Top Deal: Digital Brands Group Continues to Grow

Key Stats:

Summary

As of 6/21/2019, Digital Brands Group had raised $3,890,614

Digital Brands Group has been selected as a “Top Deal” by KingsCrowd. Today, we are reiterating this Top Deal rating, reserved for the top 10% of all deals across the market. If you have questions regarding our deal diligence and selection methodology please reach out to hello@kingscrowd.com.

Digital Brands Group Update

Digital Brands Group as many of you may know started out solely as DSTLD, a streetwear focused clothing company with a mission to design and craft luxury-grade denim and essentials.

They were founded in 2014 born and based in downtown LA. Currently they have 19 full-time employees and $19M+ lifetime sales. Their celebrity fans include Mila Kunis, Bella Hadid, Kendall Jenner, and Selena Gomez.

We rated DSTLD a Top Deal about a year ago. Since then the team has expanded the vision for the business, moving towards a portfolio approach of several digital first fashion brands.

In addition to expanding the vision for the business, DGB has taken several steps to advance the business forward including hiring a seasoned CEO in Hil Davis and CMO Laura Dowling.

With these new management members, the company has moved to launch its second brand Ace Studios a luxury suiting and sportswear brand focused on quality, fit, and performance, which opened in Q1 2019.

Digital Brands Group has also continued to raise capital with $8M raised to date from 4,100 investors. As a reminder, the Co-Founder of Digital Brands Group, Mark Lynn who sat down with us back in October has remained committed to allowing customers to become shareholders in the business even though he has been very successful in the past in raising VC dollars.

The Portfolio Business Model

The DSTLD team decided to build a portfolio of digital-first lifestyle brands in order to increase revenues, decrease administrative and operating expenses, and establish brand longevity.

On the top line, the portfolio approach mitigates upside revenue limitations because building 5-10 brands that generate $50-$100M in annual revenues is more attainable than trying to build one brand that generates $500M-$1B.

It also reduces downside risk as revenues are not tied solely to one brand.  With seasonal market fluctuations and rapidly changing fashion trends, having brands that hit across multiple customer/fashion types can dampen the impact of any one brand falling out of fashion favor.

Lastly, there is an opportunity to cross-sell customers across brands. If someone is buying mens jeans from DTSLD, they may also need a sports coat from Ace. This opportunity to own customers across multiple brands is a powerful way to increase the value of each customer while reducing customer acquisition cost.

On the bottom line, this model centralizes operational infrastructure and data resources to help drive down redundant fixed costs that are difficult to establish and maintain. Everything from IT to accounting to legal (all necessary, but non-value add activities) can be centralized and shared across all brands, which can significantly reduce administrative costs and duplicated efforts.

DBG Top Line Highlights

By implementing Laura’s Dowling’s new CMO initiatives, DBG has seen sustainable growth in Q1. DBG has increased customer retention rates 25% from 2018 and have seen a 3.4% increase in repeat customer AOV (average order value).

DBG’s new customer growth is also rising. Over the past several months there has been a 66% increase in new customers and a $20 increase in AOV, which was well above plan.

As new CEO, Hil’s brand acquisition strategy begins to play out management projects revenues into the hundreds of millions over the next 3 to 5 years.

While aggressive as current Q1 sales would suggest annual revenues of about $8M, we do think annual revenues of $20 to $40M in the next 2-3 years is more than achievable simply by adding 2-3 new brands to the portfolio. At this level of revenue, the valuation of the company would exceed $100M+, a 3X from the current valuation.

The management team also plans to create liquidity for shareholders by listing on the AIM or OTC. Liquidity would mean investors would be able to buy and sell their shares of the company.

New Management Additions:

Hil Davis is the CEO of DBG and has a substantial background in e-commerce and luxury apparel. In 2007 he founded J. Hilburn, a made-to-measure men’s apparel brand that was valued at $55M in just six years. Davis also founded BeautyKind, an e-commerce beauty and charitable venture.

Laura Dowling is the new Chief Marketing Officer of DBG. She has an extensive retail track record and believes in the formidable opportunity at hand within the holding group model given her tenures at similarly structured organizations such as “Tapestry” (which owns Coach, Kate Spade, and Stuart Weitzman), and “Swatch Group” (who owns Harry Winston, Omega, and Breguet).

During her tenure at Coach she conceived and executed their inaugural collaboration with Selena Gomez. This campaign was recognized as one of the brand’s most effective 360 marketing campaigns leading to doubled growth in digital sales, overnight increase in stock price, and was looked at as a significant milestone in Coach’s continuous pursuit to reposition themselves among the millennial market.

Founding Team

Mark Lynn is the co-founder, chairman, and president of M&A. Lynn is an entrepreneur with interest in tech and design. He also co-founded well-regarded Winc, which is a subscription based e-winery that has raised over $30M in VC dollars to date.

Corey Epstein is the  co-founder and CTO of DBG. Epstein has an established talent for digital marketing and created a strong brand visual foundation for DBG. Previously Epstein worked as a senior consultant for Deloitte and specialized in Retail Strategy and Analytics. He holds a BBA from Loyola Marymount University and an MBA from UCLA Anderson School of Management.

Rating

Digital Brands Group is being reiterated as a Top Deal. Since we first rated the company, the team has continued to show significant forward progress.

From a management perspective they have filled out key roles (CEO & CMO) with highly experienced individuals who have already started to execute on growth strategy, which is paying dividends. They have also launched a new brand and are actively seeking acquisition opportunities for more brands.

The core business continues to progress forward with $8M in annual revenues projected based on Q1 sales. Considering the team has had $19M in lifetime sales over the first 5 years of the company, this shows significant revenue progress. At a $35M valuation, with plans to grow to 5+ brands and list on an exchange where investors can get near term liquidity, we are bullish on this investment opportunity.

The growth strategy and the team are coming together to drive value for investors moving forward.