Question on apparel businesses in search
April 17, 2024
by a searcher from University of Virginia-Darden - Darden School of Business in Dallas, TX, USA
Good afternoon -
We have come across a few apparel businesses in our search process. We are learning, but it's not an industry we have much experience with.
I'm curious if there are any searchers here who have invested in apparel companies? What have been the major pitfalls or risks you have encountered? How have SBA lenders responded to these opportunities?
Would love the chance to connect and learn from your experience(s) / knowledge in the space.
from ESSEC Business School in Torrance, CA, USA
1. Most Shopify brands are pump-and-dump. We know this because despite being super cautious, we ended up buying one.
2. Do not value them on revenues. There is a reason why none of the D2C brands (AllBirds etc.) are trading at 99% discount from their peak valuation. Everybody now knows you got to value them on earnings and if these brands got no earnings, then you know the answer!
3. Avoid brands & companies that use dropship model. Run in the opposite direction and thank me later :-)
4. Look at how the company operates. Does this company has any advantage like private label offerings that creates a moat that even their own suppliers who are manufacturing their products, cannot copy; does this company depends on performance marketing too much?
5. Besides retail brands, you can also look at agency models (sourcing agency, sales agency, wholesale & distribution agency) : these are similar to any services based businesses, the success and failure entire depends on who is running the show. Most companies that operate in this segment are profitable unlike their D2C peers but you will have to lead yourself because you will have a hard time hiring a lead. If there is someone who is good at running an agency model, they would be running the show on their own.
6. Factories - If you intend to buy a manufacturing factory, may be go for fabric & raw material factory -the more functional, the better and not the garments factory. Garment factories require MANPOWER and that factory will become your entire life. I ran a manufacturing facility with 150 employees for 5 years and I can tell you from my experience, it was not a pleasant one!
I hope, this helps. Please feel free to connect/ dm me
from Shenkar School of Engineering & Design in Philadelphia, PA, USA