Economy Update: Corporate Insights
XN, a player in the fast-fashion sector based in Singapore, experienced a substantial decline in net profit, dropping approximately 40% in 2024 to $1 billion. This decline is notable even as the company recorded a 19% increase in annual sales, reaching $38 billion—figures significantly below prior expectations of $4.8 billion in net profit and $45 billion in sales for the year.
The reduction in profitability can largely be traced to intensifying competition from TEMU, a rival company that has adopted a similar model to XN, facilitating the distribution of low-cost Chinese products to international consumers.
Challenges Related to Market Entry
This competitive landscape has contributed to escalating costs for air freight and marketing for XN. Additionally, the firm is encountering hurdles in securing necessary regulatory approvals for its planned listing on the London Stock Exchange, compounded by the impact of geopolitical shifts on its financial assessments.
In 2023, XN’s valuation was pegged at $66 billion during a funding round; however, some investors are advocating for a valuation reduction to approximately $30 billion to streamline the initial public offering (IPO) process.
XN had initially aimed for a New York IPO in late 2023 but pivoted to London following a rejection by the US Securities and Exchange Commission. However, this transition has been complicated by uncertainties around obtaining the requisite approvals from regulatory bodies in both London and Beijing.
Current circumstances compel XN to enhance its profitability and solidify its foothold in the global fast-fashion arena, amid mounting pressure from organizational hurdles and fierce competition impacting its financial viability and strategic ambitions.
Investor Sentiment and Regulatory Challenges
Investor pressure is mounting on XN to lower its valuation from $66 billion, as noted in the last financing round of 2023, to about $30 billion to facilitate the anticipated IPO within the first half of this year.
The company indicated to investors that the public listing might occur as early as April; however, this timeline could be pushed to the latter half of the year due to amendments to customs regulations enacted by the U.S. administration. Specifically, the “De Minimis” rule, which exempted imports valued at $800 from customs duties, has been rescinded, and new tariffs of 10% on Chinese goods could lead to increased prices for products marketed by both XN and TEMU.
Should the IPO be postponed into the second half of the year, XN will need to re-submit its regulatory documents to British authorities. The company had previously submitted confidential documentation to the Financial Markets Regulatory Authority in the UK in response to new listing regulations. However, the transitional period allowing compliance under the older rules will conclude in July.
While re-filing is generally expected to be a procedural measure, legal experts highlight that this requirement underscores the challenges encountered by XN in its quest to list shares on the stock exchange.
Intensifying Competition with TEMU
XN originally planned its IPO for the New York Stock Exchange in late 2023 but changed direction due to SEC rejections. Now, the process hangs in the balance as regulatory approvals remain elusive in both London and Beijing.
The decrease in profitability at XN coincides with heightened competition from TEMU, which has successfully attracted some of XN’s suppliers in China, increasing both air freight and marketing costs for XN.
In late 2023, XN sought to address the competitive threat by broadening its operational scope beyond fashion; however, the firm has since returned its focus to its core business segment.
Furthermore, XN has reportedly invested substantial resources into political lobbying in Western capitals, employing prominent advisors, including Cash Patel, known for his close ties to the former U.S. administration. Patel previously worked as a consultant for XN and maintained financial interests in the company, valued between $1 million and $5 million.
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