 as part of its attempt to address the rapid growth of inexpensive direct-to-consumer imports.

Europe generated approximately one-third of Shein’s revenue in 2025, making the region central to the company’s growth prospects.

Shein warned investors that it was still too early to measure the full effect of the European changes. However, the company said the impact could be similar to—or potentially greater than—the disruption it experienced following the US de minimis reform.

The European system may be particularly challenging because the €3 charge can apply according to the number of different customs classifications represented in a parcel.

An order containing several types of products could therefore attract multiple charges. For a business selling very inexpensive garments and accessories, a relatively small customs cost can represent a large percentage of the original product price.

This pressure is especially relevant for Shein because European consumers may be highly sensitive to increases on products that were originally marketed at ultra-low prices.

Shein expands its European warehousing strategy

Shein has already been adapting its logistics network to reduce its dependence on individual parcels shipped directly from China.

The company has expanded warehouse capacity in Wrocław, Poland, and has been moving selected high-demand products into Europe in bulk.

Storing goods inside the EU can help Shein shorten delivery times and avoid applying the new low-value parcel charge to every individual cross-border order. It may also improve the customer experience by supporting faster fulfilment and easier returns.

However, regional warehousing introduces a different set of costs and risks.

Shein must forecast demand, import inventory before it has been sold and maintain larger quantities of stock inside regional fulfilment centres. That is a major departure from the company’s original model, which relied on small production runs and direct shipping to minimise unsold inventory.

The company is therefore being pushed towards a more conventional retail infrastructure precisely when its competitive advantage has been based on avoiding many of the costs associated with conventional retail.

Annual sales rise, but profit and growth slow

Shein remained profitable over the full 2025 financial year.

The company generated net income of $2.06 billion, but that represented a decline of 38.7% from the previous year.

Annual revenue increased by 8% to $41.85 billion. Although this remains a substantial level of growth for a company of Shein’s size, it was significantly below the 20.7% revenue expansion recorded in 2024.

These figures illustrate the challenge facing the retailer.

Shein is still a global e-commerce business generating more than $40 billion in annual sales, but its growth is slowing while the cost of accessing major consumer markets is increasing.

For IPO investors, the central question will not simply be whether Shein can continue generating revenue. It will be whether the company can preserve attractive margins after tariffs, customs charges, compliance requirements, marketing costs and regional fulfilment investments are taken into account.

Shein seeks a valuation of up to $50 billion

Shein is reportedly targeting a valuation of between $40 billion and $50 billion for its Hong Kong IPO.

That would represent a considerable reduction from the $100 billion valuation associated with a private funding round in 2022. It would also be below the $66 billion valuation assigned to the company during its May 2023 fundraising round.

The lower target reflects the changing environment for global e-commerce companies.

The exceptional online growth experienced during the pandemic has moderated. Investor enthusiasm for loss-making or low-margin technology-driven businesses has also weakened, while governments are taking a more interventionist approach towards cross-border marketplaces.

Some investors may still view Shein as a highly valuable platform with global brand recognition, strong customer engagement and a sophisticated data-driven supply chain.

Others may question whether a valuation of $40 billion or more adequately reflects its shrinking margins, exposure to regulatory action and dependence on Chinese manufacturing.

Hong Kong becomes Shein’s third IPO route

Shein’s Hong Kong listing follows unsuccessful attempts to go public in New York and London.

The company initially filed for a US IPO in November 2023 but encountered political and regulatory opposition. It later pursued a London listing and obtained approval for a draft prospectus from the UK’s Financial Conduct Authority.

However, the London plan could not progress without approval from the China Securities Regulatory Commission.

Although Shein relocated its headquarters to Singapore in 2022, the company remains deeply connected to China through its supplier network and operating infrastructure. More than 90% of its 2025 net revenue came from products stored in central warehouses in China before sale.

Chinese regulators approved Shein’s proposed Hong Kong listing on July 10, 2026, clearing an important obstacle in the company’s prolonged effort to enter the public markets.

The draft prospectus does not yet disclose the final IPO size, offer price, listing date or expected proceeds.

Shein has indicated that funds raised through the offering would be used to improve technology, expand its global presence, increase brand awareness, support corporate responsibility initiatives and provide additional working capital.

Regulatory scrutiny remains a major IPO risk

Customs charges are only one part of the regulatory challenge facing Shein.

The company has faced scrutiny over working conditions in supplier factories, the environmental effects of transporting high volumes of products by air, consumer data practices, discounting methods and products sold through its marketplace.

The European Commission has also opened a formal investigation into Shein under the Digital Services Act, examining issues including the sale of illegal products and the platform’s systems for protecting consumers.

