The Journal. - The Mysterious CEO Leading Shein to an IPO

Episode Date: December 13, 2023

In the decade since he co-founded Shein and turned it into one of the world's most popular fast-fashion brands, CEO Sky Xu has remained a mystery – even to his employees. Now, Shein is preparing for an initial public offering in the U.S. which will put Xu on the global stage. WSJ’s Shen Lu profiles the elusive CEO and describes some of the problems the company is facing as it tries to go public.  Further Reading: - The World’s Most Anonymous CEO Is About to Take Center Stage  - Fast-Fashion Giant Shein Files to Go Public  - America’s Top Fast-Fashion Retailer Tries to Shed Its Chinese Image  Further Listening: - Shein Took Over Fast Fashion. Then Came The Backlash.  Learn more about your ad choices. Visit megaphone.fm/adchoices

When companies go public in the U.S., they often make their CEOs very visible. But when it comes to Shein, the company that could be the biggest IPO of 2024, that's not the case. Sky Xu is probably one of the most hidden and invisible and mysterious company founders or CEOs in the world. That's our colleague Shen Liu, and she's talking about Xi'an CEO Sky Xu. The company started in China and is now one of the largest fashion brands in the world. As any company tries to go public, the CEO is expected to communicate to the public and to shareholders about their visions and strategies, right? But Sky is not, he's just not that kind of CEO. And how unusual is that? I mean, as a reporter, And how unusual is that?

I mean, as a reporter, it was pretty intriguing from the get-go that I couldn't find much about him on the internet. There is just very little about this guy out there, and he has not spoken to the media as far as I know. But the fact that Shein is such a global company, the fact that the company's CEO is basically hidden and mysterious, I don't think it sits well with investors. Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Wednesday, December 13th.

Coming up on the show, Sheehan's mysterious founder and the challenges he's facing as the company prepares to go public. This ad was expressly recorded to create a sense of simplicity. Just a few simple sounds. No complexity. Hmm. No complexity. Like Neutral. Made with just vodka, soda, and natural flavor. Neutral. Refreshingly simple. So can you tell us a little bit about Shein? Shein is a fashion company that produces ultra-cheap clothing that's made from China and ships the clothing to the rest of the world. And it's kind of blown up in the past eight, ten years around the globe, winning the hearts and minds and wallets of tens of millions of especially young shoppers.

I got some cute stuff from Shein, y'all. Shein haul! I'm so excited. I just got my Shein package, and I'm so excited, so let's open it. Today, Shein has the most downloaded shopping app in the world. It has customers in more than 150 countries. And as of this year, the company was valued at $66 billion. Last month, Shein filed to go public.

And that drew the spotlight to its elusive CEO. Last month, Sheehan filed to go public, and that drew the spotlight to its elusive CEO. So how difficult was it to try to get a picture of who Sky Hsu is? It involved lots of online sleuthing. I found in the end maybe five or six pictures of him, and they were very pixelated, not high-resolution pictures. pictures of him and they were very pixelated not high resolution pictures and there there was one widely used photo referring to him on the Chinese internet but it turned out that guy is not Sky Xu at all and it's someone whose last name is also Xu and then there was also confusion around his English name because for a long time people referred to him as Chris Xu. Until maybe in the past year or so, he sort of came out as Sky Xu in company statements. And it's not just his name that causes confusion, but also his age.

A Xi'an spokesperson confirmed that Xu was born in 1984, but we don't know his exact birthday. Xu is so in the shadows that sometimes many of his own employees don't recognize him. A senior advisor to Xi'an named Frances Townsend shared an anecdote with Shen Liu. She told me that one day, I think it was the end of a workday in the summer, when Frances Townsend and Sky Xu and maybe a group of other people got into the elevator, you know, the workers who were getting off work kind of filed in and streamed into the elevator. But no one noticed that their CEO was in the elevator. So there was no selfies with the CEO. There was no wows and woes.

