There's an innovative company where technology, innovation, and fashion connect. Meet Digital Brands Group, Inc. (NasdaqGS: DBGI), an innovative, forward-thinking digitally-focused apparel company that is out to change the rules for how high-fashion is sourced, created, and sold. And for investors, the great news is that after its successful IPO in May, a value proposition is in play.
In fact, Digital Brands already has inherent value after completing a $10 million underwritten public offering, selling roughly 2.4 million shares of stock at $4.15 per share. Although shares are trending lower in sympathy with the broader market weakness, its public float of roughly 6.8 million shares positions the stock well to rebound quickly on company news. And with DBGI committed to an aggressive acquisition campaign, news is likely to be constant.
Moreover, share price weakness to some is opportunity to others. Thus, with multiple initiatives in play, current share price levels may be exposing a compelling proposition. Remember, too, accredited investors saw value when they posted $10 million last week. And if they exercise warrants, they would contribute nearly $10 million more. Why the interest?
The short answer is that DBGI is changing the way apparel buying and selling gets done. And by seizing upon this niche opportunity, they expect to reap tremendous rewards. Here's why:
Direct To Consumer And Wholesale Model
Although Digital Brands isn't the pioneer of direct-to-consumer sales, its way of developing its business is. To expedite the process, as part of its IPO, DBGI simultaneously acquired Harper and Jones, LLC., a custom and made-to-measure suiting and sportswear company that provides customers with a range of full-closet customization options. That flagship asset is the initial driver of revenues, but the company alluded to several more brands joining the DBGI portfolio.
The better news is that these brands can be sourced, developed, and sold at high margins. In fact, three brands on the company website show fashion-forward, socially conscious, bespoke designs. Moreover, those listings also show how DBGI is different.
Its Baily44 line of apparel, for instance, is influenced and inspired by LA's urban architecture and iconic landscapes. More distinguishing, its attire is influenced by modern details, classic elements, and bespoke designs that combine beautiful, luxe fabrics and on-trend designs to create sophisticated ready-to-wear capsules for women on the go. Its Lily Top, a sculpted vegan leather sleeveless top with ponte knit back and zip closure, is a shopper favorite that takes comfort and design to a higher level. And while its designs are compelling and bespoke, investors want bottom-line results. Baily44 is a line that can deliver.
Of course, it's only one brand in a company that has several, with plans to add dozens more in the coming quarters. And the way they plan to grow the company is what attracted investor attention.
A Digitally Focused Business Model In A Billion-Dollar Sector
Investors may like the apparel, but chances are they invested in DBGI to make money. In that instance, Digital Brands is intending to create shareholder value through a streamlined, low overhead, vertically integrated business that controls a transaction from procurement to sale. That means there are very few, if any, intermediaries that touch the product and drive up costs.
Moreover, DBGI is leveraging a business strategy that can offer numerous brands on a direct-to-consumer and wholesale basis by utilizing its founding method to be successful as a digitally native-first vertical brand. So, what does that mean?
Simply put, digital native-first brands are brands founded as e-commerce driven businesses, with online sales being the significant contributor to revenues. As these brands get more popular, they sometimes expand into wholesale or direct retail channels. However, unlike typical e-commerce businesses, like online sellers Naked Brands, Inc. (NASDAQ: NAKD) and L Brands, Inc. (NYSE: LB), Digital Brands, acting as a digitally native vertical operation, controls its own distribution, sources its products directly from its third-party manufacturers, and sells directly to the end consumer. Thus, the model lends itself to high margin, low overhead sales.
Still, to build the business, DBGI needs to cultivate its base. There, as part of the entire process, they focus on owning the customer's "closet share" by leveraging shared data and purchasing history to create personalized, targeted content and styles for that specific customer. In other words, DBGI is taking steps to increase buyer loyalty and perhaps even become a shopper's personal stylist. Its strategy is a cohesive one.
In fact, its initiatives share a common goal- make DBGI into a much larger company. And with each creating intrinsic value, appropriating its cash wisely could fuel near-term growth by equally developing each business segment. Plus, having access to capital as a public market perk will allow DBGI to quickly capitalize on changing market dynamics and stay ahead of the pack as an agile, technically savvy company.
Still, the model isn't exclusively online. DBGI strategically expanded into an OmniChannel brand, offering styles and content online and at selected wholesale and retail storefronts. The strategy here is to capitalize on peripheral opportunities that can successfully drive Lifetime Value ("LTV") while increasing new customer growth.
Added at the right time and right location, these locations can add considerable revenues to the company. Remember, with a public float as small as DBGI's, even small amounts of revenue can have a powerful value-creating effect.
Now, with money in the bank and impressive lines of apparel to sell, DBGI can take advantage of a consumer products and apparel market that is expected to surge in the back half of the year as COVID restrictions finally ease. Analysts expect that pent-up demand, combined with stimulus money, will fuel one of the sharpest and most profitable snap-back rallies ever. The apparel and hospitality sectors are positioned to be prime beneficiaries.
The excellent news is that it is starting to happen already.
Digitally Focused Business Strategy Changes Apparel Markets
Indeed, Digital Brands Group is coming to market at the right time. Notably, they can point to a history of pre-IPO success. But as a post-IPO company, investors are more focused on what the company can do today, tomorrow, and next week. In other words, performance now matters 100% of the time.
Perhaps the best asset to meet those challenges is its experienced management team that understands style, logistics, social media, and its consumers, in general. Consider this scenario to emphasize that point:
Shoppers endlessly walk past full racks of clothing in department and chain stores because the apparel is commoditized, poorly sized, and is designed to fit multiple preferences instead of one. That's a model that serves a mass-marketing purpose.
In contrast, other stores are tremendously more profitable by offering well-designed, luxe products that cater to more exclusive preferences beyond color and fabric. And with Digital Brands being the latter, they create a socially conscious, personal business that caters to its clients, not to mass crowds of people.
Thus, while there isn't much data to base a valuation just yet, investors that paid $4.15 a share probably know much more than most about where DBGI is going. Obviously, they believe its share price is going higher. It's hard to disagree after looking at the brands, the sales model, and its carefully planned strategies. Moreover, DBGI is in a market that could soon surge.
It may take a week or two for the early investors to take some money off the table through warrant diversification strategies. Until then, the stock may see some pressure. However, for longer-term investors, these erratic price swings should be less concerning. Digital Brands appears to have an excellent plan in place to take its company to the next level.
And if that's the case, expect the well-funded Digital Brands Group to prove its point. Offering the highest quality, socially conscious brands can do more than produce healthy near-term revenues...it can help create company-owned, digitally-focused apparel mega-brands.
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