Shein has stated that it maintains a zero-tolerance policy towards labour abuses and has invested in risk assessment, compliance and user-protection systems.

For prospective investors, however, these investigations represent potential financial and reputational liabilities.

A major regulatory penalty, forced change to the platform’s interface or stricter seller-monitoring obligation could increase costs further. The possibility of different rules being introduced across the US, EU and other markets also makes long-term financial planning more difficult.

Shein’s cross-border model is being rewritten

Shein’s rise was enabled by a combination of digital demand forecasting, low-cost Chinese manufacturing, small production batches and direct international delivery.

This structure allowed the company to offer thousands of new products, respond quickly to fashion trends and sell at prices that traditional retailers found difficult to match.

The model is not disappearing, but it is being rewritten.

Major economies increasingly expect cross-border platforms to collect taxes, verify sellers, monitor product safety and contribute more towards customs enforcement. Governments are also removing exemptions that allowed low-value parcels to enter with fewer costs and administrative requirements.

As these policies spread, platforms such as Shein and Temu may need to hold more inventory locally, establish regional fulfilment networks and assume greater responsibility for the goods sold through their marketplaces.

That transition could make their operations more resilient and improve delivery performance. It could also make them more expensive and structurally similar to the established retailers they initially disrupted.

Can Shein defend its valuation?

Shein’s $99 million quarterly loss is unlikely to determine the success or failure of its IPO on its own.

The $328 million accounting charge means the headline figure does not provide a complete picture of the retailer’s underlying performance.

The more important indicators are the 14.3% decline in US revenue, the reduction in operating margin, slower annual sales growth and the company’s warning that European customs reforms could have an impact comparable to the disruption already seen in the United States.

Investors will need to decide whether these pressures are temporary consequences of a changing regulatory environment or evidence that Shein’s most profitable period has already passed.

Shein remains one of the world’s largest and most influential e-commerce businesses. It has more than $40 billion in annual revenue, an internationally recognised brand and a supply chain that transformed the fast-fashion industry.

But the company approaching Hong Kong’s public markets is no longer the hypergrowth retailer valued at $100 billion in 2022.

It is a more mature business facing higher costs, lower margins and increasingly coordinated government scrutiny.

The success of its IPO may ultimately depend on whether Shein can demonstrate that its model still works when low-value cross-border commerce is no longer treated as an exception.

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Shein is approaching one of the most important moments in its history. After unsuccessful attempts to list in New York and London, the online fashion retailer is preparing for a potential initial public offering in Hong Kong as early as September or October 2026.

However, the company will enter the public markets under significantly different conditions from those that powered its rapid international expansion.

New European customs duties, slower growth, increasing regulatory scrutiny and rising fulfilment costs are placing pressure on Shein’s low-price cross-border e-commerce model. These challenges could force the company to accept a valuation far below the $100 billion figure it reportedly achieved during a private funding round in 2022.

Shein is now expected to seek a valuation of approximately $40 billion to $50 billion, although some investors reportedly believe a figure closer to $30 billion may be more realistic.

Shein moves closer to a Hong Kong listing

Shein received approval from the China Securities Regulatory Commission for its planned Hong Kong IPO in July 2026, clearing one of the most significant obstacles facing the listing.

The company could reportedly sell up to 8% of its shares through the transaction. Its proposed listing would be one of the most prominent retail IPOs in recent years, particularly at a time when weaker consumer spending has caused many brands to postpone their public-market plans.

A Hong Kong listing represents the latest chapter in a lengthy and complicated IPO process.

Shein confidentially filed for a US listing in 2023 but encountered resistance connected to its supply chain, labour practices and links to China. It subsequently turned to London, where its proposed flotation also became delayed amid regulatory and political scrutiny.

The company then redirected its efforts towards Hong Kong, where it has now secured approval from Chinese regulators.

Despite clearing this regulatory hurdle, Shein must still convince investors that its growth model can remain profitable as some of its most important markets introduce stricter rules for low-value e-commerce imports.

Europe represents a critical market for Shein

Europe is particularly important to Shein’s IPO story because the region reportedly accounts for approximately one-third of the company’s global revenue.

Shein generated more than $40 billion in revenue and around $2 billion in net profit in 2025, according to figures reported by Reuters. Nevertheless, slower growth and new trade costs are creating uncertainty around its future earnings.

Shein’s success has traditionally been based on offering an enormous selection of low-priced fashion products, adding new items rapidly and shipping many orders directly from suppliers in China to consumers.

This model enabled the company to respond quickly to changing demand while avoiding the costs associated with maintaining large inventories in local markets.

The same operating structure, however, leaves Shein highly exposed to changes affecting low-value imported parcels.

