Shein, the Singapore-headquartered online fashion retailer built around inexpensive goods shipped rapidly from Chinese suppliers, recorded a $99 million net loss in the first quarter of 2026 as it prepared for a proposed Hong Kong listing.

The reversal from a $395 million profit a year earlier exposes the financial consequences of slower growth, higher import costs and intensifying regulatory scrutiny in the United States and Europe.

The headline loss requires qualification.

It included a $328 million non-cash fair-value charge related to convertible redeemable preference shares issued to private investors.

Accounting rules require changes in the estimated value of those securities to pass through the income statement.

Shein’s retail operations therefore did not lose $99 million solely through the manufacture and sale of clothing.

Its underlying indicators nevertheless weakened.

First-quarter revenue rose only 1.1 per cent to approximately $9.05 billion, while the operating margin narrowed from 3.9 per cent to 2.9 per cent.

The net margin moved from positive territory to minus 1.1 per cent after the preference-share charge.

For a company previously defined by rapid expansion, near-stagnant sales are more consequential than the accounting adjustment alone.

The sharpest deterioration occurred in the United States, historically Shein’s largest national market.

Quarterly American revenue fell 14.3 per cent, from $2.38 billion to $2.04 billion, reducing the country’s contribution to 22.5 per cent of group sales.

The decline followed the removal in May 2025 of favourable customs treatment for low-value parcels originating in China.

Shein’s rise depended partly on the American de minimis rule, which allowed packages valued below $800 to enter without ordinary customs duties and with simplified processing.

The company could manufacture small batches in China, identify successful products through real-time sales data and send individual orders directly to consumers without maintaining an extensive American store or warehouse network.

That advantage has narrowed substantially.

Chinese-origin goods sold through Shein’s retail and marketplace operations can now face combined tariff rates ranging from 10 per cent to 87.5 per cent, depending on the product and applicable trade measures.

The company can absorb the expense, increase prices, move inventory through alternative countries or restructure fulfilment, but each response compromises some element of its original low-cost model.

Price increases would protect margins but reduce the gap between Shein and conventional retailers that offer faster delivery, physical returns and established quality controls.

Absorbing tariffs would preserve customer prices at the expense of profit.

Regional warehousing can limit the number of parcels crossing borders individually, but it requires Shein to forecast demand, hold inventory before sale and accept greater exposure to unsold stock.

Europe is becoming the next test.

The European Union introduced a €3 customs charge in July on low-value e-commerce consignments below €150.

Depending on how different product categories within a parcel are classified, an order can incur more than one charge.

That matters for a retailer whose baskets may contain several garments and accessories with very low individual prices.

Approximately one-third of Shein’s 2025 revenue came from Europe.

The company warned prospective investors that the effect of the new customs regime could resemble, or exceed, the disruption experienced in the United States.

European authorities are also moving towards broader marketplace liability, product-safety enforcement and the eventual removal of remaining customs advantages for low-value imports.

Shein has expanded warehouse capacity in Poland and is moving selected popular products into the European Union in bulk.

This can shorten delivery times, simplify returns and avoid imposing a customs charge on every direct parcel.

It also pushes the business closer to the conventional retail structure that its on-demand system was designed to avoid.

The annual figures show a large business whose expansion is decelerating.

Revenue increased 8 per cent in 2025 to $41.85 billion, after growing 20.7 per cent in 2024 and approximately 41 per cent in 2023. Net profit fell 38.7 per cent, from about $3.37 billion in 2024 to $2.06 billion in 2025. Its net margin consequently contracted from 8.7 per cent to 4.9 per cent.

Shein remains profitable on a full-year basis and generates sales comparable with the world’s largest fashion groups.

Its profitability is materially lower than that of Inditex, the owner of Zara, whose scale, store network and supply chain produce substantially stronger margins.

Shein’s listing proposition therefore depends on whether investors treat it as a technology-enabled growth platform or as a mature, increasingly regulated retailer.

Trade tensions are only part of the risk.

European authorities have opened a formal investigation into whether Shein adequately prevents illegal products from being sold through its marketplace and protects consumers from manipulative or potentially addictive platform design.

French regulators have imposed penalties exceeding €200 million over consumer-data practices and allegedly misleading discounts.

These actions create potential liabilities and require additional spending on seller verification, product testing, platform oversight and legal compliance.

Shein has also faced sustained questions about working conditions in supplier factories and whether cotton connected to China’s Xinjiang region could enter its supply chain.

The company says it maintains zero tolerance for forced labour, conducts supplier inspections and has expanded testing and risk controls.

Allegations involving individual suppliers do not by themselves prove systematic wrongdoing by the company, but the issue has materially influenced political and regulatory consideration of its listing plans.

The retailer first sought to list in New York in 2023. Political opposition and regulatory difficulties frustrated that attempt.

It then pursued London, where its draft prospectus received financial regulatory approval but failed to obtain the Chinese clearance required because most of its manufacturing and operating infrastructure remains in China.

Shein moved its headquarters to Singapore in 2022, but that relocation did not sever its regulatory exposure to Beijing.

Chinese authorities approved the proposed Hong Kong offering on July 10, clearing a significant obstacle.

The draft prospectus does not establish a final offer price, fundraising total or listing date.

Market expectations have placed the prospective valuation at roughly $40 billion to $50 billion, well below the $100 billion assigned during the online-shopping boom in 2022 and the $66 billion valuation reached in a 2023 financing round.

The markdown reflects more than weaker investor sentiment.

Shein must demonstrate that it can preserve its speed and price advantage after customs charges, regional warehouses, stricter product controls and higher logistics costs are incorporated.

Greater reliance on air freight also leaves the company exposed to fuel-price shocks and disruptions across international transport routes, although long-term logistics contracts provide partial protection.

Supply-chain diversification is under way in countries including Brazil and Turkey, but more than 90 per cent of Shein’s 2025 net revenue still came from products stored in central Chinese warehouses before sale.

Moving production closer to customers would reduce some trade exposure while requiring new supplier networks capable of reproducing the speed, flexibility and cost structure developed in southern China.

Proceeds from the Hong Kong offering are intended for technology, artificial-intelligence-assisted demand forecasting, logistics infrastructure, international expansion, brand development and corporate-responsibility programmes.

Before public trading can begin, Shein must complete the exchange’s review, determine the offering’s size and price the shares through investor book-building.