DBG (Digital Brands Group) has been busy.
DBG holds a special place in our hearts — and in our portfolio. It’s the only startup we’ve recommended three times. We originally recommended DBG in 2016. Back then, the company went by DSTLD. And it had a $22 million valuation. A year later it was raising again. And we recommended it again. Its valuation had increased to $30 million — still a great price for a company with its upside. In 2018 we had a chance to recommend it for a third time. By this point, its growth strategy of acquiring lifestyle brands was showing results. It had bought out Ace Studios — a men’s suit brand — and had lined up several other promising candidates. At a $35M valuation, it still offered great value for our members.
These days, DBG is still growing and acquiring other brands. It’s also dealing with a mix of challenges and opportunities brought on by COVID-19. Let’s begin with the challenges and then move on to the opportunities.
The pandemic has slowed revenue growth. But the arrow for the DSTLD denim brand is still pointing to the right and up, says CEO Hil Davis. Its factories in Turkey — where the best denim mills in the world are located, by the way — were forced to close. They’re coming back online this month. And inventory is just beginning to be built back up after several best-selling items sold out during the shut-down.
To be sure, these are not minor issues. But COVID-19 has done far more good than harm. With the help of a PPP loan, DBG redesigned Baily 44 — a women’s clothing brand it acquired in February. Like DSTLD’s jeans, Baily 44’s on-the-go women’s wear is designed in LA. Iconic retail chains like Bloomingdales, Saks 5th Avenue, and Nordstrum’s showcase the brand in their stores. But with brick-and-mortar stores closed by the pandemic, DBG jumped on the opportunity to refresh the Baily 44 brand. It’s now positioned to thrive in the post-COVID-19 world, bolstered by DBG’s growing D2C marketing muscle.
The pandemic has actually upended retail in a way that has highlighted the strength and resiliency of DBG’s multi-channel digital marketing strategy. At the same time, it has made life very difficult for smaller retail brands — even ones that are D2C — that operate with fewer resources and less sophistication than DBG. The result? DBG has an increasing number of attractive acquisition targets.
“Even the companies that are doing well enough to survive are realizing it’s going to be a long and hard slog,” says DBG CEO Hil Davis. “Money is tight, loans tough to get, sales will take a while to fully recover, and raising funds in this environment will be especially hard.”
Hil says that the founders and CEOs of these smallish companies are asking themselves, “Do I want to do this for the next five years?” He expects to see a lot of potential acquisition deals become available this fall when the PPP money for smaller operations runs out.
Next year should be a banner year, according to Hil. “I’m targeting $100 million worth of acquisitions in 2021,” he says.
It’s still 2020, it’s still summer, and DBG has already quadrupled its acquisition pipeline. Talks are ongoing with a number of companies. It’s furthest along in talks with two women’s brands selling in the leisure and sweatwear space. Both would be amazing additions, says Hil.
DBG’s latest acquisitions (99% finalized) include Jack Georges and Harper & Jones. Jack Georges churns out $10.5 million in annual revenue making luggage and handmade fine leather goods. But just a small part of its sales comes from e-commerce. DBG plans on using its own well-oiled e-commerce machinery to unleash Jack Georges’s full upside.
Harper & Jones has showrooms in several cities that offer bespoke, handmade suits & shirts for men. It was on course to make $7.5 million this year before COVID-19 knocked that number down a bit. As a high-touch business, it should continue to thrive once the pandemic ends.
But all this excellent growth isn’t even the best part. I’ve saved the most exciting news for last. DBG is filing for an IPO!
Depending on how fast the SEC greenlights its S-1 filing, DBG will list on the Nasdaq by early December. Or — if it misses that window — it will wait until after Christmas and list sometime in the second half of January 2021.
I have some idea of what IPO valuation the company is aiming for. But, for right now, that will have to remain privileged information. As the IPO date draws nearer, I’ll share with you more details as they become available.