The EU’s €3 customs duty changes Shein’s cost structure

On 1 July 2026, the European Union introduced a temporary €3 customs duty on low-value imports worth up to €150 that are sent directly to consumers from outside the EU.

The duty applies per item category, identified through its customs classification, rather than simply as a single charge on every parcel. A shipment containing products covered by several customs codes could therefore face multiple €3 duties. The temporary arrangement is expected to remain in place until 1 July 2028, when the EU’s wider customs reform is scheduled to introduce a new system for low-value imports.

This distinction is especially relevant for marketplaces selling mixed baskets of inexpensive products.

For example, a parcel containing a dress, fashion accessory and pair of shoes could contain several different customs classifications. The total duty applied to the shipment may consequently exceed €3.

For premium retailers, an additional charge of a few euros may have a relatively limited effect on consumer demand. For Shein, where many individual products cost less than €10, the impact can be much more significant.

The duty could increase the final price of an order, reduce the attractiveness of small purchases or force Shein to absorb part of the additional cost. Each option creates pressure on either demand or profit margins.

Low prices are central to Shein’s competitive advantage

Shein’s European value proposition depends heavily on affordability. Its customers are often highly price-sensitive and attracted by the ability to purchase several fashion items at prices below those offered by conventional retailers.

A fixed customs charge therefore represents a disproportionately large percentage of the price of many Shein products.

A €3 duty applied to an item costing €6 is equivalent to 50% of the product’s original price. Even when several products are combined in one shipment, multiple customs classifications could materially increase the total landed cost.

This presents Shein with several difficult options:

• Increase prices and risk weakening consumer demand.
• Absorb the duty and accept lower margins.
• Encourage customers to place larger orders.
• Consolidate products into bulk shipments before distributing them within the EU.
• Move more inventory into European warehouses.
• Increase the share of products supplied by European sellers.

Each response would move Shein further away from the highly flexible direct-from-China model that initially supported its international expansion.

Shein expands its European logistics operations

Shein has already begun adapting its European supply chain.

The company has expanded its logistics operations in Poland, establishing a regional fulfilment centre capable of supporting deliveries across European markets. The facility can also be used by external sellers operating through Shein’s marketplace.

Local warehousing allows products to be imported into the EU in larger commercial shipments rather than sent individually to consumers. Once customs procedures are completed, orders can be fulfilled from within the single market.

This approach can provide several advantages:

• Faster deliveries to European customers.
• Greater control over returns.
• More predictable customs processing.
• Lower dependence on direct low-value parcel shipments.
• Improved fulfilment services for marketplace sellers.

However, maintaining local inventory also introduces new costs and operational risks.

Shein may need to forecast demand earlier, hold more stock, lease additional warehouse capacity and manage unsold products. These requirements could weaken one of the central advantages of its original model: producing relatively small quantities and rapidly replenishing only the products that sell well.

Europe could accelerate Shein’s marketplace transition

Shein has gradually expanded beyond its role as a first-party fashion retailer by allowing external merchants to sell products through its platform.

The EU customs changes could accelerate this transformation.

A marketplace with more European sellers would allow Shein to offer products already located inside the EU. These items would not face the same direct-import duty when delivered to European consumers.

Shein could also generate more revenue from seller commissions, advertising, payments and fulfilment services. This would make its business model more similar to established online marketplaces.

However, increasing the number of third-party sellers introduces additional regulatory responsibilities. Shein must ensure that products offered through its platform comply with European safety, consumer-protection and digital-platform rules.

A larger marketplace could therefore help Shein reduce its customs exposure while simultaneously increasing its compliance obligations.

Regulatory pressure extends beyond customs duties

The €3 duty is only one element of Shein’s increasingly difficult European environment.

The European Commission has been examining the company under the Digital Services Act, which places significant responsibilities on very large online platforms.

These obligations include assessing systemic risks, removing illegal products, improving seller traceability, protecting minors and providing greater transparency around recommendation systems and advertising.

Shein has also faced scrutiny over product safety, environmental claims, addictive platform design, labour conditions and the sale of potentially illegal goods by external merchants.

These issues matter to prospective investors because regulatory investigations can lead to fines, operational restrictions, additional compliance costs and reputational damage.

They also complicate Shein’s efforts to present itself as a mature global technology and retail company rather than simply a low-cost cross-border seller.

The end of duty-free imports is a global problem for Shein

Shein’s European challenges follow similar changes in the United States.

The company’s model benefited for years from the US de minimis exemption, which allowed qualifying low-value goods to enter the country without normal customs duties. Changes to that treatment placed additional pressure on Shein’s American operations and contributed to uncertainty around its valuation.

