Shein reveals an FTC investigation as it seeks to go public.

      Shein aimed for its Hong Kong listing to emphasize growth. However, the filing intended to promote that narrative unveiled an investigation by a US regulator, the reasons for which Shein has not disclosed. According to Reuters, this information is included in the draft prospectus for Shein’s planned IPO. The filing indicated that Shein’s US operations are under scrutiny by the Federal Trade Commission (FTC), which has confirmed it is conducting a consumer-protection inquiry. This seems to be the first public mention of the investigation.

      No specific targets have been stated in the probe. Shein has not elaborated on what the FTC is examining and only mentioned that it is cooperating, noting it cannot predict the outcome or timeline. The warning issued to investors was more straightforward, stating that any resolution could necessitate "significant monetary payments" which could have "a material adverse effect on our financial condition."

      The FTC oversees unfair and deceptive business practices and has previously acted against various marketplaces and platforms, including Amazon and Coupang, regarding their treatment of customers. It has also scrutinized companies on how their products may lock users in, addressing concerns such as hidden fees, misleading pricing, difficult cancellations, and data mishandling. However, none of this clarifies the specific allegations in the FTC’s current investigation, even though it defines the agency's area of focus.

      One significant area of concern is the issue of "dark patterns." The FTC has been targeting these for years, according to CNBC. Dark patterns are design strategies that subtly encourage users to spend money or share personal data. In a report from 2022, the agency cited countdown timers as a typical example.

      Shein’s app employs these very tactics, incorporating countdown timers, gamified discounts, and flash sales designed to encourage purchases before consumers realize it. Although the FTC has not confirmed that its investigation involves these practices, the overlap creates a difficult situation for a company seeking funds from public investors.

      This disclosure comes at a particularly challenging time. Shein's journey to market has been long and tumultuous, as it initially sought to list in New York and then London, only securing approval from Beijing this month for a Hong Kong listing. Its target valuation of $40bn to $50bn is only a fraction of the nearly $100bn it was valued at in 2022, with some investors reportedly suggesting a valuation closer to $30bn.

      The underlying business has deteriorated as well; Shein incurred a $99m loss in the first quarter, compared to a $395m profit the previous year. This downturn followed the US's elimination of the "de minimis" exemption, which allowed low-cost parcels to enter without duty. Furthermore, US revenues dropped by about 14% to $2bn, and the EU has introduced its own charges for low-value parcels, as reported by Forbes. A consumer-protection investigation from its largest market is the last thing Shein needed as it attempts to present a positive narrative.