Shein’s potential U.K. IPO has faced a string of challenges—including from bosses at other retailers, who think the Chinese giant is exploiting a tax loophole.
Superdry’s CEO, Julian Dunkerton, is the latest to bash the company. The Britain-based apparel company that was once a cult brand whose tees were sported by celebrities has fallen from grace in recent years, culminating in its decision to delist from the London Stock Exchange a few months ago.
But on its way out, Superdry has a thing or two to say about Shein, which has been mulling a London IPO.
Critics have highlighted how the Chinese mega-retailer has avoided paying taxes on low-value packages owing to a loophole that allows international packages worth less than £135 to be exempt from import duties. Instead of receiving shipments in bulk and distributing them, it ships individual packages to customers when they place orders, which allows it to take advantage of the loophole.
While that has allowed Shein to grow its market share and undercut its competitors, it has also ruffled the feathers of other retailers who face mounting production costs.
“The rules weren’t made for a company sending individual parcels [and] having a billion-pound turnover in the U.K. without paying any tax,” Dunkerton told the BBC in an interview published Tuesday.
He added that Shein was being welcomed for being “a tax avoider.”
The loophole helping Shein
Shein’s rock-bottom prices have been key to its appeal among shoppers, driving its valuation to $66 billion last year, according to the Wall Street Journal. But now, amid growing scrutiny, those low prices, which allow shipments to pass through the U.K. without duty, also represent the company’s biggest IPO roadblock.
If it were in Dunkerton’s control, he would “force them into paying import duty, VAT and possibly even an environmental tax.”
Estimates from British think tank Tax Policy Associates suggest that Shein has dodged taxes worth £150 million ($201 million). The mass retailer recorded a profit of $2 billion last year—far higher than H&M’s $820 million and starkly different from Superdry’s loss of $29 million.
Superdry and Shein didn’t immediately return Fortune’s request for comment.
Shein’s IPO: A work in progress
Regulators across the Atlantic have closely monitored Shein in recent years. Lawsuits over its platform counterfeiting people’s designs and concerns over its supply chain practices have whittled the chances of a U.S. IPO.
Shein has since shifted its gaze to London, which has been parched of blockbuster listings and could use the boost of a high-profile retailer. In June, reports emerged of the Singapore-headquartered company kicking off initial IPO processes in London.
While Shein hasn’t commented on the status of its listing, a groundswell of criticism has made it harder for the company to move ahead with its efforts. U.S. Senator Marco Rubio warned the U.K. about possible labor exploitation concerns at Shein, while British officials have discussed ways to ensure Shein’s products are sourced responsibly.
Retail brands like Sainsbury’s have also voiced their concerns about Shein using the tax loophole to bolster its presence in the U.K.
For its part, Shein has hired a top European Union official to help strengthen its case with regulators. It also plans to invest €50 million in possible R&D and production facilities across Europe or the U.K. that help local businesses, Shein told Reuters in July.
Shein has undoubtedly won the hearts of shoppers. But it will still have to win the hearts of those who think it’s taking the easy way out on tax.