The EU has now moved in the same direction.

Together, these developments suggest that the regulatory environment that enabled the explosive growth of direct-from-China e-commerce is coming to an end.

Governments are increasingly concerned about the enormous volume of low-value parcels entering their markets, the cost of customs enforcement, unfair competition for domestic retailers and the difficulty of checking every product for safety and compliance.

For Shein, this means the challenge is not limited to one temporary European duty. The company must demonstrate that it can remain competitive under a permanently more demanding global trade environment.

Shein’s valuation has fallen sharply

The difference between Shein’s previous and expected valuations illustrates how investor sentiment has changed.

The company was reportedly valued at approximately $100 billion in 2022, placing it among the world’s most valuable privately held businesses. Its valuation subsequently fell to around $66 billion during a 2023 funding round.

Shein may now seek a Hong Kong IPO valuation of between $40 billion and $50 billion. Some shareholders and potential investors have reportedly argued that the company could be worth closer to $30 billion.

Even at the higher end of the expected range, Shein would be worth less than half its reported 2022 peak.

The reduction does not necessarily mean that Shein’s business is failing. The company remains one of the world’s largest online fashion retailers and continues to generate substantial revenue and profit.

Instead, the falling valuation reflects a reassessment of its future growth, regulatory exposure, logistics costs and long-term margins.

Leadership changes add another layer of uncertainty

Shein’s preparations for the IPO are also taking place alongside a significant leadership transition.

Executive chairman Donald Tang is expected to leave his position as the listing approaches completion, although he may remain involved as a senior adviser. Founder and CEO Sky Xu is expected to take over as chairman and lead the company’s investor presentations.

Tang had acted as one of Shein’s most visible representatives when dealing with Western regulators, politicians and investors. His departure places greater responsibility on Xu, who has traditionally maintained a lower public profile.

For potential shareholders, the transition raises questions about corporate governance and how Shein will manage its relationships with regulators outside China.

The company must not only explain its financial performance but also demonstrate that it has the leadership structure and compliance systems required of a major publicly listed business.

What investors will want to know

Shein’s IPO presentation will need to answer several important questions.

The first is whether the company can continue growing after customs exemptions are removed in major markets.

Investors will also want to understand how much of the new import cost Shein intends to absorb and how much will be passed on to customers.

Another key issue will be the profitability of European fulfilment. Local warehouses may improve delivery speeds and reduce dependence on individual imports, but they also require greater capital investment and more sophisticated inventory management.

Shein will additionally need to explain whether it intends to remain primarily a fashion retailer or develop into a broader marketplace and logistics platform.

Finally, investors will assess whether the company’s regulatory and reputational risks have been adequately reflected in its proposed valuation.

What the Shein IPO means for European e-commerce

The outcome of Shein’s listing will have implications beyond the company itself.

If Shein successfully adapts to the EU’s customs system, it could provide a blueprint for other Asian marketplaces seeking to maintain access to European consumers.

The likely model would involve a combination of:

• Greater use of European fulfilment centres.
• More consolidated freight shipments.
• Larger average order values.
• Increased participation by local sellers.
• Stronger product-compliance controls.
• Greater investment in returns infrastructure.
• Reduced reliance on direct low-value imports.

Temu, AliExpress and other cross-border platforms are confronting many of the same pressures. European retailers and logistics providers should therefore expect more competition for local warehouse capacity, fulfilment partnerships and last-mile delivery services.

The customs reforms could also create opportunities for European brands that previously struggled to compete with ultra-low-priced imports.

However, local warehousing alone will not eliminate the competitive advantages enjoyed by large global marketplaces. Their technology, scale, marketing reach and supplier networks will remain formidable.

A test of whether Shein’s model can evolve

Shein’s planned Hong Kong IPO is becoming a test of whether the company can successfully move beyond the regulatory conditions that supported its original growth.

The retailer has already shown that it can build a global brand, use data to identify consumer demand and coordinate an enormous network of suppliers.

Its next challenge is more complex.

Shein must prove that it can maintain affordable prices while paying higher import costs, investing in local logistics, meeting stricter European regulations and providing investors with more transparency.

The EU’s €3 customs duty will not determine Shein’s future on its own. Nevertheless, it represents a wider structural change in cross-border e-commerce.

The era in which millions of ultra-low-value parcels could move directly from China to European consumers with minimal customs duties is ending.

Shein’s valuation, IPO performance and European strategy will show whether one of the biggest beneficiaries of that system can also succeed in the market that replaces it.

The post Shein’s European challenges weigh on its planned Hong Kong IPO appeared first on Cross-Border Magazine.