And after they left the building, Frances told Sky with amazement, and she's like, no one recognized you. And then he said, well, that's not our culture. I don't want it that way. And then he said, well, that's not our culture. I don't want it that way. Despite Xu's elusiveness, Shen Liu was able to piece together some details about his background. He was born in a city called Zibo in Shandong province. It's an industrial city. His mom worked for a textile factory. And he came from a very humble background with his parents both being factory workers. And he went to a college in Qingdao, less than 200 miles away

from his hometown. He studied international trade as an undergrad. When Shou was in college, he started a side gig. He'd sell a variety of products made in China to foreign buyers, things like industrial gaskets and rubber goods. These early experiences taught Xu a lot about the supply chain. Companies like Amazon build up a large inventory up front. But Xu would place small orders for his products to test market interest. If customers liked them, he'd order more. That meant he rarely left anything unsold.

And that's Xiyin's on-demand model. And he also learned at the time that it was important to keep a good relationship with small factories in China. And that's also Xiyin's model. Xiyin contracts with thousands of mom-and-pop factories in China. And that's also Shein's model. Shein contracts with thousands of mom and pop factories in China. In 2012, She co-founded a new business selling wedding dresses online. He and his partners called the business SheinSide. What appealed to him about this particular business? Like why wedding dresses? I think he figured that wedding dresses in China were so cheap and he could sell for a premium to buyers outside China because they

were a lot more expensive overseas. And from the very beginning, Shi Yan never sold to any consumers in China. That's because by 2012, China already had two e-commerce giants dominating the market, Alibaba and JD.com. So it was very smart of him to pivot to the overseas market at a time when everybody else was trying to cash on the domestic market. Within a few years, the business had expanded from just wedding gowns to general women's fashion. The company shortened its name to Shein, and it quickly blew up. Shein is the most downloaded app and most searched. Shein is known for $2 t-shirts and $7 pants. On TikTok, hashtag Shein haul has been viewed more than 12.3 billion times and on Instagram, 744,000 times. It became a success in the Middle East and in Europe and in the U.S.,

particularly during the pandemic. And during those years, Shein's market share as a fast fashion company became bigger than that of Zara and H&M. And that was sort of amazing. So Shein is growing. Everyone's talking about it. Why does its CEO decide to stay out of the spotlight? I think part of it is his personality. He doesn't want the spotlight. I would also guess there are many entrepreneurs like him in China. They don't want any spotlight. They don't like publicity, with one exception.

is Jack Ma, the co-founder of Alibaba, China's biggest e-commerce company. For a long time, Ma was a very public figure, and he became one of the best-known Chinese businessmen in the world. Here he is being introduced at a university event back in 2010. Jack is truly a visionary, truly an extraordinary entrepreneur. He's been recognized by us tonight, but also Time magazine as one of the world's most influential people, Businessweek as one of the world's most powerful people. But then in 2020, with the tech crackdown in China, he sort of started to disappear from the public feel.

Where is Jack Ma? The billionaire founder of China's giant online retailer Alibaba has not been seen in public since October when he blasted Chinese regulators in a speech. The Chinese government is looking to rein in, to assert its control over the powerful tech platforms. Since then, Jack Ma has mostly retired from public view and has stepped down as Alibaba's CEO. And I guess many people have learned the lesson that it's probably wise for Chinese entrepreneurs to keep their hat low. But as Sheehan prepares to go public, the company is drawing the attention of both investors and regulators. Which means Sky Shoes' days of keeping a low profile might be ending.

That's next. Need a great reason to get up in the morning? Well, what about two? Right now, get a small organic fair trade coffee and a tasty bacon and egg or breakfast sandwich for only $5 at A&W's in Ontario. Whether you're practicing your morning breath work, waiting for your favourite artist to come on stage, or running errands at the perfect pace, Liquid IV Powder helps you turn ordinary water into extraordinary hydration so you can live a more extraordinary life.

Live more with Liquid IV Hydration Multiplier. Available in refreshing lemon-lime, passion fruit, and strawberry flavors. Buy a stick in store at Costco, Walmart, Amazon, and other Canadian retailers. Shein is expected to go public as early as 2024, meaning it'll be listed on a U.S. stock exchange. But with tense relations between the U.S. and China, companies with ties to China are drawing additional scrutiny from U.S. regulators. In the current political environment, in the geopolitical environment, Xi'an is sort of in an interesting position where it kind of straddles two different countries.

