DSTLD — An online fashion darling
DSTLD has received acclaim from fashion and style writers and they have a business that appears to be printing money on the internet (50% EBITDA) by selling a premium quality product direct to consumers. DSTLD designs, outsources manufacturing, and distributes their clothing. Now, they want more money from non-accredited investors through a crowd sourced investment round.
I am not an investor in DSTLD nor am I an investor in any companies affiliated with DSTLD.
The DSTLD Mission
DSTLD is focused on delivering what they consider to be premium basics at a whole-sale price. There are two mark-ups in the retail world. The first is the mark-up after production (2–3x) and then additional mark-up by the distributors (2–3x). This dual mark-up results in (an item that costs 20 dollars to produce will cost a retail consumer 180 dollars) product value inflation. DSTLD cuts out the last mark-up and sells direct to the consumer. If DTSLD makes jeans for 20 dollars they will sell them for 60. The clothes look cool and the prices look to be even better for competing with brands such as Rag and Bone, J Brand, Zara, and H&M.
DSTLD is direct to consumer and are willing to have only one product if they think it will be a foundation to a person’s closet. For men as an example, there is currently only one product for a warm long sleeve layer — a travel hoodie for $120. This reminds me of the Apple approach in offering just a few products in a few colors and a few sizes. This should really help DSTLD with inventory management.
Mark Lynn’s experience is as a serial entrepreneur. He founded his first company Sonik Entertainment in 2000, which supplied DJ equipment. Mark went on to found Denver Sport and Social Club and PlayCoed.com, which were sold to SportsMonster and LeagueApps, respectively. After that Mark was a Partner for Jet Urban Development which worked on new construction in the Denver area and he also was a partner for Banctek Solutions for about a year and a half and was focused on credit and debit card transactions. Mark then owned Pizza Republic and the Jet Hotel. He then moved to LA to found HelloPay and Winc Wines. After Winc Wines Mark ended up at DSTLD and it appears that he has enough experience as an entrepreneur to really bring DSTLD to a successful exit either through IPO or a sale.
Corey Epstein has six years of both undergraduate and graduate business school training followed by a little over a year at Deloitte as a senior consultant before becoming a Co-Founder at DSTLD and the Creative Director.
Market Size and Opportunity
The total addressable market of online apparel is projected to be just under $100 Billion by 2021. DSTLD’s business model is to make clothing that people love and wear on a daily basis and to retain their loyalty in order to gain more revenue. It would be interesting to see what % of their customers buy again and how often. I have no access to the company’s debt load or balance sheet at this point, but based on their numbers available they appear to be viable for the long term.
Their website looks exactly like Everlane’s, which has gained quite a bit of success in a similar space and in a similar market. In fact I see these two companies competing for the same consumers. I see this space as one of the more interesting in apparel because it appeals to consumers interested in fashion and style who feel like they are getting a deal on clothing they were going to buy anyway. And for the consumers who feels that the clothing of Rag and Bone and APC are out reach due to price, well now they have a more sustainable alternative in DSTLD.
If DSTLD can capture a significant portion of this market they can easily be a Unicorn in a few years. It seems like every time I open LinkedIn or the New York Times traditional retailers are going bankrupt and closing stores.
DSTLD’s products are the general basics most people turn to on a daily basis: jeans, T-shirts, backpacks, button down shirts, jackets, sweaters, hoodies, and accessories like gloves, scarves, and hats.
Their color palette is washed out blacks, dark navy, distressed chambray, white, and shades of grey. There are no logos or monograms. There are no flashy prints, patterns, or sparkles.
The DSTLD aesthetic reminds me of late nights in New York City with the sun starting to shed light on the dark corners of the lower east side. Their clothing makes me think of a late night kebabs in Brussels after a long night or emerging from a dimly lit bar in the Pigalle district of Paris and being asked: Bonsoir, puis-je avoir une cigarette?
DSTLD’s challenges over the next 5 years will be management of their cash and not taking on too much debt in an effort to grow too fast. Cautionary tales like American Apparel should be on the C-Suite’s teams mind. DSTLD will face intense competition from all of the other online retailers who could be more focused in their offerings i.e. delivering more quality for the same cost or places like Amazon that could deliver lower costs for similar perceived quality.
DSTLD doesn’t disclose where they manufacture all of their clothing and if it’s in the United States I think they are missing out on a great marketing opportunity that this isn’t very clear. There appears to be some manufacturing in LA, which is disclosed in some of the pictures. If DSTLD is primarily manufacturing in developing countries then as an investor I would like to know where because a company is only as good as its supply chain. If they can’t make product because of civil war in Thailand or Myanmar then I would like to know the sites of manufacturing before I cut them a check.
Would I Invest?
DSTLD has already surpassed their goal on SeedInvest. I’ve got some questions I want answered with respect to EBITDA of the company, what they seek to do with the money, and their updates to investors. I’ve reached out to Mark Lynn on LinkedIn to get an answer for some of those questions and I’ve also asked them on the SeedInvest platform.
The Term Sheet for the investment:
They have raised over 2 Million in this round and have a minimum investment of $1000 to invest. The pre-money valuation of the company is $30 MM. The total sales for 2017 was about $5.9 MM. If we consider a 10x on their EBITDA for the company valuation then we are looking at $3 MM in EBITDA.
If we divide their EBITDA by total sales we get 50% EBITDA, which is insane.
I suspect they are raising the round to accelerate even faster and at that margin I could see the company going public.
I would consider investment pending the responses to my questions. I have 6 days left at the writing of this post.