Shein’s first interim report as a listed company, filed on 28 September, sets out its answer to a shrinking European business: hold more stock in Europe before Europeans order it. “As our demand forecasting capabilities improve,” chair and chief executive Yangtian Xu writes, “we can hold more inventory closer to consumers with greater confidence.” The model Shein sold to investors waited for shoppers to buy before it ordered volume. Holding stock ahead of demand is the ordinary risk of a conventional retailer, and Shein takes more of it on with an adjusted net margin of 2.1% in the second quarter.

Europe’s revenue fell before the duty Shein was bracing for, and some of that fall comes from how sales are booked. Shein’s European net revenue dropped 13.9% in the three months to June, before the EU’s duty on low-value parcels applied on 1 July. Reuters’ report, carried by Inside Retail Asia, puts the drop down to higher prices and reduced online advertising. The interim report names a second cause, and names it first: more European sales went through Shein’s marketplace, where it books only a slice of the sale price as service revenue. Shein calls that shift “a short-term effect driven by the external operating environment and trade policy changes”. The report does not say how the decline divides between the two causes.

A cleaner measure of European demand, the user count Shein must publish under EU law, also fell. Its latest Digital Services Act filing, set against the one Ecommerce News Europe reported a year ago, shows average monthly EU users down 12.2% for February to July. The comparison assumes Shein counted monthly users the same way in both filings. A head count does not care how revenue is booked. Some of the loss was chosen: a retailer that cuts its advertising also cuts its visitors. The window closes a month into the duty, so it mostly records how many Europeans keep coming once prices rise and the ads thin out.

The parcel charges make the old model dearer with every order and spare stock that arrives in bulk. Since 1 July the EU has levied €3 on each category of goods in a low-value parcel. The charge rises with the variety of the basket, and variety is what Shein sells. A €2 handling fee is planned for 1 November, Reuters notes. Stock already on a Polish shelf avoids the €3 charge when it ships to a shopper, because the Council’s rule covers consignments valued under €150. The bulk shipment pays ordinary customs duty on entry, as we noted of Temu’s warehouse plans last week.

Shein is adding warehouse space in Poland to hold stock near European buyers. It opened its Wroclaw hub last December, planned at 740,000 square metres of logistics space at full capacity, FashionNetwork reported. Reuters adds that the landlord CTP has leased Shein more space in Poland this year. Shein says the hub is for faster delivery, which requires the garment to be in Poland before anyone orders it.

The balance sheet shows more stock, though not where it sits. Shein’s cash-flow statement records $371m added to inventory in the first half, where a year earlier it had run stock down slightly. Net inventory on the balance sheet rose $279m. The report gives no regional split, so the rise is global rather than European.

The cost of holding stock is already rising. Write-downs and obsolescence losses on inventory rose 32% in the first half, the same six months in which the stockpile grew. The report does not split write-downs by region either, so some may belong to the American business. Even so, they came to 23% of the half’s adjusted net income.

Headlines that Shein “returns to profit” rest on a gain tied to its own valuation. Of the $2,394m in net income, 91% was a gain on convertible preferred shares that the report ascribes “primarily” to changes in the company’s valuation. Those shares sit on the books as a liability at fair value, so a gain on them means the liability shrank.

Xu blames the squeeze in the adjusted margin on a freight spike from the Iran conflict, which he calls transitory. Jefferies analysts, quoted by Reuters, were less relaxed: fulfilment costs had jumped before the European fees applied. The interim report gives a second cause for the rise in fulfilment costs as a share of revenue: the growing marketplace share, alongside freight. Even if the margin recovers to last year’s level, as Xu implies, a business carrying Europe’s stock would keep 6.2 cents of profit on each dollar of sales.

Xu’s second remedy, a shift to brands at higher price points, brings forecasting risk of another kind. “As the product mix shifts towards brands at higher price points,” he writes, “the platform’s overall average selling price will rise accordingly.” Shein has already bought Everlane, a deal Retail Dive said takes it “beyond the fast-fashion arena”. The interim accounts show $78m paid in cash, most of it to clear Everlane’s loan, against the roughly $100m Retail Dive reported. Everlane “had a good supply chain, but it was a slow-fashion supply chain,” DeAnn Campbell of StoreWyse told Retail Dive.

The strongest objection is that Shein will stock Europe only with styles its test has already proven. In a KrASIA piece adapted from 36Kr Caijing and built on Shein’s own 26 July information pack, each new style starts with an order of 100 to 200 pieces, and only the winners would travel to Poland. For the thesis to fail, Shein’s European shelves would have to hold only proven reorders, refilled before any style sits for long. Even a proven style needs a guess about how many units, in which sizes and for which countries, before anyone orders. A parcel sent by air commits one garment to a buyer who has already paid; a pallet sent to Wroclaw commits hundreds to buyers who have not yet appeared. Xu’s own sentence makes the stock conditional on forecasting that is still improving.

Under test-and-reorder, the shopper’s click was the forecast.

If European shoppers reward faster delivery with more orders, the stock will pay its way, as Xu expects once “order density scales.” If they do not, the unsold goods land on a business that Hong Kong priced as a freight company a month ago. Shein could have kept paying for Europe by the parcel. Its first report as a listed company shows it choosing to carry more stock instead, and unsold stock is the price if its forecasts miss.