You know, U.S. is its biggest market and China is where its primary manufacturing base is and most of its back offices are also in China. One major problem that Xi'an is facing is concerns over the origin of its cotton. As a condition for Xi'an's IPO, U.S. lawmakers have ordered an SEC investigation into whether the company relies on forced labor from the Xinjiang region. The U.S. has accused Chinese authorities of committing genocide against Uyghur Muslims in that region. Beijing has denied the allegations. The company is controversial in the sense that it's been accused of using cotton sourced from China's Xinjiang region in its textile products. Lawmakers believe that clothing might have involved forced labor in Xinjiang, and the U.S. has largely banned imports of products tied to that region.

So that's one of the biggest issues that Xi'an is facing in the U.S. Xi'an says it has a zero-tolerance policy against forced labor and doesn't manufacture products in Xinjiang. It also said in a statement that it avoids working with suppliers who source cotton from the region. Xi'an is facing other challenges too. Its on-demand business model means it can avoid shipping huge bulk orders to the U.S. Instead, it mostly ships individual packages directly to customers, avoiding tariffs. Under a U.S. tax law, packages valued at $800 or under could enter the U.S. tariff-free. And a bunch of lawmakers have accused Sheehan of avoiding paying millions of dollars in import taxes to avoid scrutiny.

The company has said that it complies with U.S. trade laws. Xu himself hasn't publicly addressed any criticisms of Shein. One thing he has done is to try and build a non-Chinese identity for the company. In 2021, the company completed the moving of its headquarters to Singapore. the moving of its headquarters to Singapore. So it's only been three years that Xiyin is a Singaporean company. Before that, it was a Chinese company. Why did it move to Singapore?

The company never explained why, but the speculation was that it could help Xi'an in an IPO process if it's not a Chinese company, given the current geopolitical tension between China and the U.S. Say more about that. Why would it benefit Xi'an not to be associated with China? It's hard to be a Chinese company that's internationally known and be based in China, because on one hand, there is the risk of being cracked down on by the Chinese government, CEO being targeted by the Chinese government. On the other hand, being a Chinese company might cause the company trouble overseas, might cause the company trouble overseas, especially in the U.S., because they would face a lot more scrutiny and regulatory issues in the U.S. with their Chinese identity. So it's helpful for a company like Shein or any other company that has Chinese roots

to have a non-Chinese identity. have a non-Chinese identity. I mean, even last year and two years ago, it was very hard for Chinese companies to go public in the U.S. They were facing lots of scrutiny from the U.S. side. I would imagine that could be one of the reasons why it was good for Xi'an not to be associated with China. And do you think the strategy is working for Shein? Or could it find itself under the same pressure that TikTok is facing in the U.S.?

Shein's big advantage, if you say so, compared to TikTok, is that Shein has never sold to any consumers in China, whereas TikTok's parent company, ByteDance, is based in China, and they are very successful in China as well. And, I mean, even though lawmakers and politicians in the U.S. have criticized Xi'an for its business practices and its manufacturing model, its environmental footprint. I think regular consumers, they sort of looked past Shein's various issues or aren't even aware

of the kind of political backlash the company is facing. They love the brand. They love the clothing. They love everything that Shein makes. As Shein prepares to tackle challenges both in China and the U.S., Shen Liu says the company might have to consider changing how it does things. You know, Frances, the senior advisor to Shein,

when she met the senior leadership in China, she basically told them, you know, you might want to prepare to face the public one day if you were to pursue an IPO. And the impression she got from the co-founders, not just Sky, was that they would like to avoid that as much as possible, but if they had to do it, that person would be Sky. So it's probably going to be harder for Sky Xu to stay anonymous or hidden after its IPO filing. And what could these changes mean for Shein? I think that might mean

that Shein will be more transparent about its business practices, about its manufacturing partners, everything about this company. And I think that might mean that the CEO of SkyShoe might have to face the public himself and to sort of step out of the darkness. That's all for today, Wednesday, December 13th. The Journal is a co-production of Spotify and The Wall Street Journal. If you like our show, follow us wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.